3674 Deloitte R&A10 Text AW:Layout 1annualreport.deloitte.co.uk/interface2010/pdfs/deloitte... · 2010-08-25 · Deloitte 2010 Deloitte LLP Annual Report 1 At Deloitte we have a simple

2010

Contents2 Report from John Connolly

9 Perspectives

10 The age of commodities

14 New times, new tax policies?

18 Education and skills in the 21st century

22 Pensions – new solutions to an age-old problem

26 Real estate after 2013

29 Deloitte in 2010

30 People

34 Responsibility

42 Leadership and governance

46 Abridged financial statements

The Deloitte UK 2010 Annual Report includes abridged financial statements andextracts from the Audit Transparency Report and Responsible Business Report. The full statements for each can be found on our website, www.deloitte.co.uk

Deloitte 2010 Deloitte LLP Annual Report 1

At Deloitte we have a simple and straightforward vision for our firm:

To be the standard of excellenceThe first choice of the most sought after clients and talent

Our strategic goal is to be the pre-eminent professional services firm, reflectedin superior growth and performance. Key elements of our strategy include:

• A focus on exceptional quality and a passion for client service;• A broader and deeper range of capability than our competitors;

delivered to clients through integrated and innovative solutions;• An environment where our people can develop and excel; and• A global mindset and culture that emphasises teaming

and high performance.

Welcome to the Deloitte UK 2010 Annual Report. We are pleased to report on our business progress, our contribution more widely to the community, to highlight the success of our people and to offer some insights on a rangeof vitally important areas which impact business and the world at large.

Enjoy the read.

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Report from John ConnollySenior Partner and Chief Executive

I am pleased to present the Deloitte UK 2010 Annual Report. Here we are providing a report on the last 12 months, embracingour business progress and achievements, the successes of ourpeople, and our contribution to the wider community. Importantly,we have also taken the opportunity to offer some insights on arange of important areas which impact not just business, but society in general.

Economy, markets and our responseThe year to 31 May 2010 was the second consecutive year of very tough markets in a turbulent and complex economic period.Our clients have been challenged – and so have we in many parts of our business. When the financial crisis turned into full recessionin early 2008, we responded with a straightforward plan:

• A massive focus on our clients, helping them succeed in troubled times;

• A special emphasis on our people, to ensure we avoided job losses and still provided opportunities for development and career progression;

• The appropriate focus on cost efficiency and cash flow; andparticularly important

• Building the firm for the future.

Through the effective execution of our business plan, we areemerging from the recession with a very satisfactory performance,highly motivated people and with our standing in the marketenhanced. Our firm is in great shape to support our clients in thecontinuing complex environment, and to capture growthopportunities as we continue to gain market share.

Business performance and outlookWe’ve achieved a strong performance in a tough environment. Our revenues were £1,953 million, just £16 million below the prioryear. The profit for the financial year distributable to partners was£590 million against £601 million in the prior year. The averageprofit earned by each partner in the year, after providing forpensions and annuities payable to retired partners, was £873,000compared with £883,000 in the prior year.

Each of our business divisions performed strongly in their markets.

AuditRevenue in Audit was 2.9% below the prior year. We continued to build our market share and significant audit wins in the yearincluded FTSE100 companies Kingfisher plc and Essar plc. The Financial Services practice delivered strong growth driven by our Advisory Practice and Risk and Regulation Services.

Whilst the economic environment will remain fragile, we anticipatea return to revenue growth in 2011 in part fuelled by our stronglypositioned Financial Services practice, a return to growth in coreaudit and strong prospects in Switzerland and our Information and Technology Risk Services business.

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Corporate FinanceRevenue in Corporate Finance grew by 10.6% in the year, despitethe continuing sluggishness in some markets. The ReorganisationServices business had another very strong year building upon theprior year successes. We recorded good growth in our AdvisoryGroup, in our Swiss practice and also in our Middle East JointVenture. The newly created Drivers Jonas Deloitte commenced inMarch and added a new stream of revenues in Real Estate Advisory.We continued to acquire a series of high profile assignments in ourForensic and Dispute Services business.

Our role supporting the restructuring of Dubai World was alandmark engagement. Other major engagements in the yearincluded our Transaction Services Group acting on the first majoracquisition of a global consumer brand by a Chinese corporation;our role supporting the Landsbanki Winding Up Board andResolution Committee in Iceland and our Specialist Finance Group advising on four of the five major NHS PFI hospital projects.

We are approaching 2011 with confidence. The forthcomingchanges in the regulatory environment and large scaletransformations in the Financial Services and Public Sectors will offer opportunities for our business. Whilst spending cuts will meana significant curb on new projects, there will be opportunities as thePublic Sector seeks to restructure how public services are delivered.We also anticipate an improvement in the debt market will lead tomore deal activity in the second half of the year.

People and recognitionAs I indicated earlier, our strategy in the downturn has included a special emphasis on our people and on building the firm for thefuture. We ended the year with over 12,000 people, up by 2.5% on the prior year. During the year, 118 new partners and associate partners were appointed. In the autumn of this year we will hire1,100 new graduates.

TaxTax achieved a market leading performance notwithstanding adecline of 2.3% in revenue. We are seeing a pickup in transactionvolumes across the Corporate, Private Equity and Real Estate areasand this contributed to a markedly stronger performance in thesecond half of the year. We had particularly good performances in Financial Services, UK Corporates and our Switzerland practice.The continued focus by both tax payers and revenue authorities on tax risk and governance also led to a growth in activity across all areas.

In 2011 we expect a return to growth with a number of businessesseeing significant growth opportunities as the economy recovers.Deloitte Tax was recognised at the LexisNexis Taxation Awards 2010, bolstering our market standing and underpinning ourconfidence in growing the business in the year ahead.

ConsultingRevenue in Consulting declined by 4% but in the context of thecurtailment of discretionary spend in both the public and privatesectors, this was a very robust performance. The impact of therecession was felt most keenly in the first half of the financial year.In the second half, business activity showed a significant upturn,especially in Financial Services. There was good growth in theManufacturing sector and we had significant new engagementswith clients in the Technology and Media industries. Enterprise Cost Reduction was again one of the most sought after serviceofferings across all market sectors. Of greater emphasis this yearwas supporting clients with risk and regulation, particularly inrelation to Solvency II legislation.

In the year ahead, we anticipate growth opportunities across most market sectors but with a very challenging market in ourGovernment and Public Sector practice, although we will continueto present innovative ideas and opportunities to governmentdepartments consistent with their agendas.

Report from John Connolly

Revenue

£1,953mProfit

£590mProfit per partner

£873,000


We are delighted with the continued recognition our firm receives for our talent agenda. For the second consecutive year, Deloitte wasnamed by Accountancy Age as Employer of the Year and Global Firmof the Year. We ranked 2nd in The Times Top 100 Graduate Employersand 15th in The Sunday Times Best Big Companies to Work For.

Deloitte in the communityWe have seen time and again that strong values and principledleadership are crucial to generating long term rewards for business.We have also observed a dramatic shift in society’s expectations ofbusiness, away from the idea that business is only about short termprofit-making ahead of all other motives, and towards the notionthat businesses must actively foster the social and environmentalconditions that make profitability possible. At Deloitte, CorporateResponsibility is a core component of our strategy and I continue to lead the Deloitte Global Responsibility Council. In this report wedevote a section to our wider contribution to society.

During the last year, there has been a huge array of outstandingcontributions from Deloitte people to the broader community and it is difficult to select a smaller number of highlights to feature in my report. That said, I will try:

• The firm and its people through Deloitte programmes, made a total contribution of nearly £10 million to the community,including more than 44,000 hours of volunteering and pro bono work;

• We launched the inaugural Deloitte Ride Across Britain, sponsoredthe Deloitte Street Child World Cup and again funded the DeloitteIgnite festival at the Royal Opera House;

• We continue to sponsor the CBI Annual Conference, the LondonBusiness School Global Leadership Summit and this year for thefirst time, Deloitte co-hosted The Times CEO Summit;

• We received the platinum rating in the Business in the CommunityCorporate Responsibility Index and from the same organisation,the Race for Opportunity Collaboration Award for ourEmployability Skills initiative.

By some margin, our role as sponsor and official professionalservices provider to the London 2012 Olympic and ParalympicGames is our most ambitious and largest ever development in thisarea. With two years until the Opening Ceremony, our involvementin delivering a successful London Games has moved up anothergear. This year we passed the landmark of 150,000 hours havingbeen dedicated to the Games by Deloitte people. Our sponsorship is a huge motivation for our people. Over 90% of them feel proudof our firm’s association with the Games. London 2012 is also afantastic showcase for the breadth and depth of Deloitte’s skills and excellence.

I believe that the London 2012 Olympic and Paralympic Games will get the whole country feeling good. They will encouragesporting participation in the UK and beyond. They will provide a superb showcase for British talent. And after the Games, theprospects of an overlooked and under-invested community on thedoorstep of the City will be much brighter. We are proud to behelping deliver such a positive impact.

Mergers and acquisitionsDuring the closing months of the business year, we added a rangeof new businesses to our firm as part of our future growth strategy.

• Drivers Jonas Deloitte was created following the merger with real estate advisory firm Drivers Jonas;

• In our Consulting division, we acquired technology companiesReportSource and Exsigno;

• Our involvement in the sustainability area has been bolstered by the acquisition of specialist consultancy dcarbon8; and

• We expanded our Risk and Security businesses through the acquisition of IM Global and Simulstrat.

Each of these transactions bring exceptional people, new skills and great clients to our firm.

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UncertaintyOne of the striking features of the early years of this decade was the degree of economic stability seen throughout the industrialisedworld. Economists dubbed this phenomenon the Great Moderationand contrasted it with the economic volatility of the 1970s and early 1980s. The recession brought renewed instability, with majorfluctuations in output, inflation rates and financial markets. Growth has returned but the global economy faces a range ofuncertainties – from the long term effects of aggressive monetaryease and of government spending cuts to the speed of China’seconomic slowdown, the shape of future financial regulation andthe pace of restructuring in banks’ balance sheets. The backwashfrom recession has created a series of new sources of uncertaintywhich are likely to persist well into the recovery.

GlobalisationThe last 30 years has seen an increasing pace of globalisation withtrade in goods, cross border capital flows and the movement ofpeople soaring. Institutional and technological change has helpedentrench globalisation. Trade barriers have fallen significantly in thelast 30 years, opening up new markets to trade and growth inglobal supply chains has made the production process itself moreinternational. Meanwhile, with investors and banks increasinglyoperating across borders, capital flows have risen at an even fasterrate than trade volumes. Increasing economic integration is set toremain one of the dominant features of the global economy in thepost recession period.

The FutureThe last three years have seen a series of dramatic changes in the global economy. A financial crisis has been followed by a deep recession and a fragile recovery. Forecasting remains, as ever, a deeply uncertain business, as much art as science. It is often asuseful to think in terms of the broad themes which will driveeconomies and business as it is to contemplate specific outcomes.Below are seven such themes. All seem likely to feature prominently in corporate thinking and decision making in the post-recession world.

Growth While the recession has come to an end, confidence about thestrength and sustainability of the recovery is in short supply.Economists and policymakers see numerous risks ahead. For all theuncertainties, the most likely outcome is the world will continue togrow. Double dips are generally caused by changes in monetarypolicy and, with Central Banks focussed on the risks to growth,significant interest rate hikes look some way off. This is, however,unlikely to be a tidy or synchronised recovery. The pace and eventhe direction of growth is likely to vary around the world and acrossdifferent sectors of economies. In the UK, for instance, governmentspending is set to shrink and consumer spending is likely to growslowly, pointing to a sluggish recovery. Nonetheless, the dominanttheme in the global economy is likely to be one of continued, if variable, growth.



An ageing worldOur world is ageing rapidly. According to the United Nations, by 2050, the percentage of population aged 60 and over isexpected to more than double in the developing world and to riseby more than 50% in the developed world. An older population will create new opportunities and challenges and is likely to affectalmost all aspects of human life. Rates of GDP growth will slow as population growth slows. An ageing population has majorimplications for how long people work, for savings, pensions andhealthcare provision. Governments and corporates will need towork together to prepare for these challenges. What is clear is thatthe trend towards older populations is largely irreversible and thepace of population ageing will quicken over the next three decades.

Capital scepticismThe last two decades have, in many respects, been a golden era for the corporate sector. Globalisation, a free market politicalconsensus and plentiful credit have favoured business. This worldhas been disrupted by the financial crisis and the recession, eventswhich have raised profound questions about the workings of themarket system. Financial supervision is most obviously likely to bealtered by the events of the last three years. Yet the crisis may havea more pervasive effect, with policymakers and voters taking a morequestioning attitude to the corporate sector – what we havedubbed ‘capital scepticism’. The US Administration’s approach to BP over the Gulf of Mexico crisis and Australia’s plans for a super tax on mining companies reflect local factors but are consistent with such a shift. Business should expect deeper scrutiny of itsactions and its motives. Corporates will need to work harder in the post recession world to make its case with the public and with policymakers.

Smaller governmentPublic sector budget deficits soared during the recession asgovernment spending rose to support activity. With growthreturning, many Western governments, especially in Europe, areaiming to reduce these deficits over the coming years. A period ofausterity in public sector spending is in prospect for many countries,including the UK. As well as seeking to boost the efficiency of stateactivity and to squeeze costs, governments are likely to focus onreducing the scope of state activity and on providing new modelsfor delivering public services. With public sector activity shrinking,GDP growth will be dependent on the private sector. A keychallenge for governments will therefore be to encourage privatesector enterprise and job creation at the same time as shrinking the state sector.

Ethical businessThe idea that companies have responsibilities that extend beyondtheir owners, to employees, communities, suppliers and theenvironment, is not new. But the last decade has seen a growingfocus on ethics in business and a realisation of the wider role ofbusiness in society. Corporate responsibility aims to generatesustainable shareholder value and to manage responsibly the firm’s social and environmental impact. Consumers increasinglyexpect corporates to consider the wider impact of their activities.There are other benefits for corporates from following such policies:in building brand, in improving efficiency – for instance in energyuse – and in motivating employees. The recession has notdiminished the growing prominence of corporate responsibilitywithin business. Today ethical business practices are not justresponsible business practices. They are increasingly seen as beinggood for the business in their own right.

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And finallyI want to thank all Deloitte people and all our clients for their continued support.

This is my penultimate Annual Report as I now enter my twelfth and final year as the Senior Partner and Chief Executive ofDeloitte. Notwithstanding the continuing challenges faced by allbusinesses I have a high degree of confidence that in Deloitte wewill have another terrific performance in the year ahead. As always,this will be driven by a small number of straightforward features of our business:

• An obsessive focus on our clients and markets;• Total engagement of our people, creating a unique environment

where our people develop and achieve their goals;• A passion for quality and innovation;• Recognising our responsibility to the community and

to all stakeholders; and• A relentless focus on operational excellence.

Thank you again.

John ConnollySenior Partner and Chief Executive23 August 2010



Businesses and, indeed, wider society, face a range of issues which will shapethe future success of our companies and economy – an ageing population,addressing future energy requirements, and establishing a competitive taxregime, to name but a few. Deloitte gives its perspective on five issues whichwill have a major influence and impact on the UK, and considers thechallenges, opportunities and tough choices we face.

Perspectives

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The age of commoditiesThe world economy has been through several cycles where differentsectors have predominated. Most recently, the age of telecoms andhigh-tech that ended with the dotcom crash of the early 2000s andthe age of financial services that came to an abrupt halt with theglobal financial crisis of 2008.

We are now in the age of commodities, particularly for oil, gas,metals and minerals. Whilst in many ways the markets aroundtechnology and financial services are intangible, commodities arevery tangible. They are fundamental to economic growth over thenext decade and the continuing progress of the BRIC countries,especially India and China, whose appetite for commodities isinsatiable.

This is part of a fundamental shift in the global economic balance of power. The BRIC countries and others such as Indonesia havelarge populations that are demanding an increase in their standard of living.

Securing the future growth of these countries depends on theavailability of key commodities. The demand is not just restricted to industry and manufacturing. There has also been a surge indemand for diamonds in China and gold in India.

Vast swathes of India’s population do not have access to electricityon a daily basis. Access to electricity and motor vehicles – and thussupply of oil, gas and coal – are critical for the populations of thesecountries to realise their aspirations. The most basic way of achievingthis lift in living standards is through the provision of personaltransport and all the benefits of the provision of electric power.

The changing balance of powerAt the same time, economic surpluses in these countries now give their oil and mining companies the ability to buy upstreamassets in the energy and resources sectors. As a result, Chinese and Indian corporations have been acquiring assets in markets such as Africa at an amazing rate. This marks a shift in the balanceof power away from the traditionally dominant forces in the miningand energy sectors – Western companies such as BHP Billiton, Rio Tinto, Exxon Mobil, Shell and Total – to state-owned companiesthat don’t have a high profile in the West.

These state-owned companies are also able to offer host countriesbenefits that publicly-listed companies are unable to. The advanceof Chinese companies in Africa has been coupled with large loansfrom the Chinese government to countries such as Sudan.

Perspectives

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Commodity markets have been volatile for the last few years, but demand has driven an upward trend in prices. In 2004/05, oil prices hovered around $40 per barrel. During the financial crisis,they fluctuated between $40 and $150, before eventually settling in to a new range of $70-$90. This step-change in the long term oil price is driven by the demand for commodities in emergingmarkets – the pattern is similar for coal and metals such as copperand iron ore.

This demand pressure makes the market very responsive to developments that affect supply. Strikes in South Africa and Chile have hit the copper price while the oil price is vulnerable togovernment responses to the Gulf of Mexico disaster. It is possibleto envision a return to $100 a barrel oil in 2011. Commodity priceshave always been subject to volatility, of course, but the price levelaround which they trade is now much higher.

Managing higher commodity pricesSo far, the world has coped with higher commodity prices withoutan excessive rise in inflation or restrictions on economic growth,partly because the scale and breadth of global economies is muchbigger than during previous periods of rising prices such as the oilshock of 1973. How the global economy reacts in the futuredepends partly on government policies. In India, for example, the government has spent a huge amount subsidising fuel prices, a policy that is gradually being phased out. In the UK, oil priceincreases were managed by moderating the tax take. As economiesdevelop, they become less prone to increases in the price ofindividual commodities.

The age of commodities has been reflected in structural changes inthe FTSE 100 over the last five years. The number of oil and miningstocks in the index is about double what it was five years ago asinternational energy and mining groups such as ENRC, Kazakhmys,Vedanta Resources and, most recently, Essar chose to list in London.They now make up about 32% of the index.

This means commodities companies now have a real impact on the UK economy, even if most of their operations are elsewhere.Because many pension funds and other investors with tracker fundsor exchange-traded funds have to hold these constituents in theirportfolios, many people’s pensions depend on the futureperformance of the sector.

Expanding domestic consumptionThe end of the age of commodities looks to be some way off, given the scale of development that is still needed in manyemerging markets. While the cost advantages of the emergingmarkets will be eroded over time, reducing export-led growth,domestic consumption is set to expand rapidly, maintaining demand for commodities.

The biggest challenges for the sector are regulation – such as canbe expected as a result of the Gulf of Mexico crisis – and attemptsby governments to increase the level of taxation on resources, suchas Australia’s now maligned Henry tax.

Governments have to strike a balance between taking a fair share of the economic rent for their resources and imposing a burden thatis seen as punitive. This is not easy to do and can have far-reachingconsequences. Investors have a choice of jurisdictions where theycan invest and may avoid investment in a particular country if theyfeel its tax burden is unfair.

Perspectives The age of commodities


Energy security and access to commodities are huge issues for manyeconomies and it is for these reasons that Deloitte has invested in a strong cross-disciplinary practice in oil & gas, mining and powerover many years. Governments, markets and companies needprofessional advisers who understand the dynamics of energy andcommodity markets and the mechanisms of global energy andcommodity trading. This knowledge and these skills are afundamental part of our business.

For many years, insufficient attention has been given to energy and commodity supply issues by governments. These issues unfoldover a relatively long time frame and policymakers need to balancelong term needs against short term political considerations to getmarkets working efficiently. In the age of commodities, if we do notpress ahead with the investments in energy and commodities thatwe need, there is a significant risk that we will not have sufficientcapacity for our needs.

This is not just an issue for China, India and other rapidly growingeconomies. It is equally a significant issue for the UK – developingpolicy and market mechanisms which secure our energy future,especially in terms of power generation, in a manner which is bothaffordable and sustainable. Policymakers have much to address withenergy suppliers. We intend to continue to play a key role inshaping this future.

The end of the age of commodities looks to be some way off, given the scale of development that is still needed in many emerging markets.

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New times, new tax policies?As we look back over Gordon Brown’s reign over UK tax policy, we may reflect that, whilst there were many changes to our taxsystem, much of the basic framework remains.

Thirteen years of New Labour ended with the highest personal taxrate since the 1980s (but the lowest basic rate) and the highest everlevels of national insurance contributions. Capital gains tax (CGT)was cut from 40% to 10% for business assets – before the flat 18%rate arrived in 2008. New environmental taxes were introduced,although all but landfill tax are fairly trivial and the proportion of tax raised from environmental measures actually fell. The mostsignificant changes, though, were to corporation tax. The abolitionof ACT (advance corporation tax) removed the imperative for groups to have sufficient taxable income in the UK to support theirdividend. The rate reduction from 33% to 28% was financed bytaking tax payments earlier, together with cuts in capital allowancesand the abolition of buildings allowances. 2009 saw an overseasdividends exemption which added to the substantial shareholdingsexemption, whereby trading groups could sell trading companiesfree of tax. However, the corporation tax yield grew by 4.5%annually – well in excess of GDP growth.

Yet some will regard this period as one when tax planning boomed. Multinationals pushed ahead with regional centralisationof activities, usually involving intellectual property, and discoveredalpine meadows and Dutch flood plains offered substantially lowertax rates. Overseas financing activities grew in scale, liberated by the Treasury’s failure to comprehend the protection ACT had offered to the UK tax base. Both these types of planning moved significantincome out of the UK. The Treasury response was to reallocateforeign income to the UK through the CFC (controlled foreigncompanies) regime and the complex ‘debt cap’ rules, designed to limit upstream loans into the UK. Over twenty groups relocatedoutside the UK to escape the crackdown and most quotedcompanies now keep inversion under review. The UK had gained an international reputation for an uncompetitive corporation taxregime, fuelled by uncertainty.

A new era for HMRCThe growth of debt financing and complex financial instrumentsprovided further opportunities for reducing tax, as tax rules failed to adapt to IFRS accounting. Loss schemes grew in significance(although the courts ruled against most schemes). The Government’sresponse was targeted and effective. The threat of retrospectivelegislation reduced significantly employment schemes and the 2004 Tax Disclosure regime gave HMRC early warning ofundesirable planning. HMRC started to emerge from its initialmerger trauma with a much greater focus on customer service andbetter appreciation of risk. For many large companies the servicestandards have improved massively, although there are still issues to face with many individuals and small businesses, as costreduction has taken the focus away from local service to largeclusters and call centres.

Perspectives

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The new Coalition Government faces many challenges if it is topromote growth, whilst still raise tax. It has met the first challengewell, by opening the doors to Treasury and HMRC tax forecasts.Suddenly we can see much more about the economic impact of taxes.

Keeping corporates in the UK Corporate tax reform is due to start autumn 2010 with a majordiscussion document. The focus is on reducing tax and making the UK a much more attractive place to do business. The newChancellor has declared he wants companies to come to the UK,not leave. Reduced rates tell part of the story, but we should look at a low-tax regime for intellectual property. All the economicevidence shows that intellectual property is extremely mobile andthat groups with high levels of IP have lower than average tax rates.It is an area where corporate tax is hard to levy and the focus needsto be on the wider economic benefits, from employment andservices. The Chancellor has also signalled that a curtailed CFCregime is needed – and he is clearly correct. Companies leave theUK if the CFC regime is burdensome. At the same time, we need toconsider whether it is a great idea to let some companies reducetheir UK operating profits to zero with debt interest.

Perspectives New times, new tax policies?

The focus is on reducing tax and making the UK a much more attractive place to do business.


Will this be sufficient to attract multinationals to the UK and UKmultinationals to expand their activities here? No doubt the mantrathat ‘tax isn’t the tail that wags the dog’ will be used – but all thosemultinationals in Switzerland make it very clear that tax really didtake them there. Economist John Kay noted in a Chartered Instituteof Taxation presidential address that it is increasingly difficult to levycorporate tax on multinationals. What could be the alternatives toour current system?

We should quickly reject the EU idea of a CCCTB (CommonConsolidated Corporate tax base), where profits across the EU are added together and then allocated between nation states byapplying factors based on employment, property and destinationsales. Nations need to control their own tax base and the idea ofceding control to the Commission is a non-starter for most. It alsoignores the large and growing world outside the EU that will notjoin in. However, using destination sales to help determinecorporate profits is a good idea. The UK is a large economy andmost multinationals will wish to sell their goods and services to UK consumers and businesses. Destination sales could be a way of allocating profits to the UK, on which a corporate tax could be levied.

Responding to new challengesAnother area to look at is carbon taxation. Many argue that if we are to reduce our CO2 production, we need to price carbonproperly – which requires taxation. The EU’s permit system willeventually impose costs on businesses that need to buy additionalpermits. Perhaps a proper tax would be a better idea and one which could raise significant revenue.

We also need to consider the other end of the spectrum – self-employed individuals who provide their services throughcompanies. The problem is that a 20% rate of corporation tax,deemed credits for dividends and a CGT rate lower than the mainhigher rate of income tax, conspire to push many into usingcompanies. There is no economic logic in taxing people doing thesame thing in a different way, according to legal form. There are arange of options to consider, including abolishing the deemed taxcredit on dividends or making closely held companies ‘transparent’for tax purposes, so that the owners are taxed directly on thecompany’s income.

These changes will all need to be accompanied by reducedcollection costs, which imply even greater focus on deduction atsource, aided by smarter IT systems. More central payers, such asbanks and employers and perhaps even large customers, couldaccess data held on HMRC databases to withhold the appropriateamount of tax and provide information.

This brings us back to the need for greater openness about our tax system. People need to understand more about the tax-payingpopulation, individuals and businesses, so as to explore andunderstand the best system to generate the revenue we need,whilst supporting employment and economic growth.

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Education and skillsin the 21st centuryWith concerns about Britain slipping down the competitivenessleague tables, the focus is on our education system and the skills andemployment abilities we are giving the next generation of workers.

How can the UK provide its workforce with the skills they need forthe future? What roles can companies play? How can they workwith government? What are employers looking for and what docompanies need from its education system?

These are important issues that transcend political debates abouthow much education costs and can best be provided.

We approach this as an employer of over 12,000 people, one ofBritain’s largest graduate recruiters with an intake of 1,100 a year,an adviser to large corporate and government clients and an activeparticipant in our communities.

We are investing £2.6 million in our flagship Employability Skills initiative, training teachers from more than 70 further educationcolleges to provide employability skills coaching alongsidevocational courses and sending more than 600 employees tovolunteer in UK schools. More than 250 of our people deliverworkshops at further education colleges each year on CV, interview and presentation skills.

All this, along with our sponsorship of Teach First, gives us insightinto Britain’s education system, the demands being placed on it forfuture employment skills and the roles that business, government,schools and colleges have to play. So what are the challenges andhow can they be addressed?

Working together to improve employability skillsClients tell us that the ability of young people to work together inteams, communicate well and be effective in their work habits isjust as important as technical proficiency and sometimes more valuable.

This is an area where much more needs to be done. The 2010 CBI Education and Skills Survey revealed that over two-thirds ofemployers want action to improve the employability skills of schoolleavers. Almost half of employers were dissatisfied with the businessand customer awareness of graduates, and a quarter unhappy withgraduates’ time management and problem solving skills.

Employability skills have been described as the ‘lubricant’ of ourincreasingly complex and interconnected workplace. The challengeis to ensure that our people are ready for the workplace, with theright attitudes and behaviour to be of value to employers and toprogress in their careers.

This needs to be led by employers, who will see the fruits of their efforts in the skills and aptitudes developed by their futureworkforces. But government and businesses also need to getbehind it. Employers need to be persuaded of the business benefits of appropriate engagement with education and students.Teachers need encouragement to help young people rise to thechallenges of developing employability skills.

Perspectives

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A role for businessThe big challenge is employer engagement. Too often, complaintsby businesses about skills shortages come across as finger-pointingand buck-passing but education providers, government andemployers need to collaborate to make employability a coreelement of every young person’s education at school, college,university and in work.

Businesses have the entrepreneurial flair and operating skills to take the lead. This year, a report commissioned by the Educationand Employer Taskforce found that 333 out of 500 young peopleinterviewed could recall the number of employers they had heardfrom at school over the preceding two years.

Some 42% said they had no contact with employers and 40%recalled fewer than four employers ever being involved in lessons.

Where there had been contact with four or more employers, youngpeople in the study were one and half times more likely to believethat they would be able to find a good job. Partnering with localschools and colleges makes good business sense and will benefitcompanies that invest in it.

At Deloitte, employability skills are crucial to the success of ourbusiness so, following extensive consultation with our clients, wedeveloped our Employability Initiative. Working with government,the education sector and our clients we developed a programme tohelp young people develop the skills, attitudes and behaviours theyneed to secure and sustain employment.

By 2012, we will have trained 800 teachers and delivered training to 40,000 young people. Engaging in a collaborative approachhelps us build connections with key stakeholders while developingthe skills of our own people through our internal volunteerprogramme to support student courses.

A role for governmentImproving employability is a challenge for government as well asbusiness. Government needs to make it easier for companies toparticipate in the education of their future employees. More needsto be done to widen access to the professions and also engage‘blue collar’ employers with training providers, schools and colleges. There should be a partnership ethos and central and localgovernment can play their part in creating it.

One college, for example, has attached itself to its local airport and is introducing its pupils to the tasks that need to be performedthere. It is a sensible and enlightened approach that could bereplicated across the country but it needs leadership, whichgovernment can provide.

PerspectivesEducation and skills in the 21st century


Action also needs to be taken with teachers. Teachers are generallypassionate about what they do and understand the value ofemployer engagement but they do not get enough encouragementfrom government or their own schools to break down the barriersbetween education and employers.

This should start with teacher training at colleges and universities.New teachers need to adopt a different approach; one that focuses on experience of the world outside school, not just ontextbook tuition.

This should not lead to bureaucracy. Businesses, government,schools and colleges need to join up the links that will introducemany more pupils to the world of work and the skills they are going to need to participate.

A practical, joined-up approachThis kind of participation makes sense for all involved. Educationproviders see the personal growth in students, and improvements in retention and achievement rates, while employers gain youngrecruits able to hit the ground running and make a real contribution to their business.

Deloitte has an active role in the Education and EmployersTaskforce, set up in late 2009 with a vision of ensuring that everyUK school has an effective partnership with employers to provide itsyoung people with the inspiration, motivation, knowledge, skills andopportunities that they need to help them achieve their potentialand so secure the UK’s future prosperity.

It sounds a grand aim but its objectives are practical and specific:building clear, simple and effective links between education andemployers, providing all young people with first-hand knowledgethrough high-quality work-related activities and curricula and raisingyoung people’s confidence and aspirations.

The taskforce is also committed to supporting young people so they can make better-informed career choices and providingadditional support to schools operating in challengingcircumstances. We have made an excellent start but real progresswill require the engagement of all parties that have a stake inimproving this issue. Together, we can begin to solve what shouldno longer be viewed as an intractable problem.

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Pensions – new solutions to an age-old problemMost headlines about British pension provision in the last few years have contained bad news. Pension fund deficits and greaterlongevity have led to widespread closures of private sector definedbenefit schemes and their replacement by defined contributionarrangements that transfer risk from the employer to employees.

At the same time, the cost of maintaining defined benefit pensionsfor public sector workers has become a major political issue in thecontext of the public finance deficit. Underpinning the problem isthe low savings rate in the UK and the startling statistic that up to30 million people are currently under-provided for in theirretirement.

The challenges are inter-linked. How does the private sector adapt and manage its legacy and ongoing pension liabilities, whileachieving growth, and in some cases, survival? How do governmentstackle the cost of public sector pensions? How do nations encouragepeople to save for retirement?

These are serious long term issues but we believe there areopportunities for fresh thinking to provide solutions. We areproviding leadership by using our considerable experience in this area to advise on innovative and dynamic approaches.

Closing the private sector pensions deficitThe combined pension scheme deficits of Britain’s top 100companies has recently passed £100 billion and the trends thathave led to private sector provision getting materially poorer willcontinue for the foreseeable future, with increasing numbers ofcompanies withdrawing from final salary schemes.

Regulatory oversight is also likely to tighten, while the stock market downturn of the last two years and low bond yields havecompounded the situation.

The issue for private sector companies then is what they can do toclose the gaps in their pension funds, in a way that is affordable anddoes not undermine the balance sheet and profit and loss account.

We have led the way in advising on innovative means of usingcorporate assets to provide value to the pension schemes andimprove scheme funding. Our approach involves the pensionscheme acquiring a stake in a partnership backed by corporateassets, enabling it to benefit from a secure source of income. To this end, Marks & Spencer and J Sainsbury have put substantialproperty portfolios into partnership structures with their pensionschemes to collectively address over £1.5 billion of deficit funding.Whitbread and The John Lewis Partnership have also used property as collateral in similar transactions, while ITV has used a subsidiary company.

Perspectives

24

We have advised on nearly all the asset backed deals announced to date and are currently acting for a large number of companiesacross a range of industry sectors to fund more than £2 billion ofUK corporate pension deficits using assets as diverse as property,brands and investments.

This is a novel and intelligent way to make a significantimprovement in the funding of pension schemes, and we believethis approach has the potential to become much more widely-usedin helping tackle the pensions crisis.

Defusing the public sector pensions timebombThe cost of maintaining current pension provision for public sector employees is on the increase, with various estimates of the unfunded debt of Britain’s public sector pensions running atover £1 trillion – more than five times the national budget deficit.

Maintaining the status quo is unaffordable, while the parlous stateof many employees in private sector pension schemes also makesmaintaining defined benefit pensions for public sector workersincreasingly politically sensitive.

The Hutton Commission is conducting an independent review into public service pension provision with a view to makingrecommendations that are sustainable, affordable and fair in thelong term. We believe that this is an opportunity for radical changein the nature and cost of future pension provision for both currentand new public sector employees.

A new system needs to reduce the rate at which the unfundedpublic sector pensions liability increases, create a more transparentand sustainable future benefit structure with broad public andpolitical support, and create a fairer comparison between public and private sector pensions. Advances in pensions administrationtechnology have created opportunities for significant cost andefficiency savings and improved governance. This could be achievedby replacing the different schemes and delivery platforms with anew single multi-employer scheme that can deliver on a sharedservices e-business platform.

The knotty issue is the continued provision of defined benefitschemes in the public sector. Because public sector pensions areunfunded, switching public sector employees to funded definedcontribution provision would increase the short term financialburden on current tax payers, since government today would haveto pay in today for future pension provision while currently payingout against historical promises.

The pressure for change is now so great that a solution must befound. Our proposals include a new pension system based ondefined employer and employee contributions into NotionalAccounts that could be targeted at an agreed benefit level andwould increase in line with wider public borrowing. One of the keyadvantages is that this would partly transfer longevity risk from thetaxpayer to the employee without the need to pre-fund.

Similar schemes have been successfully applied in Sweden, Italy and Latvia. We believe that Notional Accounts, initially for new employees, could be part of the solution to the UK’s pensions problem.

Perspectives Pensions – New solutions to an age-old problem


Changing the savings cultureIn the long term, the sustainable solution to the pensionspredicament is to get people saving properly for their own futures,so they can share the burden with employers and the state.

The most recent statistics on UK savings make grim reading. Based on 2008 figures, 20 million people in the UK have pensionsthat are under-funded and 10 million have no private provision atall. The issue is one of affordability and action needs to be taken if Britain is to avoid a situation where the only way forward is a mandatory savings scheme akin to taxation.

It is clear that greater provision is needed for retirement, yet it is unrealistic to believe that individuals will significantly increasepension contributions on a voluntary basis, while companies arereluctant to interfere in how people run their lives.

There is an opportunity for Deloitte to help provide a meaningfulsolution. For three years we have been supporting the PersonalAccounts Delivery Authority, which has now been superceded bythe National Employees Savings Trust (NEST).

NEST is developing a new workplace pension scheme to meet theneeds of low-to-moderate earners and would automatically enrolemployees in pension schemes if they do not opt out, in contrast tothe current system which relies on staff opting in. It is hoped thatthe power of apathy can play a part in resolving this problem.

Like other elements of the pensions puzzle, finding acomprehensive solution will involve a partnership betweengovernment, companies, employees and taxpayers. As far asDeloitte is concerned, we are happy to continue to bring our skillsand experience in the UK and abroad to bear on finding a solution.

We have advised on nearly all the asset backed dealsannounced to date and arecurrently acting for a largenumber of companies across a range of industry sectors tofund more than £2 billion ofUK corporate pension deficitsusing assets as diverse asproperty, brands andinvestments.

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Property is the second highest cost for many companies afterpeople costs, yet it has traditionally not been a priority for manyboards of directors.

Its position in an unsung corner of the corporate world is about to change. Accounting changes mean that property and the way itis occupied and managed will have to become a strategic issue forboards, with far-reaching implications for owners and occupiers.

The catalyst is an International Accounting Standards Board (IASB)proposal to bring property lease liabilities onto company balancesheets, primarily to improve transparency. With the operating leasecommitments of the top 50 FTSE companies currently standing at some £100 billion, this is no minor matter. In the US, theSecurities and Exchange Commission estimates that publiccompanies will have to put some $1.3 trillion of lease liabilities on their balance sheets.

The proposals have sparked warnings that they could ‘wreak havoc’,with one forecast predicting that 25% of UK quoted companiescould see their debt burdens more than double, even though thelevel of property assets will increase by the same amount.

In addition, the raison d’être behind the way that many companieshave structured how they hold their occupational properties may no longer be relevant.

We believe the proposals present opportunities for companies tomanage their property portfolios much more effectively. Addressingthe changes in a considered and timely manner will give the bestcompanies a competitive edge.

Plan for changeIt appears highly likely that the proposals will be agreed in broadlytheir current form, with the new regime coming into force in 2013.

The IASB is guided by the principle that if there is an obligation, it should be shown on the balance sheet and the changes bringproperty in line with this.

So what will it mean? In simple terms, where leased propertypreviously did not appear on balance sheets, the proposals willrequire leased property to be recognised as an asset and the related rental obligations as a liability. The property balance sheetwill therefore become more transparent, with a new level of detailabout, for example, turnover rents and their financial implicationsavailable to external stakeholders, such as banks, rating agenciesand shareholders.

The creation of a new financial liability on the balance sheet willalso have an effect on companies’ gearing ratios, their ability tomeet bank covenants and consequently their credit ratings.

Analysts will have much more accurate numbers on which to baseforecasts for property costs and share prices could be impacted.

As well as increasing both the assets and liabilities on companybalance sheets, the proposals will cause a significant change in the cost profile of company income statements, with costs skewedtowards the early years of leases and far greater volatility in futureyears because of the frequency of recalculation.

In the long term, we believe that the accounting changes in thetreatment of property leases will transform the way manycompanies approach property strategies.

In the short term, there are major challenges for accountingprocesses and data collection. Companies will need to compileaccurate, detailed lease data, form judgments and share thisinformation across their operations and divisions.

Real estate after 2013

Perspectives

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Changing business modelsAmong those who will be most impacted by the changes are themajor network occupiers, such as banks (with their head offices,vast trading floors and branch networks) and retailers. There arealso implications for manufacturers, distributors and any otherbusinesses occupying meaningful amounts of space.

Property will need to become a much more strategic business issue. Forced to view property as a balance sheet liability, companieswill start to give much more consideration to how to manage andreduce it.

We estimate that at large corporations, up to 30% of work space is currently unoccupied. Eradicating that inefficiency would go a significant way to reducing balance sheet liabilities under the new regime, further reinforcing the current trends towards flexibleworking practices and remote working.

The end of sale and leaseback?The proposals are also likely to lead to a change in the trend for sale and leaseback arrangements.

Our research suggests that around a third of companies that haveperformed sale and leaseback transactions have been motivatedprimarily by being able to realise cash or reduce borrowings byremoving property assets, whilst simultaneously keeping lease rental obligations off balance sheets.

The changes will make it very difficult to keep any property liabilities off balance sheets so we would expect a fall in the number of such transactions.

Shorter and more flexible leasesHighlighting leases as liabilities also creates a natural motivation for companies to seek shorter leases in order to reduce theirbalance sheet liabilities.

This will add to the pressure we already see for shorter lease lengths and companies will also need to consider whether theywant more break clauses in property leases to give them balancesheet flexibility under the new regime.

Some of these changes may take time to affect the market butbusinesses will benefit from beginning to tackle them now.

The best-run companies will make sure that the terms of leaserenewals, when they arise, are in line with group strategy,addressing covenants with lenders now rather than at the 11th hour and making sure they are managing the risks associated with the new regime.

A call to actionSo what should companies do in this new environment?

There will undoubtedly be a need for greater foresight and long term planning in relation to property requirements and the most financially efficient ways to meet them.

Companies should begin thinking through the implications for theirfinances now. Property is a relatively slow-moving business wheremajor change takes time to implement. The new regime will likelyexpose flaws in some corporate property strategies, which could becorrected now if action is taken.

For the companies that manage it effectively, taking a proper risk-assessed view of their present and future property liabilities to plan ahead for growth at a lower cost, the transition to the new regime represents a great opportunity to capture a keycompetitive advantage.

Anyone who is still tempted to dismiss this as ‘just anotheraccounting change’ should be reminded that similar thoughts werewidely expressed before accounting changes brought companypensions on balance sheet. It is of course now widely accepted that this change forced pensions up the boardroom agenda andhastened the decline of defined benefit pension schemes.

Perspectives Real estate after 2013

Our business performed strongly in 2010 in continuing complex andchallenging markets. In the following segments we provide an overview of the key features of our people and responsibility agendas, leadership and governance in our firm and we present the abridged financial statements for 2010.

Deloitte in 2010


30Deloitte employees at the Royal Opera House


PeopleNew approaches for a dramatically different worldIn 2009 and 2010 our people had to adjust to a radically alteredbusiness environment. We began with the UK in the middle of theworst recession since the Great Depression, after a long period of growth. For many of our people, this was the first recession of their working lives.

During this time we have, more than ever, been focused onsupporting our clients and bringing innovative solutions to market.Our firm is built on the success of our people and their ability towin. As conditions have changed we’ve had to think even harderabout how to support them, keep them informed, help them adaptto the new conditions and build the skills that allow them tocontinue to be successful. John Kerr, managing partner for Talent,says: “In a changed economy, we have made different demands on our people and they have responded admirably by adapting so that the firm can meet our clients’ demands.”

Our entrepreneurial culture – in which people are encouraged tothink for themselves and help build new businesses – has equippedemployees to adapt to the new environment. “People who join usare ambitious and they want to take responsibility, to be stretchedand to make progress quickly,” John Kerr says. “You can’t get thoseopportunities and live at a moderate pace, and our people expect to work hard. In return, they need to know they are gettingrecognition, are being rewarded fairly and are able to build a career.”

Our commitment to investing in talent was demonstrated when we ended the year with more than 12,000 people – up 2.5% from a year earlier.

Building rewarding and enriching careersIn spite of the challenging market conditions we have continued to invest in the learning and development of our people, spendingover £23 million last year. This investment has been aimed atenhancing our people’s technical, professional and leadershipcapabilities, enabling them to adapt more readily to challenges and sustain a positive working culture.

We have invested in the development of our directors, enhancingthe Director Development Programme (DDP), which identifiesstrengths, builds business development skills and provides supportas directors take on new responsibilities on the path to partnership.

We piloted a new programme to build our senior managers’leadership skills. Like the DDP, the programme uses coaching to helpparticipants get the best from the people around them. During theyear, more than 200 senior managers benefited from theprogramme.

The year also saw the launch of the Business DevelopmentProgramme, which is designed to help senior managers anddirectors improve their impact and build client relationshipmanagement skills.

We asked everyone working at Deloitte for feedback as part of our People Survey conducted in March. Among key positives, ourpeople said they were proud to work at Deloitte, felt encouraged to take initiative, and wanted to go beyond what was expected tohelp their clients. In total, the results demonstrated the firm’s strongclient ethos and the degree to which our people embrace it. Thereare, as always, areas for improvement and we have plans in hand to respond to the issues raised.

Deloitte in 2010

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Our formal learning programmes have been supported by anexpansion of mentoring across the firm. This has helped supportdevelopment in the workplace and provided a platform for peopleto learn more effectively from their more experienced colleagues ina day to day setting. A year after launch, over a third of our peoplehave established mentoring relationships with senior colleagues.Mentoring helps our people learn from the experience of others, inaddition to the skills learned on our formal programmes. As well asthe developmental value, our recent employee survey has indicatedthat those involved in mentoring relationships also have significantlyhigher levels of engagement.

Sharon Fraser, partner, head of regional audit, says of her successfulmentoring relationship with recently promoted director ClareColborne-Baber: “I saw the invitation to mentor Clare as anopportunity to ensure the firm retained a talented female employeeand to help her achieve her full potential.”

Celebrating our diversity Deloitte attracts the best and brightest. People are joining us fromincreasingly diverse backgrounds. These differences enable us tohave a much deeper understanding of our clients’ needs, but moreimportantly, to look at things from many different perspectives.

John Connolly, Senior Partner and Chief Executive says: “Achievingour goals requires us to be more than simply the biggest or mostprofitable firm. It also means leading in a broad way – includingbecoming the business that the best people want to join and wantto remain with. That’s why we need to lead the market in areassuch as sustainability and diversity. We can’t afford to be the best in only a few areas – especially when it comes to fulfilling the needsof the most talented people.”

Deloitte attracts the best and brightest. People arejoining us from increasinglydiverse backgrounds.

Deloitte in 2010People


In October 2009, more than 1,000 of our people, contacts andclients took part in Deloitte’s first Diversity Month and the event will be repeated in October 2010.

Firdaus Parkar, senior manager, Practice Protection Group, and a member of our Deloitte Muslim Network, says Diversity Monthwas an opportunity to meet people within the firm that she wouldnot have otherwise have met. “It also gave me more insight intowhat Deloitte is doing in terms of diversity and highlighted theimportance of the networks in providing a sense of belonging to our people,” she added.

The firm’s nine diversity networks were also strengthened and heldevents throughout the year to connect people within the firm andwith external stakeholders.

Building the firm for the futureWe have maintained our drive to hire the best talent for the future. This year, Deloitte will recruit 1,100 new graduates (a level maintained over the last three years while otherorganisations have cut back) and 1,500 experienced hires.

Our drive to attract the best talent starts before university with ourscholars’ programme. Each year, about 40 high-achieving schoolleavers are selected for 30 weeks’ paid work at Deloitte, after whichthey receive a travel bursary, financial support each academic yearand holiday employment. They also have the opportunity to act asambassadors for the firm at graduate recruitment fairs. John Kerrsays: “This organisation works on the basis that we bring in thebrightest people and give them the opportunities to build theircareers and thrive in business. For that to continue, it is importantthat we have a reputation with the graduate population as aconstant presence in the market.”

At a glance

• Over 12,000 partners and employees;• 1,100 graduates and 1,500 experienced hires will join the firm this year;• Careers and opportunities to develop in our service lines, industry groups, regions,

national departments and within the wider international Deloitte Touche Tohmatsu Limited organisation;

• Learning, development, coaching and mentoring at all stages in our people’s career at Deloitte;• Wellbeing programmes, including flexible working and London campus health suite and gym,

health and fitness events and information delivered to all Deloitte people around the country;• Flexible benefits packages, including additional holidays, company car, bicycles, medical

and dental insurance and childcare;• Diversity networks, sports groups and social groups to connect and support people

during their careers.

With markets in a period of change, we have also continued toattract senior talent both in terms of experienced hire recruitment,acquisitions and mergers. For example, our recent merger withDrivers Jonas has created a unique opportunity to offer a market-leading real estate advisory business to our clients.

When it comes to the core activity of serving clients’ needs, we are preparing for a further period of change and unpredictability in markets. We will continue to invest in our people, equip themwith the skills they need and provide the opportunity to build therewarding careers we know they value so highly.

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ResponsibilityOur business has wide and far reaching impacts. Our clients and our people choose Deloitte because of our performance and ourcommitment to client service. They expect, and they get, technicalexpertise and market-leading insight. And in choosing Deloitte, they are aligning themselves with our standing as a responsiblebusiness – a business built on trust and integrity, on ethicalperformance, on understanding the interests of wider society. In our business, corporate responsibility is at the heart of everythingwe do: our approach to quality, leadership, talent and our clients.

Our ambition is to be recognised as leaders not just in our field, but as a corporate leader in society. This ambition takes focus,investment and leadership. It is not an ambition to be realisedovernight. Our reputation in the business world is one to benurtured and valued – but also an asset we should appreciate, and use to make a lasting, positive difference in important areas.

Community We believe that part of acting responsibly within society involvesmaking a substantial investment in the communities in which we do business. For Deloitte, this means collaboration and partnershipwith causes we become closely identified with, where we offer long term support. We have identified education and skills, theenvironment, and disability, as areas where we can make asignificant difference, and then we have worked with leaders inthose fields on the challenges to be overcome. We apply ourpeople’s skills and talents, our brand value and our wider resourcesto make long term commitments that achieve change.

Education and skillsOur number one concern worldwide is education and skills. Young people, particularly those who are underserved, whether in developed nations or the new economies of the world, are notacquiring the skills they need to fulfil their potential in the 21stcentury economy. Education and skills are a global focus for usthrough our Deloitte21 initiative (www.deloitte.com/deloitte21).Under this umbrella, Deloitte member firms aim to invest $100m by2014 in driving innovations in education and skills development tomeet the needs of under-privileged young people around the world.

In the UK, we have appointed our first Deloitte21 fellow. PhilippaThompson, a director in the audit practice in London, will spend20% of her time over the next year working with the MicroLoanFoundation in Malawi. The Foundation makes small loans to womenin rural Africa and provides them with business skills training,helping them start, develop and grow their own businesses.

Deloitte Employability is a flagship programme for our firm andthe biggest private sector contributor to improving employabilityskills in the UK. Deloitte is investing £2.6 million over five years tohelp tens of thousands of young people get better prepared for working life.

Deloitte in 2010

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“I’ve really noticed the difference in me since I started the DeloitteEmployability Course. Before I always preferred to work on my ownand keep myself to myself – but that’s totally changed now and I’mso much more confident. I work part time and my line manager hasalready commented on how much better I am with customers andworking in teams. I’d definitely recommend doing a course like thisto everyone – it’s given me a real boost,” said Euan Wilson, Student,Adam Smith College, Fife.

Teach First was established to address educational disadvantage in urban schools by transforming exceptional graduates intoeffective, inspirational leaders both inside and outside of theclassroom. The Teach First Ambassador programme encouragesthose who leave the teaching profession to remain connected withEducation. It helps them to find ongoing ways to contribute toeducational and social change. We currently employ 20 Teach FirstAmbassadors and have been a platinum sponsor of the programmefor the past three years. Our main focus is Policy First – a policyplatform for Teach First Ambassadors to voice their views on theissues and recommendations impacting education, offeringexcellent exposure to policy makers. We are also working withTeach First to help share their future ambition to support thedevelopment of 100 Teach First teachers into Headship by 2018.

Deloitte Disability Sport Deloitte Disability Sport is the largest programme of its kind in theUK. Our goal is clear: we aim to lead the way in corporate supportfor disability sport, driving participation at the grass roots level,developing the performance of talented athletes and ultimatelysupporting the ParalympicsGB team to secure more podium finishes at future Paralympic Games. Deloitte and the Governmenthave jointly provided £3.4 million to develop disability sport in theUK through to 2012.

Our programme has a special focus at the grass roots level. We have developed Deloitte Parasport (www.parasport.org.uk), an interactive website receiving 25,000 hits per month, whichconnects people with a disability to their best sporting opportunities.Further along the performance chain, we work with the charitySportsAid through the Talented Athlete Scholarship Scheme (TASS),and to date have provided bursaries to 400 talented athletes toenable them to both study and continue to develop in their chosen sport. At the elite level, we are the official professionalservices provider to both ParalympicsGB and the London 2012Paralympic Games.

The Deloitte Ride Across Britain is a ground breaking development – our first national named corporate challenge. The Ride was launched this year, seeing 600 cyclists, including 100 Deloitte employees, make the gruelling 1000 mile journey from John O’Groats to Land’s End in just nine days, raising over£340,000 for ParalympicsGB. Deloitte Ride Across Britain aims to raise more than £1 million by 2013.

“Without a shadow of doubt, being part of the Deloitte Ride AcrossBritain 2010 was the highlight of both my Deloitte career and mypersonal life experience to date. I feel proud to be associated witheverything that the Deloitte Ride Across Britain has achieved,” saidJason Norris, senior associate, Tax, Birmingham.

All these initiatives are aimed at ensuring that everything possible is done to help British athletes achieve their lifetime’s bestperformances in London, inspiring disabled people all over the worldto take up sport, and ensuring a great pipeline of talent for thefuture – whilst keeping their educational and career options open.

“Deloitte’s commitment to supporting athletes with a disabilitythrough TASS addresses core barriers to progress and enables keyinterventions – extending this into some emotional investment isfantastic. If one assumes top athletes are in the main quite wellprepared physically and technically, an emotional edge could prove the difference,” said Tim Lawler, Chief Executive, SportsAid.

Deloitte in 2010Responsibility


Charitable giving Our people have raised more than £1.4 million during the year for charitable causes. Through individual donations and matchedfunding for our people’s own fundraising activities, the firmcontributed a further £1.3 million. In December 2009 we finishedour two-year national partnership with the NSPCC and CancerResearch UK, smashing our £1 million target to raise over £1.9million. We have recently started new national partnerships withHelp for Heroes, Children with Leukaemia and Cancer Research UK.As well as our national partnerships the firm also has many localcharity partners. All our partnerships are entirely nominated by andvoted for by our people.

We consider investment in the wider society to include engagementwith communities overseas. The Deloitte Street Child World Cuptook place in Durban, South Africa in March 2010 bringing togetherstreet children from eight countries. Its purpose was to give thesechildren a voice and to campaign for their rights. More than 200 of our people volunteered their time and expertise in the run up to the event and at the tournament itself. The children worked withinternational coaches to develop their football skills and enablethem to tell their stories in new and creative ways.

Through a process led by the children themselves, the DeloitteStreet Child World Cup is formulating a global Street ChildManifesto, the anchor for a campaign ensuring that street children’s rights to a full, healthy, dignified life are upheld.

“I know from personal experience just what power football canhave to inspire and change young people’s lives whatever theirbackground or nationality. This is what the Deloitte Street ChildWorld Cup is all about and I give it my full support,” saidDavid Beckham.

“I know from personalexperience just what powerfootball can have to inspireand change young people’slives whatever theirbackground or nationality. This is what the Deloitte StreetChild World Cup is all aboutand I give it my full support.”David Beckham

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In total, the firm provided £5.8 million worth of pro-bono anddiscounted services to charity during the year – up 35% from 2009 – helping to build their capacity and secure a sustainablefuture. In addition, our people gave 44,000 hours in the firm’s time through a range of volunteering initiatives, over 7,000 morehours than the previous year.

The firm’s total community contribution in the year, measured using the London Benchmarking Group model was nearly £10 million. This includes all cash and in-kind contributions tocharitable and community causes, and is 17% higher than in the previous year. Through our activities we leveraged a further £6 million in government funding.

We bring the same rigour to our management of communityinvestment as we do to any other area of our business. Our centralteam is led by Heather Hancock, a member of the Executive Board.In addition, more than 40 Partners have leadership roles acrosscommunity investment and more than 350 of our people have amanagement responsibility to deliver an aspect of our communityactivity. A sub-committee of the Board oversees the overall deliveryof this programme.

The firm achieved Platinum Status in the CR Index and was one of the inaugural companies awarded the Business in theCommunity’s CommunityMark, recognising excellence in corporate community programmes.

Environment and sustainability We recognise the impact that running our firm’s operations has onthe environment and natural resources. Throughout 2009 we havecontinued to review these impacts and put in place action plans tominimise these wherever possible. Our internal programme, ‘greeningthe dot’, ensures that our environmental impact management goesbeyond good practice. We recognise that, in order to offer trulyinnovative services in the sustainability marketplace, we must leadthrough our own performance.


The firm’s total communitycontribution in the year,measured using the LondonBenchmarking Group modelwas nearly £10 million.


This year, two of the companies that combined with Deloitte have brought additional expertise in carbon and sustainabilitymanagement to our firm – dcarbon8 and Drivers Jonas Deloitte.With these skills, we have conducted a thorough assessment of oursustainability governance, stakeholder engagement, reporting andperformance to date. We are currently revising our Green Journeystrategy and action plan along a 20 year time line, looking at allareas of the business, from board engagement and energy efficiency,to waste management and sustainability training for our people.

Our achievements in 2009/2010 include the following:

• Attained ISO14001 accreditation for our EnvironmentalManagement System (EMS) across all offices within the UK andChannel Islands. We have a programme of continuousimprovement around EMS and began the roll out of the system to our Switzerland offices;

• Commenced a programme to meter electricity, gas and waterconsumption across our UK and Switzerland offices. Oncecompleted we intend to share live performance information with employees;

• Conducted waste management audits of our offices to improvethe provision of recycling facilities across our regional offices anddrive performance improvements with our waste contractors.

In 2010 we began energy and water surveys of our highestconsuming properties to identify priority areas for improvement. In London, all waste continues to be segregated and sent torecycling or waste-to-energy facilities, with zero waste being sent to landfill. We intend to extend this policy across our regionaloffices in the coming year.

We have an ongoing programme to reduce the carbon footprint ofour business travel. We continue to incentivise the use of domestictrain journeys over flights and have installed a network of videoconferencing facilities across our offices. We are currently redefiningour monitoring processes and we intend to develop Green TravelPlans for our largest sites to further drive the use of low-carbontransport and increase our provision of cyclist facilities.

Deloitte Rainforest Conservation Project Deloitte is a joint founder of the United Bank of Carbon (UBoC).UBoC allows businesses to fund rainforest sustainability on a globalbasis. It brings together organisations with the proven expertise todeliver rainforest protection, and businesses looking to increasestakeholder value by supporting solutions to climate change.

As part of our partnership with UBoC we have identified our own project with the African Rainforest Trust. The project is in theRubeho Forest, an ecologically distinct part of Tanzania, known asthe Galapagos of Africa. The Rubeho forest covers 3550 hectaresand the objective of the project is to preserve this rich andbiodiverse area, saving over 1.7 million tonnes of CO2 every year, as well as help local communities earn a sustainable living from therainforest. As part of this project we have already trained 80 peoplefrom the local village committees responsible for managing theforests, helping them develop a sustainable approach tomanagement; developed land use plans for two of the villages inorder to secure land tenure; and supported 40 groups of farmersfrom around the region with tree planting equipment and advice.Tree nurseries have now been established in all of the projectvillages. In addition to expanding these activities, the project willnow focus on providing training to local farmers on agriculturaltechniques that will help preserve the area, as well as provide asustainable income for local people.

Our Responsible Business report is available from our website,www.deloitte.co.uk, and provides further information aboutDeloitte’s commitment to sustainability and the environment.

40

StakeholdersQualityOur commitment to quality is one of the cornerstones of ourperformance. We earn our clients’ trust by delivering objective,insightful advice and assurance consistently underpinned by ourstrong ethical principles. We recognise that the trust our clientsplace in our firm has to be continually earned. We continue toindependently test and assess our performance and promoteaccountability at the highest level through our Client ServiceAssessment and Client Care relationship review programme.

We balance carefully the straightforward approach outlined in the Deloitte Code and the increasing levels of regulation andprofessional requirements. We see ‘doing the right thing’ as being a principle that is fundamental not just to the public interest, butalso to the reputation of our firm, partners and people.

Deloitte CodeThis sets out our ethical framework and codifies our ethicalprinciples:

• Honesty and integrity – we act with honesty and integrity;• Professional behaviour – we operate within the letter and the

spirit of applicable laws;• Competence – we bring appropriate skills and capabilities

to every client assignment;• Objectivity – we are objective in forming our professional

opinions and the advice we give;• Confidentiality – we respect the confidentiality of information;• Fair business practice – we are committed to fair business practices;• Responsibility to society – we recognise and respect the impact

we have on the world around us;• Respect and fair treatment – we treat all our colleagues with

respect, courtesy and fairness; and• Accountability and decision making – we lead by example

using our shared values as our foundation.

Supporting independence and ethical behaviourWe have invested in best-in-class systems to enable us to maintainour independence and avoid conflicts of interest in clientassignments. Our firm has a dedicated Ethics, Independence andCompliance Partner, as well as a team of professionals to support our people with their compliance obligations. He works directlywith the Senior Partner and Chief Executive and the Board to set the strategy and priorities for ethics and compliance, and hasoperational responsibility for this area.

Information securityThe importance of maintaining confidentiality around client andother confidential information is continually emphasised and ourapproach to encryption, ethical walls, clear desk policy and securestorage devices underpins this commitment. During this year weachieved ISO 27001 certification, the international standard forinformation security management. This certificate demonstratesDeloitte’s ongoing commitment to client service, and to handlingour clients’ confidential information in an appropriate and secureway. The certification is recognised around the world as ademonstration of industry good practice for information securitymanagement and is also increasingly a pre-requisite for doingbusiness with UK public sector clients and their suppliers.Information security is increasingly recognised as a core businessrequirement and one we support through the delivery of extensiveinformation and technology risk services to our clients.



TransparencyThe role of auditors is both central to our business and critical inunderpinning confidence and security in the capital markets, andthis has been recognised by comments made by the authorities,regulators and other commentators. We welcome the ongoingdialogue with regulators and stakeholders as we work together to refine and evolve the roles played by all market participants.Throughout this process, a focus on transparency and consistencywill allow us all to interact productively and to the benefit of all parties.

By providing our stakeholders with a clear view of how Deloitteworks we are delivering on a vital element of our business: makingproactive efforts to sustain their high levels of trust. The complexityof the capital markets, and the challenges posed by the currenteconomic climate have provided an even greater need fortransparency as a basis for demonstrating audit quality.

We take seriously the contribution we make to the profession andto business more widely by, for example, participating in publicpolicy formulation. We continue to build our audit services uponour reputation and our ability to deliver high quality services tocomplex clients and markets. Our robust policies, procedures andmethodology are then complemented by strong quality control, a challenging programme of review and risk monitoring, as well asour primary asset: the quality of our people. As a firm, we are onlyas strong as our people and processes allow, and the more we cando to demonstrate the ethics of openness and accountability thatunderpin our firm, the stronger we will be.

Our annual Transparency Report is available from our website,www.deloitte.co.uk, and gives detailed information on our firm and our approach to delivering audit quality, including our structureand governance, independence procedures and practices, and oursystems of quality control.

By providing our stakeholderswith a clear view of howDeloitte works, we aredelivering on a vital element of our business: makingproactive efforts to sustain their high levels of trust.

42

Executive GroupDeloitte’s activities are managed by the Senior Partner and ChiefExecutive, and the Executive Group, which is appointed by theSenior Partner and Chief Executive. In keeping with our client servicefocus, members of the Executive Group are also actively engagedwith our clients.

Senior Partner and Chief ExecutiveJohn Connolly, the Senior Partner and Chief Executive, has fullexecutive authority for the management of Deloitte in the UK.The Senior Partner and Chief Executive is nominated by the Board of Partners and elected by the partners for four year terms of office.John Connolly began his third and final term as Senior Partner andChief Executive on 1 June 2007. The Board is working closely withthe Senior Partner and Chief Executive to achieve a smooth andtimely selection of a successor in advance of the conclusion of histerm on 31 May 2011.

The responsibilities of the Senior Partner and Chief Executive fallunder five principal headings:

• The business of Deloitte, including the development andmanagement of professional services at the highest level of quality and compliance with all regulations;

• The development of policies and strategic direction;• Financial performance;• Partners, including our talent goals; and• International, representing the UK firm in its association

with Deloitte Touche Tohmatsu Limited.

Leadership and governance

The Senior Partner and Chief Executive communicates regularly withthe partner group and with all of our people, in person and by aseries of webcasts, voicemails and regular email alerts. The partnergroup also meet at least annually, with the most recent meetinghaving taken place in July 2010 in London.

John Connolly is also the Chairman of the Board of Directors of Deloitte Touche Tohmatsu Limited (DTTL), the internationalorganisation of which we are a member firm. In that capacity, John works within DTTL to help member firms to share theircollective expertise and experience of client service, talentdevelopment and quality and risk management processes which,inter alia, will allow them to enhance quality throughout thenetwork. The international network has a separate Chief ExecutiveOfficer, Jim Quigley. In addition, the following UK partners serve on the DTTL Global Board: Sabri Challah, David Cruickshank andSharon Fraser.

Deloitte in 2010


The members of the Executive Group as at the date of this report are:

John Connolly, Senior Partner and Chief Executive, Steve Almond, Global, Richard Buck,Technology, Sabri Challah, Corporate Development, Stuart Counsell, Finance and Legal,Cahal Dowds, Regions, Martin Eadon, Clients and Industries, Margaret Ewing, Vice Chairman,Heather Hancock, Innovation and Brand, Panos Kakoullis, Superscale relationships, John Kerr,Talent, Tim Mahapatra, Corporate Finance, Ian McNeil, Partner Edge, Vince Niblett, Audit,David Owen, Consulting, Gerry Paisley, Practice Protection, Richard Punt, Growth, Nick Shepherd,Drivers Jonas Deloitte and David Sproul, Tax.

Aidan Birkett, Corporate Finance and Bob Warburton, Finance and Legal served on the Executive Group during the year.

The Board as at the date of this report comprised:

David Cruickshank, ChairmanJohn Connolly, Senior Partner and Chief Executive

10 elected members:David Barnes, John Cullinane, Richard Edwards, John Fotheringham, Humphry Hatton, Ellie Patsalos, Chris Powell, Ian Steele, Geoffrey Taylor and Denis Woulfe.

Five Executive Group members:Steve Almond, Martin Eadon, Vince Niblett, David Owen and David Sproul.

Board secretary:Stuart Counsell

Richard Norton and Sharon Fraser served on the Board until 16 July 2010.

Board of PartnersThe Board of Partners is responsible for the promotion andprotection of partner interests and for the oversight ofmanagement. It approves Deloitte’s long term strategies and hasspecific oversight of risk and quality. The Board is composed of theChairman, the Senior Partner and Chief Executive, both of whomare elected by the partners, a further 10 elected partners, fiveExecutive Group partners proposed by the Senior Partner and Chief Executive and affirmed by the partners, and up to two co-opted members.

Like the Senior Partner and Chief Executive, the Chairman isnominated by the Board and elected by the partners and serves for a four year term of office. David Cruickshank commenced hisfirst term of office as Chairman on 1 June 2007. The separation of the roles of Chairman and Chief Executive provides a strongmeasure of accountability for the executive team.

Deloitte’s partnership agreement stipulates that the 10 electedBoard members and the Chairman must not be members of theExecutive Group. As a result, the majority of the Board membershipis independent of the Executive Group. The Board meets monthlyexcept for August.

44

Corporate governanceThe Board’s oversight of management and the establishment andoperation of audit, remuneration and nomination committeesensure that Deloitte adheres to applicable corporate governanceand risk management requirements, and discloses these matters in full.

The membership of each of these committees is made up of elected members of the Board who are independent from theExecutive Group.

In January 2010, the Institute of Chartered Accountants in England& Wales published the Audit Firm Governance Code. This Codeapplies to the eight larger audit firms and sets a benchmark forgood governance. The Audit Firm Governance Code presents anexciting opportunity for investors and auditors to enter intomeaningful and constructive dialogue regarding the role of theauditor, the scope of the audit and the benefits of opencommunication channels. We welcomed the consultations on which the Code was based, and the publication of the Code itself.We recognise the value in demonstrating our own commitment tobest practice and are pleased to record that we are already largelycompliant with the Code’s requirements. The Code requires auditfirms to appoint independent non-executives to the governancestructures of the firm. We are confident that well-chosen individualswith appropriate experience will bring value and strength to ourbusiness and enhance the transparency and openness to which we are committed. We are well advanced in identifying candidatesfor these roles, and already have a short list of candidates underconsideration.

Audit CommitteeThe Audit Committee plays a key role in our risk managementprocess, taking responsibility for monitoring the reporting,accounting, financial and control aspects of the executivemanagement’s activities. The Audit Committee liaises closely withthe external auditors regarding the results of the audit and isactively involved in the selection of the external auditors. The AuditCommittee receives regular assurance reports from our AssuranceGroup, management and others on the operational effectiveness of matters related to risk and control, as well as monitoring thetimeliness and effectiveness of corrective action taken bymanagement. The Audit Committee’s activities and findings are reported upon at each meeting of the Board.

Remuneration CommitteeThe Remuneration Committee monitors the objectives and reviews the performance of the Chairman and of the Senior Partnerand Chief Executive and makes recommendations to the Board onprofit sharing.

Deloitte in 2010Leadership and governance


Nomination CommitteeThe Nomination Committee produces a candidate list for electionsto the Board to achieve the representation and diversity required.

Advisory Panel on Corporate ResponsibilityThe Advisory Panel is a sub-committee of the Board of Partners. It has oversight of and reports to the Board on the firm’s corporateresponsibility (CR) strategy and plans, monitors performance andguides the firm’s charitable contributions and activities.

The Advisory Panel is focused on the firm’s direction, performanceand leadership position across the firm’s entire CR programme. The Panel also ensures that our approach to CR is aligned with the CR policies being pursued by DTTL member firms globally. The Advisory Panel meets on a quarterly basis and includesmembers from the Board of Partners, the Executive and employeerepresentatives. This year, we have added to the Panel a memberfrom Drivers Jonas Deloitte.

Assurance GroupDeloitte’s Assurance Group (which comprises our internal audit,monitoring, and information security assurance teams) is a keyelement of our continuous review of the effectiveness of oursystems of internal control. Reporting to Gerry Paisley, managingpartner, Practice Protection, the Group reviews compliance with thefirm’s policies and procedures and both financial and non-financialprocesses. They work closely with our external auditors and otherassurance providers, reporting on a formal basis to the AuditCommittee.

Global organisation‘Deloitte’ is the brand of the Deloitte global organisation and the member firms around the world. These firms are members of Deloitte Touche Tohmatsu Limited (DTTL), a UK private companylimited by guarantee. Each member firm provides services in aparticular geographic area and is subject to the laws andprofessional regulations of the particular country or countries inwhich it operates. DTTL does not itself provide services to clients.DTTL and each DTTL member firm are separate and distinct legalentities, which cannot obligate each other. DTTL and each DTTLmember firm are liable only for their own acts or omissions and not those of each other. Each DTTL member firm is structureddifferently in accordance with national laws, regulations, customary practice, and other factors, and may secure the provision of professional services in its territory through subsidiaries, affiliates, and/or other entities.

46

The following are abridged financial statements taken from the full audited financial statements of Deloitte LLP for the year ended31 May 2010. To access the complete 2010 financial statements for Deloitte LLP please visit our website, www.deloitte.co.uk.

Report of the independent auditorTo the partners of Deloitte LLPWe have examined the abridged financial statements for the year ended 31 May 2010.

This report is made solely to Deloitte LLP’s partners, as a body. Our audit work has been undertaken so that we might state toDeloitte LLP’s partners those matters we are required to state tothem in an auditor’s report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibilityto anyone other than Deloitte LLP and its partners as a body, for our work, for this report, or for the opinions we have formed.

Respective responsibilities of the partners and auditorThe partners are responsible for preparing the abridged financialstatements. Our responsibility is to report to you our opinion on the consistency of the abridged financial statements with the fullfinancial statements. We also read the other information containedin the annual report and consider the implications for our report ifwe become aware of any apparent mis-statements or materialinconsistencies with the abridged financial statements.

We conducted our work in accordance with Bulletin 2008/3 issuedby the Auditing Practices Board. Our report on the LLP’s full annualfinancial statements describes the basis of our opinion on thosefinancial statements.

OpinionIn our opinion, the abridged financial statements are consistent with the full financial statements of Deloitte LLP for the year ended 31 May 2010.

Grant Thornton UK LLPStatutory AuditorChartered Accountants

London23 August 2010

Abridged financialstatements

Deloitte in 2010


£m £m

Revenue 1,953 1,969

Operating expensesExpenses and disbursements on client assignments (277) (254)Staff costs (750) (781)Depreciation and amortisation (41) (41)Other operating expenses (292) (312)

Profit from operations 593 581

Other income 23 -Finance income 30 41Finance cost (103) (58)

Profit before tax 543 564

Tax 1 (2)

Profit for the year before provision for annuities and remuneration for current partners 544 562

Provision for annuities and remuneration for current partners (128) (36)

Profit for the financial year 416 526

Reconciliation with the firm’s equity profit

Profit for the financial year based on the firm’s equity accounts 615 631Retired partner annuities and other adjustments (25) (30)

Profit for the financial year distributable to partners 590 601

Adjustments for IFRS not adopted in the firm’s equity accounts (174) (75)


The profit distributable to partners is determined in accordance with accounting policies which differ from IFRS. The principal differencesrelate to the accounting treatment of annuities and pension schemes.

2010 2009

Consolidated income statementYear ended 31 May 2010

48

£m £m


Other comprehensive income and expenseActuarial losses on defined benefit pension schemes (14) (183)Exchange differences on translation of foreign operations - 1

Other comprehensive expense for the year, net of tax (14) (182)

Total comprehensive income for the year, attributable to partners as owners of the parent entity 402 344

2010 2009

Consolidated statement of comprehensive incomeYear ended 31 May 2010


£m £mAssets

Non-current assetsProperty, plant and equipment 206 221Intangible assets 43 10Financial assets 2 4

251 235

Current assetsClient and other receivables 596 587Cash and cash equivalents 27 72

623 659

Total assets 874 894

Liabilities

Current liabilitiesTrade and other payables 225 185Provisions 30 29Partner capital 3 10

258 224

Non-current liabilitiesRetirement benefit obligation 249 234Deferred tax 1 2Provisions 697 558Partner capital 124 117

1,071 911

EquityPartners’ other reserves (455) (241)

Total liabilities and equity 874 894

2010 2009

Consolidated balance sheet As at 31 May 2010

50

£m £m

Partners’ other reserves at the start of the year (241) 60

Profit for the year 416 526Actuarial losses on defined benefit pension schemes (14) (183)Exchange differences on translation of foreign operations - 1

Total comprehensive income 402 344

Profits allocated to partners during the year (601) (641)Other transactions with partners (15) (4)

Partners’ other reserves at the end of the year (455) (241)

Consolidated statement of changes in equityYear ended 31 May 2010

2010 2009

£m £mPartners’ interests

The following balances relating to partners are included in the consolidated balance sheet:Partners’ capital 127 127Amounts due from partners (12) (18)Provision for current partner annuities 320 239Partners’ other reserves – current partners (82) 73

Partners’ interests for current partners 353 421

Provision for partner annuities for retired partners (373) (314)

Total partners’ interests including provision for retired partners which is dependent on future generation of profits (20) 107

The full audited financial statements of Deloitte LLP for the year ended 31 May 2010 were approved by the Board on 23 August 2010. The financial data on pages 47 to 54 are an extract from the 2010 financial statements. Signed on behalf of the Board,

John Connolly Stuart Counsell

Consolidated balance sheetAs at 31 May 2010

2010 2009


£m £m


Adjustments for:Tax on profits (1) 2Depreciation and amortisation 41 41Impairment of financial assets (1) 1Profit on disposal of a business (23) (1)Loss on disposal of property, plant and equipment 2 1Finance income (30) (41)Finance expense 103 58Increase in provisions 95 51Decrease in retirement benefit obligations (8) (11)

Operating cash inflows before movements in working capital 594 627

Decrease in receivables 20 46Decrease in payables (11) (14)

Cash generated by operations 603 659

Corporate taxes paid (2) (2)

Net cash flow from operating activities 601 657

Investing activitiesInterest received 1 3Repayment of loans 3 28Proceeds on disposal of a business 26 1Proceeds on disposal of property, plant and equipment 6 6Acquisition of businesses (14) -Purchase of property, plant and equipment (28) (68)

Net cash used in investing activities (6) (30)

Financing activitiesPayments to and on behalf of partners (610) (617)Retirement benefits paid to former partners (26) (23)Repayment of capital to former partners (12) (15)Partners’ capital introduced 12 12Interest paid (2) (3)

Net cash used in financing activities (638) (646)

Net decrease in cash and cash equivalents (43) (19)

Cash and cash equivalents at beginning of year 72 91

Effect of foreign exchange rate changes (2) -

Cash and cash equivalents at end of year 27 72

Cash and cash equivalents compriseCash at bank 27 72

Consolidated cash flow statementYear ended 31 May 2010

2010 2009

52

Operating SegmentsThe group has four reportable operating segments; Audit, Tax, Consulting and Corporate Finance. The Audit segment provides audit,internal audit, regulatory, risk and control and accounting and financial reporting services. The Tax segment provides business tax, employer and personal tax services. The Consulting segment provides strategy, operations, human capital, enterprise application and technologyintegration services as well as actuarial and insurance solutions. The Corporate Finance segment provides transaction support, reorganisationservices, forensic and dispute services and advisory services.

The reportable segments reflect the group’s principal management and internal reporting structures and are strategic business units that offer different services.

The group evaluates the performance of the segments on the basis of net revenue and profit or loss from operations before unallocatedcosts, finance income, finance cost and tax expense. Net revenue is revenue less expenses and disbursements incurred on client assignments.The adoption of IFRS 8 has not changed the nature or number of the reported segments. The reported revenue and profit of each segmenthas changed as it reflects the results reported internally. The comparative numbers have been restated in order that these are now in linewith the results as reported internally.

Central adjustments largely represents time spent on internal projects by Deloitte members of staff. Unallocated items include any costswhich cannot be allocated to an operating segment on a meaningful basis. Adjustments are made to net revenue and profit as reportedinternally, compared to as reported in the financial statements, such adjustments reflect the different accounting policies adopted.

Performance assessment of the segments includes a review of certain assets such as client receivables net of payments on account anddeferred income and amounts to be billed to clients and prepayments. All other assets, including non-current assets, balances with partners,cash, provisions and retirement benefit balances are controlled centrally and are not allocated across service lines. There is no internalreporting of liabilities by operating segment; and thus no segmental disclosures are provided.

Inter-segment revenue is not material as revenue is shared proportionately by those service lines delivering services to clients.

CorporateAudit Tax Consulting Finance Total2010 2010 2010 2010 2010

£m £m £m £m £m

Revenue 628 511 459 355 1,953

Net revenue (as reported internally) 559 453 376 311 1,699Central adjustments (23)

1,676Profit per operating segment(as reported internally) 206 183 109 130 628

Unallocated (35)Other income 23Finance income 30Finance cost (103)

Profit before tax 543

Tax 1

Profit for the year 544

Operating segment assets (as reported internally) 124 176 96 102 498Unallocated assets 376

Total assets 874

Notes to the financial statementsYear ended 31 May 2010



Operating Segments (continued)Corporate

Audit Tax Consulting Finance Total2009 2009 2009 2009 2009

£m £m £m £m £m

Revenue 647 523 478 321 1,969

Net revenue (as reported internally) 568 460 408 283 1,719Central adjustments (4)

1,715Profit per operating segment(as reported internally) 200 171 135 117 623

Unallocated (42)Finance income 41Finance cost (58)

Profit before tax 564

Tax (2)

Profit for the year 562

Operating segment assets (as reported internally) 144 190 97 95 526Unallocated assets 368

Total assets 894

2010 2009£m £m

Revenue per income statement 1,953 1,969Expenses and disbursements on client assignments (277) (254)

Net revenue 1,676 1,715

54

Operating Segments (continued)The accounting policies of the reportable segments are the same as the group’s accounting policies as described in note 1. Segment netrevenue and profit without the allocation of central costs, other income, finance income and costs and tax expense are the measures thatare reported to the Senior Partner and Chief Executive for the purposes of assessment of segment performance and resource allocation.

Included in group revenue is net revenue of approximately £46m (2009: £50m) which arose from supplying professional services to thegroup’s largest client, which is a non-audit client.

The group’s revenue and information about its segment assets (non-current assets excluding financial instruments) by geographical locationis detailed below. Both revenue and non-current assets are based on those arising in legal entities situated in each country.

Revenue Net Revenue Non-current Assets2010 2009 2010 2009 2010 2009

£m £m £m £m £m £m

UK 1,786 1,823 1,552 1,594 236 220Other Countries 167 146 147 125 13 11

1,953 1,969 1,699 1,719 249 231

To manage and drive the business, the group is managed using a matrix structure which incorporates both service lines and the nature of the industry to which the services are supplied. Revenue by industry is:

Revenue Revenue Net Revenue Net Revenue2010 2009 2010 2009

£m £m £m £m

Financial Services 546 554 475 482Consumer Business 217 213 189 185Government & Public Sector 215 227 187 198Telecoms, Media & Technology 206 248 179 216Real Estate, Hospitality & Leisure 169 157 147 137Manufacturing 161 179 140 155Energy, Infrastructure & Utilities 153 143 133 125Private Equity 65 53 57 46Life Science 63 70 54 61Professional Partnerships 34 39 30 34Other 124 86 108 80

1,953 1,969 1,699 1,719



56

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK privatecompany limited by guarantee, and its network of member firms, each of which is a legallyseparate and independent entity. Please see www.deloitte.co.uk/about for a detaileddescription of the legal structure of DTTL and its member firms.

Deloitte LLP is the United Kingdom member firm of DTTL.

© 2010 Deloitte LLP. All rights reserved.

Deloitte LLP is a limited liability partnership registered in England and Wales with registerednumber OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198.

Member of Deloitte Touche Tohmatsu Limited

With thanks to:Keith and Jennifer Howes; Dave and Suellen Raven; Julie Buckle, the students and staff of Angmering School; Becky Andrews; Mary Andrews; Rowena Paddon; the Royal Opera House for the use of the Paul Hamlyn Hall with Deloitte employees: Charlotte Fitzgerald, Jessica Alvarez and Sarah-Jane Emslie; Rob Lisney; Daisy Demas; the View Tube at the Olympic Park and the London Organising Committee of the Olympic andParalympic Games (LOCOG).

Photography: David Yeo

Design:Roc. www.rocdesign.com

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