Strategy and planning

Making tomorrow happen today

Harnessing its global Strategy & Innovation expertise, Deloittes consulting division provides powerful support for clients in conceptualising and planning for transactions.
As a first step, the Deloitte team focuses on the formulation of broad business strategy including: growth through M&A business structuring to enable M&A, subject to balance sheet tolerance new products / services expanding into new markets value scenarios and competitor analysis core business strategy carve out of non-core activities organic growth vs M&A identifying medium / long-term strategy Clients engaged in mergers and acquisitions are supported in their efforts to capture promised synergies while building a strategic platform for the future and meeting ongoing commitments to stakeholders. Deloitte helps to consolidate accounting, corporate tax, human resources, technology services and other business functions while also addressing the cultural and human resource issues in any M&A transaction.

For further information, please contact:

Thiru Pillay
Director, Deloitte Consulting Tel: 011 806 5098 Email: thpillay@deloitte.co.za

Understanding the strategic rationale for corporate action, will set the tone and direction of all processes that follow.

Carve out and disposal

As part of an effective M&A process, carve out and sale of non-core activities is an important strategic option. Deloitte firmly believes that every business is a portfolio of activities and exiting can be a value creation exercise rather than a failure issue. The objective of a carve out is generally to focus on the core business, free up the balance sheet or to exist poor performing areas and is driven by the objective of maximising value as reflected in the share price and enterprise value. Deloittes strategy team has wide experience in managing the direct and indirect consequences of such transactions.

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Strategic Finance

Quantifying the implications of business strategy

For more information, please contact:
Mergen Reddy
Principal, Deloitte Consulting Tel: 011 209 6276 Email: mereddy@deloitte.co.za

The relationship between strategy and finance is vitally important to any business which is contemplating a significant transaction. Our experience shows that the failure of major transactions can often be traced to oversimplified or incorrect assumptions regarding finance and strategy. As a result, the expected synergies and benefits dont materialise.
The Deloitte Strategy & Strategic Finance (SSF) team specialises in solving complex problems, helping executives understand the link between transactions and strategy, and ultimately the steps required to increase the return on capital and to realise enhanced performance. The SSF team, which forms part of the Strategy & Innovation business, has played a pioneering role in merging the fields of strategy and finance to develop strategies which sustain a companys competitive advantage. This is achieved not only by enabling our clients to do more in terms of their activities, but also by performing these activities better thereby creating tangible and measurable long-term value. With expertise in such diverse sectors such as tourism and travel, entertainment, disease management and healthcare, consumer products and luxury brands, mining and metals and pharmaceuticals, Deloitte has assembled an exceptional team of people, many recruited from leading universities worldwide, who work with some of the worlds leading corporations. The SSF team has taken a core traditional investment concept the portfolio theory and applied this textbook model to the world of business and financial strategy, assessing multiple versions of the future and then selecting the best options for that future. The importance of risk and return is highlighted at all times.

Understanding the interdependence between strategy and finance will assist in building and sustaining a competitive advantage.

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The SSF team tackles questions such as: What should we do next to sustain growth? How can we grow a shrinking South African business? How can a business swap passive risk for active risk, i.e. how can the business use financial tools to remove risks related to non-core activities?

Strategic Finance identifies, developes and screens options for growth Screen 1
Principles Screening Criteria: Business Rules Company Vision Company Strategic Intent

Screen 2
Financial & Economic Debt structure Cash-flow Economic feasibility Capital structure

Screen 3
Structural Industry performance Operational structure per an option

Options

Passes: Appropriate Option Option Conditions for success

Fails

Fails

Examples of Strategic Finance projects: Growth Strategy

A major precious metals investment company was contemplating how to grow while still meeting certain ownership and regulatory constraints. The company believed that the best way to move forward was to change its investment structure to hold more liquid assets and pay down debt. We were able to prove that the proposed strategy destroyed capital and further reduced the net asset value by 50%. Our proposed strategy allowed the company to meet debt obligations using cheaper debt and grow its asset value while creating an acquisition fund without changing its investment structure.

Broadcast rights
A major national broadcaster had decided to buy the rights to an international motor racing event. The value of the deal was contingent upon a number of assumptions governing the revenue generated by advertising, sales and broadcast rights. The broadcaster believed that all assumptions were sound and the deal should proceed. However, the new strategy failed to consider whether the capital required to fund the initiative could ever be raised in the debt market. Our analyses proved that the funds could not be raised at a cost which the broadcaster could accept to reach a suitable rate of return.

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Innovation and corporate venturing

Building an engine for growth
For more information, please contact:
Thomas Jankovich
Principal, Deloitte Consulting Tel: 011 209 8839 Email: tjankovich@deloitte.co.za

To ensure ongoing success, businesses must source, prioritise design and implement opportunities that lead to accelerated growth on a sustainable basis. Strategic innovation management and corporate venturing is the key to creating new and sustainable sources of revenue and profitability.
The concept of strategic innovation began as an internal process to enhance the growth of Deloitte in South Africa, but has subsequently grown into a global programme for our clients and has also become the benchmark of success for processes of this type. The Innovation team has served some of the best known companies in South Africa and across the world. The businesses Deloitte has helped create for clients in recent years have generated over $3 billion in new revenues and the team has already committed to growing an additional $2 billion over the next 5 years. The Strategy & Innovation team has a strategic alliance with a team of futurists that has created over 150 successful new businesses in the past 10 years. This team of 150 highly skilled people at its core, applies strategic thinking, action and execution to steer businesses to sustainable value creation and growth. The objective is to help the CEO, who has an appetite for some measure of risk and significant growth ambitions, by providing a process to identify new opportunities as well as methodology and skilled people to fast track that process. The Deloitte team focuses on creating sustainable profit growth through innovation, thereby building shareholder value. In the course of an M&A transaction, this team can become vital currency, offering value propositions and business cases and providing strategic alternatives. In a listed environment, the CEO has to deliver to meet stakeholder demands in the short-term, leaving little time to think about long-term options. He needs new ways to win. The Innovation team steps beyond the traditional consulting model to actually create and run new businesses for companies who do what they do well, but who do not necessarily have the new business building capabilities. An example is the case study featured on the next page.

The objective is to help the CEO, who has an appetite for some measure of risk and significant growth ambitions.

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Innovation and Shareholder Value

Position for Tomorrow High Usually outside the core business New capabilities and skills are required Large initiatives Relatively longer payback period Exercise options Punished by markets

Market Cap./Earnings

Rewarded by markets

Low Today Time Future

Optimise Today Maximise the core business Directly leverage core Smaller initiatives Short pay back period to generate cash for quickwins Options taken on larger initiatives go long or short

Shaping the future through innovation

The challenge
Instead of becoming complacent on the strength of very positive results, South African short-term insurer Telesure wanted to create new revenue streams and kick-start the next wave of profitable growth. Under CEO Leon Vermaak, the challenge was not simply to grow the top line incrementally by introducing more products, but to aggressively create new businesses that could pursue new markets.

The result
$40 million per annum in new profit. A new business, Auto & General Business Insurance, generating R6,7 million per annum. A new business Why Walk? From zero to profitability in 12 months. A new business 1LifeDirect $600 million in life cover sales in its first five months. A new business MobileOne became the largest player in its field in just six months Three new businesses launched in nine months, with six more maturing in project development.

The process
Deloittes Innovation team designed an Optimal Innovation Structure and started developing new businesses. After the Innovation Mandate was developed and signed off, opportunity maps where drawn up where various value propositions and business cases could compete for funding and implementation. The Strategic Innovation Program (SIP) team then became a dedicated new business unit.

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