n top 75 firms survey BRIEFING february 2014 accountancy The revenue challenge reflects the ongoing challenges in the market. Inevitably one of the biggest costs we have is our employee base Marianne Fallon, director of corporate affairs, KPMG Our corporate finance practice is beginning to see its pipeline increasing Growth is definitely coming and our clients are through in the number of beginning to increase their opportunities we are seeing with 88 discretionary spending existing clients and new clients. There is Scott Barnes, managing definitely more liquidity in the market partner, Grant Thornton Simon Michaels, managing partner, BDO 8 8 YEAR OF CUTS AND MERGERS t has been a year of contrasting fortune PKF, could force Baker Tilly down a peg in the A spate of for the UK’s top accountancy firms. pecking order when the merger beds down. 8 mergers Mergers, acquisitions, administrations Meanwhile, BDO itself was consolidating its and rescues have all featured. Some own merger, which came into force during the between the firms have seen falling profits, others final three months of BDO’s financial year. ‘A large top 10 sees Ithe opposite, with a similar picture emerging amount of our growth has come from the merger,’ for fee income. Although many firms have cut says Simon Michaels, BDO’s managing partner. 8 a shake-up staff numbers, others have been making bold ‘However, there has been some organic at the top, expansion claims. growth in a few areas, predominantly in But amid this complex picture, the sector as financial services, advisory, specialist tax and with more a whole has kept its head above water – overall international projects.’ Encouragingly, Michaels changes set fee income has increased by more than 4% says he has seen the market for the firm’s 8 over the course of the year, with staff numbers services pick up over the last six months of to come, edging up in a similar fashion. In total, the firms 2013. ‘This is definitely coming through in the reports in Accountancy’s 2014 Top 75 survey earned number of opportunities we are seeing,’ he nearly £11.5bn, up from £11bn in the previous says, ‘both with existing clients and new Philip Smith 12 months. Average profits have also increased, clients. There is definitely more liquidity in but only marginally, by around 1%. the market.’ The big story of the year was the demise of However, he does not believe that the RSM Tenon, bringing to a close a decade long Competition Commission’s investigation into story of the listed consolidator. Baker Tilly the large firm audit market has significantly stepped in to acquire the firm in a pre-pack altered the landscape so far. ‘It is a start,’ he administration last September – the combined says, ‘but buyer behaviour is ingrained and it reported income of the two firms topped £330m will take time to change.’ Instead, Michaels in 2013, which would have made them the sixth sees more opportunities for the firm in non- largest firm in the UK. It will be interesting to audit services in this area of the market. see whether this revenue is achieved in the next It is a similar story at Grant Thornton, the 12 months, but each of the firms saw a fall in UK’s fifth largest firm by fee income. Scott income over their latest financial year. Barnes, the firm’s managing partner, saw fee A growing BDO, which reported a 10% income increase 13%, buoyed by significant increase in fees bolstered by its merger with wins in the financial services sector and public www.accountancylive.com accountancy february 2014 BRIEFING top 75 firms survey n I don’t think we are heading into a period of exuberant growth but we have definitely We have set made a bet that the UK ourselves a and global economies are challenging getting stronger growth target for the Steve Varley, senior partner, EY coming financial year and so far we are completely on budget Ian Powell, senior partner, PwC PKF is a game changer for us. We are now working with the agreement of PKFI to select the firms that we want 9 9 Carmine Papa, senior partner, PKF Littlejohn YEAR OF CUTS AND MERGERS sector work – the impact of taking on contracts discretionary spending.’ In particular, Barnes from the old Audit Commission was felt during is seeing growth in work outside the south the second half of the firm’s financial year. east of the country. ‘Talking to our partners around the firm, the However, he does not expect the firm to indications are that our clients are now consider any mergers in the near future and beginning to see the benefits of the economic rejects the idea of ‘bulking up for the sake of it’. recovery,’ Barnes says. ‘Our corporate finance Instead, he will focus on targeted deals, such practice is beginning to see its pipeline grow as last July’s acquisition of the financial and our clients are beginning to increase their services arm of Navigant Consulting. 10 BIG FOUR FEES BY SERVICE LINE Fee income: 3,000 Note: Deloitte UK fee income Audit and assurance 2,621 2,689 only, excludes £209m Tax 2,461 revenue for Switzerland 2,500 2,331 2,306 Consulting and corporate finance 2,118 2,000 1,814 1,703 1,774 1,721 1,598 1,631 1,500 1,329 1,205 1,186 1,072 1,000 500 0 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 PwC Deloitte KPMG EY www.accountancylive.com 397 481 925 1073 370 722 507 804 907 999 1040 459 517 926 1001 309 350 392 380 343 372 431 455 511 534 529 563 360 634 645 659 680 458 456 469 434 403 444 478 478 628 652 663 742 893 909 963 969 Total of all three n top 75 firms survey BRIEFING february 2014 accountancy INCOME BY SERVICE LINE TOP 75 AUDIT AND ACCOUNTING TOTAL INCOME OF TOP 75 FIRMS 20 20 % change 6 8 £bn 11.48 Note: 2012 and 2013 top 75, 15 2 2007 to 2011 top 60 11.03 11 5 10 3 14 16 10.33 10 17 18 9.92 5 19 10 9.82 1 11 9.36 0 13 8.80 -5 12 9 15 -10 4 8 -15 -20 7 -25 7 6 -30 2007 2008 2009 2010 2011 2012 2013 -35 9 Rank Firm £m £m % 2013 (2012) 2013 2012 change BIG FOUR DOMINANCE 1 (1) PwC 969.0 963.0 1 Of course, three quarters of the sector’s fee 30 2 (2) Deloitte1 742.0 663.0 12 10 income is tied up in just four firms – PwC, 3 (3) EY 507.0 478.0 6 Deloitte, EY and KPMG. Combined, they 25 4 (4) KPMG2 434.0 469.0 -7 accounted for more than £8.7bn in fee income, 20 an increase of £352m on the previous year and 5 (5) Grant Thornton 131.1 120.0 9 4 accounting for 76% of total income. 15 6 (6) BDO 111.0 96.0 16 10 All four firms managed to increase their fee 7 (7) Baker Tilly 3 108.0 139.0 -22 10 income, but with varying degrees of success. 8 (8=) Mazars6 81.3 68.8 18 While Deloitte pushed up its fees by 8% and 5 9 (10) Moore Stephens 38.3 57.0 -33 EY by 5.5%, PwC only recorded 2.6% growth 10 (12) Crowe Clark Whitehill 34.4 33.1 4 0 while KPMG struggled to achieve a mere 11 (13) Haines Watts Group7 31.5 31.5 0 10 0.4% increase. -512 (14) UHY Hacker Young 9 25.3 25.7 -2 But the profitability story is different, 10 -1013 (15) Kingston Smith 23.3 23.5 -1 with KPMG outstripping its competitors by 14 (20) MHA MacIntyre Hudson 22.6 21.0 7 producing a 30% hike, driven by a series of 15 (16) Smith & Williamson5 21.1 22.2 -5 job cuts and restructuring across the firm. 10 It was a different scenario at the three other 16 (17) Saffery Champness 18.6 17.4 7 Big Four firms. 17 (18) Wilkins Kennedy 17.6 16.7 5 Deloitte’s profitability fell by 22%, with both 18 (19) Chantrey Vellacott DFK 12.3 12.0 3 PwC and EY recording more modest increases 19= (-) Francis Clark 11.9 11.6 3 of 2% and 3% respectively. Clearly, the firms 19= (-) Buzzacott 11.9 10.0 19 10 are taking different approaches to managing Total 3,352.1 3,268.5 1.4 their businesses. Footnotes: see page 16. This chart only features figures where reported EY, in particular, has made a big deal out of its desire to take on more professional staff in the coming year and was the only Big Four firm 10 to show an increase in staffing levels last year. ‘It is a statement of confidence and intent,’ challenges in the market,’ says Marianne says Steve Varley, EY’s senior partner. ‘In £ 8.74bn Fallon, KPMG’s director of corporate affairs. the first half of this [financial] year, we have ‘Inevitably, one of the biggest costs we have is maintained momentum in line with last year’s our employee base. During the 2013 financial results, which is the culmination of several year we looked at our staff model across the years of strategic planning through the business. There were some parts of the downturn.