Top50+50 analysis: Mixed bag of success

by Rachael Singh

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13 Jan 2014

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TOP TOP 50+50'Spopularity is as strong as ever, with more new entrants pushing the total number of constituents to 120 - the largest number of firms since the list began 15 years ago. It must be noted that this could skew some of the results and analysis. Some firms may have increased their fee income and shown steady growth, but because of the influx of new entrants, some firms have been ranked lower despite their improved performance. However, the table itself is interesting reading, showcasing the highs and lows of the profession as a whole. 

This year's Top50+50 has continued to show strength and resilience against an on-going tough market in which audit fees have come under pressure, clients have remained in defensive mode and offering tax planning services has been perceived as a dark art. Yet, the firms remain defiant and have continued to deliver increased fee incomes year on year. The Top 50 posted a collective fee income of £10.95bn, up from £10.3bn in 2012 and £9.79bn in 2011, offsetting a decline of nearly £80m from 2010 to 2011.

The Big Four firms of PwC, Deloitte, KPMG and EY alone make up £8.35bn of the total Top 50 income, with all four reporting growth in their fee income. However, all four of the firms posted their figures based on 2012 year ends.

Four pillars
One of the biggest reasons for their success has to attributed to consultancy, which has increased to £2.3bn from £1.7bn as firms reposition themselves in the wider advisory space and seek to earn more fees from other sources rather than traditional audit and tax service lines.

It is unclear if the firms are bunching forensic investigations into their consultancy figures, which could explain the impressive increase. In the last year there have been several high profile cases in which the Big Four have been called in to investigate the books with PwC called in by the government to look at the bidding process for the West Coast Main Line.

Following allegations there were problems with the bidding process, PwC stepped and revealed significant flaws in that process - which saw FirstGroup awarded the contract over incumbent operator Virgin Trains. KPMG was also brought in by US IT company HP, to investigate the business' acquisition of UK company Autonomy, after a $5bn (£3.1bn) black hole was found in its books due to the deal.

However, it's understandable that firms are branching out after core audit and tax services have taken a beating. The FRC's latest AIU report into the audit work of several of the larger firms claimed that the competition for audit fees is fierce, and they were trying to make the process more streamlined and efficient in order to keep fees down for clients; sometimes risking the quality of the work itself.
"I don't see consulting as a fair weather or bad weather proposition, I see it as a through the cycle intimate relationship with our clients. Advisory services are core alongside audit and tax," said Simon Collins, senior partner and UK chairman of KPMG told Accountancy Age earlier this year.

Across the Big Four, audit fees were up slightly to £2.6bn, compared to £2.5bn in 2012. Other notable service lines, such as corporate finance and tax, have shown moderate improvements too.

The recent Public Accounts Committee vendetta against complex tax planning, or avoidance, seems to have seeped into the Top 50; Big Four tax fee income has marginally increased to £1.99bn in 2013 compared to £1.94bn in 2012. The fallout from the furore over Starbucks and Amazon's tax positions - though there have been others - could suggest that firms are shying away from promoting legally available tax options to put forward. Meanwhile, corporate finance in the Big Four has also seen slow growth to just £910m from £898m in 2012.

Going for growth
The majority of firms across the top half of the table posted growth figures, with 35 reporting increased fee income compared to the 11 which showed a decline.
Top of the growth figures is Zolfo Cooper, which saw a phenomenal growth of 53.9% based on figures obtained from Companies House.

According to the firm's year end 31 March 2012, in 2011 it had turnover of £25.8m. It doesn't give any detail as to how it made the leap, but does outline the acquisition of a subsidiary's assets and liabilities and claims turnover represents value of both billed and unbilled work. As a pure insolvency firm, Zolfo Cooper has increased its insolvency work in the last 12 months, most notably with fashion retailers Nichole Farhi in July this year and Clinton Cards in May 2012.

Bishop Fleming, meanwhile posted an impressive growth of 23% to bring its fee income to £16.3m and improved its table ranking to 40th in 2013 from 46th last year. However, in 2012's table it also posted a growth rate of 28%. It seems that Bishop Fleming is seeing the fruits of its acquisition trail; in August 2011 it acquired the Worcester office of Rabjohns, which had three partners and 26 staff, while in the same year it also acquired the Bath office of collapsed firm Target which had about 40 staff, in December.

Other serious winners in the top half of the table were Francis Clark, which posted growth of 21%, with this increase seeing the firm climb the table to 24th from 28th. The firm posted double digit growth in all its service lines with its corporate finance division growing 158% to £1.35m for the year ended 31 March 2013 - this includes 11 months of actual figures and one month estimated. However, the firm said it expects partner profits to remain the same in 2013/14.
Of course if there are winners there too must be losers.

Unsurprisingly RSM Tenon, acquired by Baker Tilly in August, posted a 12% decline, after an accounting blackhole was discovered last January. However, the only other listed firm, Begbies Traynor, also struggled with a 4.6% decline and a fall of one place to 15th on the table. In the 2012 table, the firm said fee income was £61.5m, however it has now restated them to £60.6m (last year was an estimated figure). In July, Begbies reported that pre-tax profit had fallen to £2.4m for the year ended 30 April 2013, from £5.5m in 2012. The firm is primarily based on the insolvency market and has felt the brunt of the decline in corporate insolvencies, which were down nationally, by 10% for the year ended 31 March 2013.

The foundations
Snapping at the Top 50's heels are the +50. They have seen largely the same figures in terms of growth and decline by number of firms. The +50 saw 31 firms post growth, compared to 14 which showed a decline in fee income. Although the rankings have changed quite substantially due to the influx of 12 new firms across the entire table, ten of the new entrants are in the +50. Just Zolfo Cooper and ASE are the newest ranks in the Top 50. The ten new entrants to the lower table are: Lubbock Fine (63); French Duncan (68); Gerald Edelman (68); Cowgill Holloway (68); Tait Walker (76); Bennett Verby (81); Harrisons (85); ClearSky Accounting (87); Ecovis Wingrave Yeats (95); and Grunberg & Co (100).

New entrant ClearSky Accounting stormed into the table with 42.7% growth in fee income. Limited company ClearSky, which is part of consultancy business Optionis, is aimed at freelancers and contractors. In the past 12 months the firm acquired Manchester-based Michael Brookes & Co and is already planning at least two further acquisitions for the year ahead. Dains also highlighted an impressive 26.4% increase which could be down to its acquisition of RSM Tenon's Stoke-on-Trent office in August last year. Insolvency firm Harrisons also posted a 24% increase more than a year after it spread out into London, acquiring an office there and recruiting former Bridge Business Recovery partner Tony Murphy to head up that division.

However, there were also losers. Critchleys' had a 2.3% decline and drop to 73 from 65. Meanwhile Jeffreys Henry, which lost three major audit clients, dropped to 83 from 76 and saw its fee income decline 0.01% to £5.3m. However, it managed to recoup most of its loss, from the audit clients, through its consultancy and corporate finance service lines. Cowgill Holloway saw its fee income drop 7.9% to £8.5m, which it attributes to a demerger in which £1.1m in fees failed to be recognised in its figures.

However, there is still optimism among the firms. Although the majority believe that the year ahead will continue to prove difficult for their client, many are planning to grow organically or through acquisition. ■

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