Profits drop at Grant Thornton as restructure takes its toll

Grant Thornton has taken the bold move of accounting for restructuring costs in one hit after its merger with Robson Rhodes, so that it can draw a line under the costly tie-up and start to rebuild without any further damage to its revenues.

The costs of the restructure were booked in the UK’s fifth biggest firm’s 2008/2009 results, leading to a drop in profit per partner of 19% to £201,000,
However revenues only fell 4.1% to £378.2m, in line with many accountancy practices.

The GT results come after a rollercoaster year which saw accountancy practices across the UK look at ways to reduce costs as the credit crunch battered the economy.

To 30 June 2009, its audit practice grew by 3.4% to £121.2m, with recovery and reorganisation growing by 11.0% to £75.4m.

Activity in the forensic arm rose by 13.1% to £16.7m. However, corporate finance revenues dropped by 33.0% to £44.0m, which had a knock-on effect in transactional tax services, leading to a 4.9% drop in tax revenues to £97.7m.

Scott Barnes, the firm’s most senior figure, spearheaded the decision against smoothing out the costs from its merger with Robson Rhodes, an expensive move that put the firm under serious pressure when the UK’s economy buckled.

“To be totally transparent about the issue, we’d just done the merger with Robson Rhodes back in the middle of 2007 and it meant we went into the recession with too high a cost base. Clearly what we did in the second half of our financial year had a major effect on revenues.

“We had too many partners and slightly too many staff and we needed to rationalise the outfit.

“[The new board appointed in] January has tried to take out the costs and rightsize the business relative to what was going on in the economy,” said Barnes.

“What you are going to see from 1 July 2009 to 30 June 2010, is the benefit of that. We are forecasting a significant increase in our profits per partner for this year even if the revenues stay flat or go down.”

GT is also forecasting growth in forensic and recovery of around 10% each this year.

As part of the restructure, Grant Thornton partner numbers were cut from 286 to 235 and around 200 staff left the firm.

Barnes, who has endured a baptism of fire after taking over on 1 January 2009, stood by the decision to merge with Robson Rhodes ­ a move which some commentators have claimed was too ambitious.

“I wouldn’t say it was too ambitious. Hindsight is a wonderful thing, but I absolutely do believe, strategically, it was the right thing to do. The timing [of the credit crunch] just couldn’t be forecasted.”

After bringing in 177 new trainees, Barnes added that the firm would be committed to bringing in new talent to take full advantage when the practice was working flat out.

“If you cut back on trainee numbers, it gives you a massive problem further down the track. We couldn’t afford not to have people there when the upturn comes.”

Further reading: Best use of internet - practice: Grant Thornton