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Kevin Reed — 2008-10-29T11:31:00.000Z

Kevin Reed, Accountancy Age, Wednesday 29 October 2008 at 11:31:00

The archive of Accountancy Age's How To guides

Welcome to Accountancy Age's How To guides.

From implementing business software to choosing a recruiter, the guides will provide nuts and bolts advice to help you run your business. Click below to view our wide-ranging guides in PDF format.

Keep coming back, as we will continue to update this useful resource with our latest How To features.

How To select a training provider

How To buy small business software

How To choose a recruitment consultancy

How To buy medium sized business software

How To outsource your IT

Abbey Protection to buy consultancy Accountax for £4.4m

Paul Grant — 2008-10-22T09:59:00.000Z

Paul Grant, Accountancy Age, Wednesday 22 October 2008 at 09:59:00

Accounting consultancy Accountax in cash deal with listed professional insurance group

Professional insurer Abbey Protection is to buy accounting, tax and employment law consultancy Accountax in a deal worth £4.4m.

The listed supplier of legal and professional fees insurance products to SMEs will acquire all of the issued shares in Accountax Consulting, Accountax UK and Accountax Law in a cash deal. Abbey protection has insisted that all of the senior management team will remain with the company and expects the group to contribute revenues of £2.5 million in 2009.

‘The acquisition will give Abbey Protection an additional range of services and products to market through our own accountancy practice clients,’ said Colin Davison, chief executive of Abbey Protection. ‘This deal represents an important milestone in our strategy of organic growth and the acquisition of complementary businesses, and we are confident of continued success for the enlarged group.'

Dave Smith, the director and majority shareholder in Accountax, had previously helped fund the case involving Geoff and Diana Jones of Arctic Systems in the husband and wife tax battle against the then Inland Revenue.

WWF in green call to firms

Rachael Singh — 2008-10-16T10:17:00.000Z

Rachael Singh, Accountancy Age, Thursday 16 October 2008 at 10:17:00

The UK chairman of the World Wildlife Fund has called on accountancy firms to get their houses in order to tackle the green agenda

Ed Smith said: ‘Professional service firms have a huge role to play, but those which are planning to advise others on sustainable business must get their own house in order first to pass the credibility test. Our challenge to the profession worldwide is to build climate consultancy into their client services and exploit all opportunities for a low-carbon economy,’ he added.

Smith claims firms should lead the way on climate change, by advising governments to roll out policies that provide businesses with the tools they need to develop long-term commercial strategies.

Richard Chaplin, Managing Partners’ Forum executive director added: ‘The professions play a vital role in promoting clients’ carbon efficiency.’

AATV: The end of the consulting boom

2008-10-16T10:15:00.000Z

Accountancy Age, Thursday 16 October 2008 at 10:15:00

Philip Abbott explains the implications of the latest Management Consultancy Top 75

Kevin Reed talks to Philip Abbott, author of the 2008 Management Consultancy Top 75 survey, about the £1bn growth in revenues in the industry, and how that figure is unlikely to be sustained in the coming years.

Management Consultancy Top 75

Paul Grant — 2008-10-10T15:36:00.000Z

Paul Grant, Accountancy Age, Friday 10 October 2008 at 15:36:00

21st annual survey shows another £1bn on revenues

Accountancy Age's 21st annual survey of the consultancy industry reveals that the top 75 firms exceeded expectations by adding a whopping £1bn to their revenues. But in an industry inextricably linked to the economy, and financial services, there are tougher times ahead, writes Philip Abbott.

To view our coverage of the survey, click here.

Our 21st Top Consulting Firms survey

Philip Abbott — 2008-10-09T16:04:00.000Z

Philip Abbott, Accountancy Age, Thursday 9 October 2008 at 16:04:00

Our annual survey of the consultancy industry reveals that, with earnings up more than £1bn and impressive growth rates, firms exceeded all expectations. But in a sector inextricably linked to the economy There are tougher times ahead

Despite a gloomy economic outlook and fears of a serious recession, the top consulting firms last year added well over £1bn in fee income taking total earnings to over £7.1bn. The growth rate of nearly 18% was considerably more than most firms expected a year ago. It turns out that 2007 was the fourth consecutive year of fee income growth but the signs are that 2008 will be a very different proposition.

Our 21st annual Top Consulting Firms survey has actually produced quite a number of surprises, not least being the growth rate.

A year ago, the firms were projecting that fee income in 2007 would grow at around 11%, or less than the growth of the previous year. In fact, working through all the projections, the expectation was that the total fee income of the top firms would rise to around £6.6bn which, at the time, was thought to be pretty good going considering all the warnings of economic slow-down.

Surprise package

In the event, the growth was considerably more and a good deal of it came from the financial services sector. The worry now for the consulting firms is what might happen in this market in the current financial year.

Spending on consultancy by the financial services industry started to slow towards the end of last year. With high profile losses, the credit crunch and more than a handful of mega insolvencies, spending by this market could plummet and this is a major worry for the next 12 months and probably beyond.

The problem has always been that when the economy falters, the volume of consultancy bought by the financial services industry crashes. It doesn’t just slow it drops by as much as a quarter in a single year.

Between 2001 and 2002, for example, the fall was 27%, or £430m, and it took five long years for consultancy fee income from this market to get back to where it had been. Considering that this is the largest market of all for consultants, and the most profitable, it very much looks as though consultants could be in for a rough ride.

What adds to the problem is that once this sector starts to cut spending on consultancy, others follow suite in rapid succession.

Because the financial services industry is so large in consultancy fee income terms, it has fuelled much of the apparent growth.

Other sectors have also grown, in some cases at a higher rate. The big question now is whether these other markets will start to cut spending, and if so, by how much.

As in previous years, our survey has focused on consultancy defined as business advice. Many of the larger firms on our list of the top consultants have revenue streams from outsourcing, facilities management, implementation and even IT hardware. It is for this reason that for some firms the fee income figures shown on our tables are much lower than the totals shown in financial statements. Simply put, revenue figures from other non-consultancy activities have been stripped out.

It is also for this reason that we have so many estimates. Published financial statements do not always show consultancy revenue anyway and what we ask the firms to provide are figures consistent with previous years.

Mostly, the figures come from the firms themselves but in a handful of cases the revenue figures are what we think the position is. This is particularly true of the strategy houses who seldom, if ever, provide very much financial information.

Another aspect to this is that we ask for figures for the UK business. This always poses a problem for some of the larger firms which like to bunch UK revenue figures with those of Europe, the Middle East and Africa.

As if to compound the problem, there is also the issue of what actually constitutes consultancy. The accountancy-based firms talk of advisory work which often includes corporate finance and risk management.

The strategy houses see this as something far removed from their task of taking a client company from point A to desired point B. And then there is the issue of how firms perceive their competitors. Deloitte, for example, views Steria (who acquired Xansa) as being in a completely different market if not on a completely different planet. There are even firms with very similar fee income figures who operate in quite different markets with completely different services and never compete against each other.

Consultancy has changed enormously over the years. When the first Accountancy Age top consulting firms survey appeared, it effectively listed the consultancy divisions of the larger audit companies. The range of services has changed too. It is an amusing aside, but all those years ago one of the senior consultancy partners of a large firm pointed out to us that the then ‘new’ information technology thing would never catch on, if only because one of the components of the early Amstrad computers was a rubber band.

This year there are a number of new names on the list of the top consulting firms. The largest of these is Steria, the new owner of Xansa. Our figures for previous years show Xansa fee income. We have estimated the fee income figures for Booz Allen Hamilton since the company does not provide financial information for public consumption.

The interesting thing about Booz is that the firm recently split in two with the US Government business remaining BAH majority-owned by the Carlyle Group. The commercial and international firm is, as of July 31, known as Booz & Co.

Mouchel comes onto the list following the acquisition of Hornagold & Hills last year and Hedra this year. We have kept Hedra on our list of top firms since it had 2007 fee income. We have also added Business Control Solutions, Celerant Consulting and CVL (which had fee income growth last year of 140%, the largest percentage gain of any firm).

Also on the list for the first time this year is MVA Consultancy, which focuses on the transport industry. Our figures show that it is actually the second largest consulting firm serving this market, with sector fee income that is not that far short of market-leader Accenture.

Another of the surprises that came out of the survey this year was just how large the volume of some firm’s fee income growth actually was. This year, three firms had fee income growth of more than £100m. Last year there were none.

There are 14 firms reporting fee income increases of more than £25m this year and half of those had gains in excess of £50m. As always, because of their sheer size, it is the largest firms that contribute the most to the total fee income gain figure. Last year we saw nine firms with total consultancy fee income above £200m and this year there are 14. Taken together, these firms account for £5.3bn of the total fee income of all firms on our list, or roughly three quarters of the total.

In addition, their combined fee income gain amounts to very nearly £830m, which is just over three quarters of the total £1.1bn gain.

Large firms seldom have the sort of percentage fee income growth that puts them amongst the leaders in terms of percentage gain but this year that changed. Management Consulting Group, with total fee income of £215 million, had growth of nearly 47% in their last financial year, the fifth highest percentage gain of all firms.

The sixth largest gain came from PricewaterhouseCoopers with fee income up by 39% to £402m. PwC actually had the second-largest fee income gain in terms of actual revenue in the last financial year.

These are actually not just very surprising figures, they are also very unusual. Typically it is the smaller firms starting from a much lower base that have the highest growth rates. CVL, a new entrant to our list this year, is just that and with a fee income gain of just £3.1m had the largest percentage gain of all firms.

Serco Consulting, part of the giant Serco Group, had the second largest percentage fee income gain with an actual fee income increase of just over £15m. EA Consulting Group, which had the highest growth rate of all firms in our survey last year, ranked fourth this year with an improvement of just over £7m, or 54%.

Interestingly enough, EA focuses on the financial services sector and new MD John Kopij (one of the founders of Hedra) is looking to grow the business to a £50m+ company in the next few years.

At the other end of the scale, several firms reported declining fee income in their last financial year.

This may be the start of things to come. As part of our survey, we ask the firms to project their fee income for the current financial year and as many of them are already well into the new year, they have a pretty good idea of what might happen.

What came back from this was cautious optimism. Few firms expect to see growth on the scale of last year but some markets looked promising. Communications and the public sector were the most prominent of these. Fee income from the public sector tends to increase by about 10% each year, not more. Fee income growth from the communications sector is much greater.

The survey was actually done before the recent turmoil in financial markets. The outlook from that sector is grim. It accounted for around 30% of total fee income in 2007, or roughly £2.1bn. A fee income fall of the same magnitude as 2001 could easily result in something like £580m coming off the top consulting firms’ total revenue figure in the current financial year, and that would just be the start of a decline.

Consultants cautious despite £1bn boom

Kevin Reed — 2008-10-09T10:43:00.000Z

Kevin Reed, Accountancy Age, Thursday 9 October 2008 at 10:43:00

Boom year for consultancy profession but financial service sector's woes threaten to eat into the 2007 gains

The UK consultancy profession has enjoyed a boom year, with the biggest firms piling on an extra £1bn in revenues,

But financial service sector woes are already threatening to eat into 2007’s gains, experts said.

The 21st Accountancy Age survey of the leading consultancies reveals that the top 75 firms posted an extra £1bn in revenues in the last year to over £7.1bn. The industry grew by nearly 18%, beating last year’s projections of an 11% gain.

The financial services sector represented 30% of total fee income, around £2.1bn. But previous surveys have shown that in tougher economic conditions financial services revenues fall dramatically.

‘Between 2001 and 2002 for example the fall in financial services revenues was 27%, or £430m, and it took five long years for fee income from this market to get consultancy back to where it had been,’ said survey author Philip Abbott.

Management Consultancies Association CEO Alan Leaman said financial services revenues would ‘inevitably slow’.

‘The upheaval in the financial services sector will inevitably slow this level of growth and our own half-year survey suggested this was already starting to occur. Financial services is an enormous strength for the UK economy. We are looking to the government and FSA to protect this sector.’

Consultants working in sectors providing advice in tough times, such as outsourcing and change management, could prosper, he added.

‘Turmoil brings change and the best companies will be using consultants to maximise their competitive advantage at this difficult time. Current market conditions undoubtedly mean challenging times for many organisations,’ said Deloitte head of consulting David Owen.

‘However this means a greater need than ever for businesses to operate more efficiently than ever’.

Three firms, Accenture, PricewaterhouseCoopers and IBM Business Consulting Services, all posted growth of more than £100m. Last year nine firms posted fee income above £220m, compared with 14 in the latest survey.

PwC increased its market share to 5.6%, compared to 4.8% last year. Accenture holds the greatest market share, at 13.7%, a fall from last year’s share of 14.1%.

Special Treatment

Andrew Rogoyski — 2008-09-24T16:22:00.000Z

Andrew Rogoyski, Accountancy Age, Wednesday 24 September 2008 at 16:22:00

Government must ensure it’s hiring consultants for more than just extra manpower

It’s time for the public sector to think differently about how it uses consultants. This change is vital if consultants are going to make the contribution they should be making to current government objectives in terms of providing value for money for taxpayers, streamlining the public sector and generally running the country more efficiently.

Above all, government needs to spend less time commissioning reports from consultants and more time thinking about just what it wants consultants to do for them, not only in a practical sense but also at a strategic level.

On the one hand, government is aware that consultants can offer in-depth expertise and value for money. On the other, government, by definition, contains politically-minded people, and many of these people baulk at the idea of a consultant earning in a day (or at least his or her consultancy charging out) more money than many government employees earn in a week.

Consultants are for many politicians the equivalent of a sitting duck. Whenever the debate starts focusing around what government is spending on consultants, you can be pretty sure that most, if not all, the emphasis will be on the sums of money involved and very little on the benefits derived.

The simple fact is that government is too willing to engage consultancies not for the in-depth quality of the work and thinking the consultancy can offer but simply as convenient manpower substitutes.

What the public sector really needs from consultants is something it all too often doesn’t actually get: genuine skills transfer deriving from relatively short-term projects that don’t use dozens or hundreds of consultants but use the right consultants to get the job done.

Skills transfer means precisely that at the end of the day the consultants’ skills should be embedded in the minds, and ideally also in the processes, of the public sector organisation.

When looking at the kind of consultancies that can offer this type of skills transfer and service, it’s not a question of size. Some smaller consultancies are good at it; so are some larger consultancies. It’s more a question of attitude.

The question a public sector body really needs to ask, and answer, when it is contemplating hiring a consultant is: What it is I really need to get done?

This will not necessarily be easy to answer. But you do need to ask and, to get maximum benefit out of asking, you need to think hard about the type of answer you need.

The crucial distinction to make is between hiring consultants to effect some key change related to a vital strategic objective, and hiring consultants simply to carry out a job that you could do yourselves if you had the manpower.

This latter use of consultants is merely manpower substitution, whereas the former would effect a lasting and major change that would go well beyond mere manpower substitution. It’s like the difference between an army commander preparing for a big battle by doing some good hard strategic thinking about how to overcome the enemy’s strategic or logistical weaknesses, or simply hiring a bunch of mercenaries to undertake the fighting.

The strategic use of consultants is bound to be more cost-effective in the long run, because active strategic change will (or should) result from it. Seek consultants that can offer genuine strategic insight and thought leadership. After all, isn’t that what a consultant really is?

Also, think twice about hiring a consultancy unless there are people in your own organisation who can learn from the consultants and, after the consultants have departed, can take over what the consultants were doing. Too often there is nobody on the government side to be the recipient of skills transfer.

Having decided that you want to appoint a consultancy and are doing so for the right reasons, how do you decide which particular consultancy is likely to be best for you? The guidelines in the box above are all vitally important.

Ultimately, consultants should help make the public sector bodies for which they are working more agile. When consultancies can offer all this to public sector organisations, then they will have staked a real claim to be deserving of the privilege of consulting to government.

And it is a privilege. After all, it’s your country.

Andrew Rogoyski is head of the government practice at business and IT consultancy Charteris

Profile: Alan Leaman, CEO, Management Consultancies Association

Kevin Reed — 2008-09-24T16:18:00.000Z

Kevin Reed, Accountancy Age, Wednesday 24 September 2008 at 16:18:00

The consultancy industry has never had the best of reputations – so it should come as no surprise that the sector’s lead body has chosen a media savvy CEO to set the record straight

For an industry that has had a reputation of all mouth and no trousers, it’s somehow fitting that the Management Consultancies Association has appointed a CEO with a strong background in PR and political communications.

But Alan Leaman is unapologetic about a CV that includes several years as Paddy Ashdown’s head of media relations, policy advice and chief speech writer, and an OBE for his services to the public and politics. He has more important things to worry about; such as sorting out the industry’s reputation.

‘It was a challenge I couldn’t resist,’ says Leaman.

The task of representing a £6bn sector includes convincing the media, public and government ministers about the valuable contribution the industry makes.

This task has been sharply focused with the recent sacking of PA Consulting from its £1.5m contract with the Home Office after it lost a data stick containing confidential prisoner information.

But in truth, a long and undistinguished line of larger project failures between government and consultants exists, and PA ‘s loss hasn’t altered the urgency of Leaman’s task.

‘There was a view from staff and members that there was a big job to done here. We’re at the stage where they want an effective, powerful organisation representing us that can punch the industry’s weight,’ says Leaman.

It’s not as if consulting is a new thing. Advisers helped with restructuring businesses as after the Second World War for example, and businesses work much more effectively following lessons from the Y2K debacle. But government and consulting? They don’t seem to gel.

Leaman agrees that there’s plenty to do on that front: ‘There are issues. I wouldn’t say the relationship is in anyway ideal, and needs to be improved. We’ve opened discussion with the Office of Government Commerce and others, partly about the industry making sure it communicates that it’s adding value: to talk about that more effectively.’

So the way they work together is not as bad as we think?

‘The bottom line is there’s a heck of a lot of good work going on: public sector projects delivering real, good, high quality innovative projects.’ Leaman cites the aforementioned PA Consulting’s work to improve the way the Highways Agency watches over trunk roads, and IBM’s work on the tax disc project.

But there is plenty of room for improvement. ‘We need intelligent discussions, and move from rather primitive slogan swapping.’

An example of the battle Leaman and the industry faces was illustrated by Lib Dem shadow chancellor Vince Cable, who made what Leaman refers to as a ‘throwaway’ comment about the gravy train of management consultancy.

‘That is sloppy, shallow thinking,’ says a clearly riled Leaman, ‘there’s no attempt to analyse that [statement], justify or substantiate it. That sort of talk just does a lot of damage to the industry but equally to the way that people think of the public sector as a purchaser. So that’s what we want to get stuck into and improve.’

Leaman’s frustration comes from his belief that management consultants’ reputation is paramount to their future success.

‘The importance of communications and reputation management in the 21st century can’t be underestimated and applies to individual companies their relations to customers, employees and industries as well. The management consultancy industry is saying “we’re ready to play in that place and invest in it”.’

But ‘improvement’ goes beyond the MCA talking a good game on behalf of its members.

The association is looking to advocate high standards in the industry through tough entry criteria into the association, and perhaps more importantly a code of practice, ‘so membership is seen as a real badge of quality’.

Leaman credits MCA president and Accenture senior executive Hugo Were for kickstarting the review of the MCA. ‘I’ve come in halfway through so lots of the groundwork has been done. He thought “let’s do a stock-take”, which has been productive and energised a lot of people.’

An aspect of altering the perception of the MCA arose during this review. As the ‘voice of the industry’, the association has lots of important things to say.

This autumn it will publish details about the nature of the economic downturn we

face, and what has been learned from previous lean times.

For an industry that traditionally sees its revenues dry up when times get tough, this piece of thought leadership will surely extol the virtues of consultants when times are tough, not just when the cash is rolling in.

‘In lean times, the first reaction of clients is to cut consultancy,’ agrees Leaman, ‘but at the moment it’s not showing up from our surveys or anecdotally…so maybe the better relationship between our members and private sector is a result of being able to use [consultants] in down times as much as in up times.’

There are a number of compelling reasons for this, he argues.

Business has a generation of senior managers that have not faced an economic situation as bad as this, and they want help on operational and financial restructuring, cost-cutting and downsizing. They are also looking to protect their talent pool.

For an industry looking to build a good reputation, this very issue is also key for their clients. Will they too enter into reputationally harmful strategies to stay afloat: ‘Will you screw suppliers?’ asks Leaman.

The industry’s efforts to provide counter-cyclical services, something accountants have worked on for years, sees it ‘better prepared for economic constraint’.

With the current financial services turmoil intensifying, Leaman sees no chance of consultants taking the blame for poor risk management and controls among banks and investment houses: ‘In the end boards and managers are responsible for their companies - plus it is heavily regulated.’

Instead, it’s the reverse. ‘It will put enormous pressure on companies to l ook at their information and management control issues. Even in financial services (where consultants have made plenty of money in the past) I can see a lot of work there [for the profession].

Another issue that reared its head at the association last year were concerns that IT services giants should not be classed as management consultants.

Deloitte threatened to withdraw its membership, with head of consulting David Owen warning at the time that the MCA had ‘segmentation issues’.

Leaman says that the association is ‘determined’ that members have management consultants on board. ‘Even though our members are very diverse they must have a management consulting arm,’ he says.

As a result of the hoo-ha, the MCA has revised the way it analyses the industry in its reports, and, for now at least, everything seems quiet on the Western front.

The MCA chief’s brief ties in nicely with the announcement from the Treasury of a new professional services group, headed by economic secretary to the Treasury Kitty Ussher and Kingston Smith senior partner Michael Snyder.

The Professional Services Global Competitiveness group will look at medium and longer-term issues affecting professional services. Accenture’s MD Simon Whitehouse sits on the panel, and the MCA will imminently put in a paper on its thoughts.

‘Consultancy was cited as an area they wanted to work on. That was encouraging and we want to build on that as part of the family of professional services,’ says Leaman.

Step in the right direction

AccountancyAge.com — 2008-09-24T16:09:00.000Z

AccountancyAge.com, Accountancy Age, Wednesday 24 September 2008 at 16:09:00

Changes are afoot to improve the tarnished reputation of consultancies in government

As EDS and the taxman threaten to head back to court and get back to the serious business of airing their dirty linen in public, there are signs that the consulting industry and government want to engage in less divorcing and more counselling. And about time too.

The more generous minded would describe the recent relationship between the public sector and the consulting industry as a qualified success. In many areas consultants have delivered bang for their considerable buck, providing essential advice without which Whitehall would have failed to make significant change programmes happen.

To the more cynical and many casual observers the relationship between the two has been costly, inefficient and ineffective. From health service reform to the education department’s delivery of SATs, critics would argue, there has been a disconnect between consultants and civil servants. And it is the taxpayer who has suffered.

But change is afoot. The Management Consultancies Association is in talks with the Office of Government Commerce to improve the way in which it communicates.

PA Consulting isn’t just losing data sticks containing prisoner records, it argues, away from the public eye it is undertaking much-needed work to improve the way the Highways Agency watches over trunk roads.

And there’s the rub. The industry continues to grow at inflation-busting rates (we will be revealing all next month) but its reputation lags. In many ways it is caught between a rock and a hard place. It’s beaten up for its failures, as PA and others will tell you. But it is also attacked for its successes. Vince Cable recently referred to the industry as enjoying a gravy train when it comes to public sector work.

Communication may not the be all and end all, of course, but it is a start.

comment@accountancyage.com

Consultants move to dispel their gravy train reputation

Kevin Reed — 2008-09-24T15:13:00.000Z

Kevin Reed, Accountancy Age, Wednesday 24 September 2008 at 15:13:00

Consulting industry goes on PR offensive with government to bolster its damaged image

The consulting industry has begun talks with government to try and counter its gravy train image.

Lib Dem shadow chancellor Vince Cable last week renewed a familiar attack on the industry, that it is paid huge amounts of taxpayers’ money despite a string of failures.

The new head of the Management Consultancies Association Alan Leaman said there was ‘a heck of a lot of good work going on’.

‘We’ve opened discussion with the Office of Government Commerce and others, partly about the industry making sure it communicates it’s adding value,’ said Leaman.

The OGC is responsible for ensuring the public sector gets best value from consultants.

Leaman said that the meetings were the start of the association’s strategy of convincing government, business and the public that consultants’ services adds value.

The MCA’s task has not been helped by PA Consulting’s sacking from its Home Office contract after losing a data stick containing details of tens of thousands of prisoners, and recent comments from Lib Dem shadow chancellor Vince Cable saying that the ‘gravy train’ of consultancy must end.

Dismissing Cable’s comments as ‘sloppy, shallow thinking’, Leaman admitted the public sector and consultancy must improve their relationship. ‘There are issues. I wouldn’t say the relationship is in any way ideal, and needs to be improved.’

The MCA is setting up a group of members tasked with feeding back to the government how it thinks the relationship can be improved.

‘We don’t want this to be a negative exercise and a list of complaints. We’ll nail the issues,’ said Leaman.

The MCA is also set to contribute to the consultation opened by the Treasury’s new professional services global competitiveness group, headed by economic secretary to the Treasury Kitty Ussher and Kingston Smith senior partner Sir Michael Snyder. The group is looking at medium and longer-term issues affecting professional services.

Profile: Robert MacLeod, Atkins' CFO

David Jetuah — 2008-09-11T17:06:00.000Z

David Jetuah, Accountancy Age, Thursday 11 September 2008 at 17:06:00

Atkins' CFO Robert MacLeod tells our reporter how the global engineering consultancy bucking the economic trend to emerge from the metronet debacle with its reputation intact

As soon as you step across the threshold at Atkins’ leafy Epsom offices the illusion of suburban idyll is shattered. Not many companies ask guests to list their citizenship when they sign in and you immediately get an idea of the scope and the security procedures at the global engineering company.

CFO Robert MacLeod greets Accountancy Age with a handshake that could have easily stood in for an industrial vice on one of Atkins engineering projects before he ushers us into his office.

MacLeod is upbeat as Atkins has recently published its yearly numbers.It posted revenues of £1.3bn and an increase in pre-tax profits of 24%. The company is the largest engineering consultancy in the UK, the largest multidisciplinary consultancy in Europe and the eighth largest design business in the world, providing engineering, highways and rail services.

At a time when most of the business world is battening down the hatches, Atkins is doing a roaring trade and MacLeod sees no reason why this will not continue. ‘Margins have gone up, the profitability has gone up, revenues are up and we’re hiring more people. All these things are saying that the strategy of focusing on engineering excellence is working.’

But for all the bullish sentiment the company is far from bullet-proof, particularly when Atkins found itself in a murderous crossfire as Metronet collapsed. The company was one of five plcs with a stake in Metronet but when the underground maintenance company said it had run out of cash, Atkins, Balfour Beatty, Bombardier, EDF Energy, and RWE Thames Water’s worst nightmare came true.

‘On that particular contract we lost £120m, so it was a very significant hit for us. There’s no silver lining to losing £120m but you learn the lesson and move on.’

MacLeod says the main issue for Atkins was working with an intermediate, which handled the work on the companys behalf. Atkins had moved outside of its business model and got involved in a contracting joint venture. ‘We’re not a contractor,’ says MacLeod. ‘Now we’re working directly for the company which is now in public hands rather than the PPP.’

Atkins’ CFO recalls that there were worrying signs way before the scandal hit the headlines. Teething problems emerged from the outset but just like the other five backers Atkins was past the point of no return and fully committed to the deal. ‘After two years, the chief exec was replaced so within a fairly short period of time we could tell things weren’t going as well as we’d hoped. Sometimes when you go off on the wrong foot, you can never get back. It was not good, it distracted us and it took a lot of management time and effort and we deeply regret it and for us the biggest disappointment was that it did fail.

‘The fact that we are still working for the new Metronet and won the M25 contract (worth around £500m to Atkins) where we are preferred bidder does say that we are still trusted. And rather than stepping back from the problem, we went onto the front foot and really tried to engage.’

A combination of shrewd decision-making and good timing has helped Atkins to pre-empt fallout from the credit crunch. Last year, the company set about trimming the excess fat and sold off its Lambert Smith Hampton real estate business before the credit crunch hit.

The good times can never be guaranteed so Atkins is guarding against an ‘inevitable’ slowdown in parts of the business by thinking about how to redeploy ‘scarce resources’ into the most effective areas.

MacLeod says the Middle East part of the group is ‘growing massively’. It provides design, engineering and project management services for buildings, transportation and other infrastructure through seven offices in the Gulf, and India. In China Atkins has planning, urban design, architectural and engineering services in the mainland market and Hong Kong. Moving people to these potential cashcows is Atkins preferred direction of travel. ‘We don’t want to have a hire and fire mentality. It doesn’t work in a people-based business.’

For MacLeod, the CFO role is the perfect job, and he attributes his attraction to the role to the simple phrase: ‘I can do numbers.’

This may seem like a glaringly obvious statement, but it’s a single-minded approach

to a job with such a diverse spectrum of operations.

Due to its scale, the Atkins operates on a heavily devolved basis and he says that the company has a very good relationship with its auditors PricewaterhouseCoopers.

‘They’ve had a much deeper delve into the business than we have because it’s heavily devolved and that’s invaluable to us and the rest of the board,’ says MacLeod.

Some 85% of its trade is UK-based but Atkins provides services across the globe and plans for more work in overseas tax jurisdictions, which is why, like many other UK companies, it craves some clarity from the Treasury on the taxation of foreign profits.

‘Tell us what you’re going to do and stick with it,’ MacLeod demands. ‘At the moment, the international things in particular, there seems to be a lack of crystallisation about where they are going to go. One minute they are going to go this way and next minute they change their minds and that’s just unhelpful. What I would like is some clarity and that will make our lives easier and then we can make some reasonable decision about where things are going and invest accordingly.’

Internal communication

MacLeod adds that, for all of a CFO’s City-facing responsibilities, internal communication was just as important especially in terms of working out key performance indicators. ‘If you’re going into harder times you’ve got to spend more time talking to the business than sitting here in our ivory tower because they’re the ones who know what’s going on.

‘You have to get closer and closer to the coalface to do that. We run a heavily devolved management business so we have the right people and allow them to get on with the job. Of course, you’ve got to run a set direction and set guidelines in terms of delegation of authority and corporate governance but once you’ve done that, let them get on with it.’

Naguib Kheraj recently said that he had knocked back several finance jobs to hold out for a chief executive’s position, the job coveted by many an FD, but MacLeod was single-minded enough to not just follow the herd.

‘I don’t think I’m looking to be a chief exec. You’ve got to recognise what you’re good at and the FD role is what I’m good at. What I really enjoy is working with good people and working alongside a good and talented team and chief exec. As a CFO, you can get a lot more done if you get that dynamic right between the chief executive, the finance team and the rest of the business.’

career highlights

Being proactive has always been high on MacLeod’s agenda. A qualified chemical engineer, he followed in his father’s footsteps by taking up accountancy in order to get a good business grounding. A KPMG summer internship during his third year at Cambridge University lit the touchpaper on his accountancy career and he never looked back.

MacLeod went back to KPMG after completing his degree and embarked on a steady climb up the corporate ladder after qualifying. He won the financial controller’s position at Atkins in March 2003 and was promoted to FD barely 12 months later.

IMS stress

Companies have been landed with publishing interim management statements in addition to their other reporting requirements and MacLeod panned the extra burden.

Instead, where we were reporting four times a year, we’re now reporting six times a year with the IMS. It’s just too much.’ After reporting annual results on the 25 June, Atkins had to post an interim management statement on 6 August only six weeks later. ‘We’ve got an AGM trading statement on the third of September which is four weeks after that. Our business doesn’t change that rapidly. Talking to the analysts they actually don’t need that information because frankly I don’t know what we are going to tell them. These additional IMSs don’t help. It has just added to the burden of the work we do.

‘One would hope that the FD and management teams in our kind of business, which is more project-based rather than transactional-based like retail for example, we would be able to have a good idea of what’s happening in the market.’

MacLeod said that the finance function was now more efficient in its reporting and tax structuring, treasury management, and how it utilise its skills and drive the business forward, but still took issue with other parts of the reporting regime.

‘There’s a lot more disclosure about debtors and financial instruments. For a business like ours, financial instruments information isn’t particularly relevant for us or the shareholders. I do sometimes think that there’s this blanket application rather than doing what’s more fit-for-purpose for individual companies.’

MacLeod added that the reporting burden had increased to such an extent that Atkins’ annual report had swelled to 120 pages in 2008, from 88 in 2005. ‘We’ve added 32 pages and I’m not convinced that’s helped anybody. If you compared the two sets of accounts the extra you are giving isn’t helping the shareholder.’

Contractor rules are 'too vague', says Redston

Judith Tydd — 2008-09-11T01:33:00.000Z

Judith Tydd, Accountancy Age, Thursday 11 September 2008 at 01:33:00

Anne Redston, professor of tax law at Kings College, says areas around so-called ‘substitution’ clauses are still unclear following the Dragonfly case

Rules on contractors’ tax affairs are still too vague, an expert has warned.

Following last week’s Dragonfly case, which again tested the controversial IR35 rules, Anne Redston, professor of tax law at Kings College, London, said areas around so-called ‘substitution’ clauses are still unclear.

The right to substitute an alternative if a contractor cannot do the work required is seen as a key litmus test as to whether or not the contractor is self-employed.

IT consultancy Dragonfly failed to overturn a tax demand for £99,000, since its contractual absolute right to substitution was not matched by the reality of

the situation.

Redston said the case highlighted that a more limited right to substitute an alternative would not get contractors past IR35 rules.

‘They’re all cases in the grey area, but each time one of these cases goes to court it draws the line more firmly in the sand for freelancers,’ Redston said.

Redston said while the outcome of the Dragonfly case came as a disappointment to the freelance fraternity, it wasn’t a surprise.

‘This judge hasn’t changed anything. It’s shone a much brighter light on substitution,’ she said.