With a turnover of £1.228bn Deloitte is only £227m behind PwC’s fee figure of £1.505bn on continuing operations. Deloitte has previously stated that it wants to become the number one UK firm within two to three years, but there is still a question mark over how realistic a prospect this is.
Deloitte’s latest reported revenue saw an increase of more than a third on its 2002 figure. This was largely down to the acquisition of more than 3,000 partners and staff from Andersen, following its collapse last year.
To match PwC’s current turnover figure would require further fee growth of 23% over the next year from Deloitte. In an economic climate that is less than favourable, this would be quite an achievement.
After all, the events that befell Andersen don’t happen very often and, with growth not easy to come by, it would take the acquisition of a firm like Grant Thornton, with possibly another on top, to achieve the fee income required to surpass PwC.
That is assuming PwC stays at the same level, or shrinks again next year.
While the firm has acknowledged that it had a tough year financially, it won’t be expecting to see the same figures this time next year.
Sustainability was a key word used by PwC chairman Kieran Poynter throughout the firm’s results presentation. He was also keen to point out that PwC was the only one of the Big Four in the UK not to take on partners from the downfall of Andersen, which undoubtedly affected the results of the other firms.
For PwC, last year was one of retrenching to cope with the tough economic climate. It reduced staff and partner levels by 9%, which no doubt accounted for some of the fee reductions it encountered. It also sold off its consulting arm to IBM, which would have contributed a further £99m in turnover to the figures. Deloitte, of course, is the only Big Four firm to retain consulting within its business, which in turn added £321m to its income.
Despite the tough conditions, PwC remains relatively proud of its performance this year.
‘During the year we won 57% of audit proposals where client fees were £50,000 or more, whether this was for new business or retendering with current clients,’ says Poynter. ‘We have had some big wins with high-profile companies, but have also made a major impact in the middle market as well.’
The firm has now finished with its cutbacks, which, alongside staff reduction, identified £90m of cost savings, and is now starting to recruit once again. It has also invested heavily in technology and knowledge management systems to enable it to work more efficiently, and is exploring opportunities in the middle market outside of London.
While the impact of regulatory changes may have had a negative effect over the last year, with Poynter admitting that Sarbanes-Oxley had impacted heavily on its tax work, it may also now help the firm.
‘Clients have asked us to increase the scope of the audit above what they have asked for previously and the regulatory environment continues to push people in that direction,’ says Poynter. ‘We also expect to see an increase in fees independent of that.’
Perhaps the biggest test of how well PwC has performed will be when KPMG’s latest results are published in the New Year. KPMG has been less heavily affected by the acquisition of Andersen partners than Deloitte and should provide a better reflection of the overall economic climate. If, however, the firm still manages to significantly improve on its position of last year then it could set warning bells ringing at PwC and give strong hope to Deloitte that it can actually become top dog.
– Email Paul_Grant@vnu.co.uk.
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