PracticeConsultingTop 50 – Sector-by-sector analysis

Top 50 - Sector-by-sector analysis


Audit remains the long-suffering, unglamorous cousin of all the other accountancy business lines.

Kicked around for years as a low-balling method to win other, more lucrative business for firms, audit is struggling to match the growth in areas such as tax, corporate finance and consultancy.

In fact, Accountancy Age’s survey reveals that audit grew by just 8% across the Top 50. Growth of just over 9% for the Big Five is only marginally more impressive, especially when they can claim double-digit growth in fee income.

KPMG could manage just 12% audit growth last year, while Ernst & Young raised its game by even less – 7% – in the year to June 1997.

The sad readings for the Big Five come despite vigorous attempts to reinvent and streamline the audit process. Most firms have launched new audit products within the past couple of years, the financial benefits of which may only start to filter through in next year’s figures.

Lower down the table, smaller firms are also struggling. Smith & Williamson, ranked 12, scraped a 2% increase, while Neville Russell (15th) recorded growth of 5.3%.

Some firms did buck the bleak trend, though. Kingston Smith notched up an impressive 23% growth in audit-fee income, while Levy Gee, ranked one place higher at 21, grew its audit practice by 18%.

Zahir Fazal, an audit partner at Horwath Clark Whitehill, says it is difficult to look at audit in isolation. ‘Audit is still an integral part of the practice, but it has been under pressure.

‘We are sometimes appointed purely as auditor, but we often bring in a huge amount of tax and other advisory work on the back of audit,’ he says.

In corporate finance, the smallest firms in the table have delivered some of the most impressive results. Cooper Lancaster Brewers led the charge with a rise of 65%, followed by MacIntyre Hudson, a mid-tier pretender with fees up 33%. Together, they hauled the average rise of smaller firms’ business to 26%.

Of the Big Five, Ernst & Young outperformed the fees average of #38m, producing a total of #47.5m. But Deloitte & Touche produced the fastest-growing corporate finance division with fees up 14% compared to the group’s 12.5% average. KPMG saw its fees rise 11% to #36m.

BDO Stoy Hayward produced the largest boost to corporate finance fees, seeing a rise of 31.6% to #11m. A review of other Group A firms is restricted, however, since a number of firms failed to release results for the survey.

Within the smaller-firms sector, where some of the most impressive new business is done, fees from respondents averaged out at #2m.

Michael Chartress, head of the corporate finance division at Coopers Lancaster Brewers, which increased business by 65% to #695,000, says this growth was brought about by improving specialisms in the corporate finance sector. There has been considerable growth at the Manchester office headed by Nick Weston.

An important new development in corporate finance work has been the rise of regional firms. MacIntyre Hudson, based in Milton Keynes, said the success of its corporate-finance division had come from increased business clients becoming aware that ‘these services are available outside London’.

Tax Impressive performances from smaller players in the tax sector have shown it is no longer just a case of Davids versus the Big Five Goliaths.

The Big Five’s fees average out at #140m, but the average rise of 13.9% lags behind the specialised services found among the minnows. Ernst & Young comes out on top, with fees of #158.8m. National head of tax Douglas Fairbairn says the firm’s success has come from ‘the ability to provide added value solutions for our clients’ tax problems’.

KPMG sees the greatest overall rise – 17% to #152m – a clear challenge for supremacy.

Best performer overall in terms of percentage growth is Group A outfit BDO Stoy Hayward which sees its tax department grow by 31.1% to #32.7m. A lack of entries from Group A firms has limited analysis of how much work has been prised from the Big Five. Average Group A results from submitted figures are up 12.1% to #22.8m.

Neville Russell’s national tax partner Andrew Burgess says the firm’s 5.2% rise in tax income to #8.6m reflects the growth of specialist consultancy assignments. ‘In recent years, we have invested in developing the skills of tax specialists in areas such as VAT and in corporate transactions such as mergers.’ But some of the relative tiddlers in the sector are notable in their increased tax fees. Fraser Russell and Brebner Allen & Trapp are the biggest risers, with increases of 30.5% and 30% respectively, easily outperforming the Top 50 average fees increase of 13.4%.

A spokesman for Fraser Russell says the increase in work had come from the firm’s in-house tax return service.

A spokeswoman for Kingston Smith says its growth of 13% to #1.9m is more an indication of overall growth in client business than a bespoke tax service. Martin Muirhead, a partner at Kingstons, says the increased demand could be as a result of the Labour government and self-assessment.

Insolvency Bad times for the economy mean boom times for accountancy firms’ insolvency departments. So, after a reasonable year for UK plc, it is not surprising that the results for insolvency businesses last year were decidedly mixed.

There are winners and losers in every category although, for the Big Five, the picture appears to be worse than for Group A firms and the rest.

Ernst & Young and Deloitte & Touche, ranked four and five respectively, both recorded big falls. Deloitte’s insolvency revenue fell by 15% to #24.1m while E&Y’s dropped by 5% to #29.6m. KPMG, ranked number two, recorded a modest rise – just 2% – to #39m.

Among the mid-tier firms, Kingston Smith, ranked 22 in the league table, showed the biggest rise of all respondents – an impressive 44% that took income from its insolvency practice to #520,000.

Scott Barnes, head of insolvency at Grant Thornton, says his unit has increased its insolvency income by moving into advisory work, mostly supplying banks, and by picking up work in troubled sectors such as textiles.

It recently took over the administration of the Pierre Victoire restaurant chain after expansion plans went awry. Scott claims the year-end results to 30 June show a rise in income of 10% to 12%.

Pannell Kerr Forster has also picked several insolvencies in the last few months but, like Grant Thornton, refuses to supply financial information for the survey, making it difficult to determine just how well the company is doing. Management consultancy

Management consultancy provided the former Big Six with much needed growth in 1997, but all others have found it increasingly hard to penetrate this lucrative sector.

The Big Five firms continue to be the dominant players in the consultancy sector, which grew by 24% as a whole to reach #2.6bn in 1997.

The PwC merger created a consulting behemoth that is projected to earn almost #500m in consultancy fees in 1998, according to Accountancy Age’s sister magazine Management Consultancy.

PwC dwarfs its nearest rival in this sector, Andersen Worldwide, which earned #221.5m in 1997 – #164.5m from Andersen Consulting and #57m from Arthur Andersen. As an independent entity, Arthur Andersen is not quite in the big league, but is something of a rising star in specialist IT consultancy, where it doubled its income to #13m.

KPMG Management Consulting boasted earnings of #153m, Deloitte Consulting #129.8m while Ernst & Young made #108m in the 11 months to June 1997.

Group A firms’ consultancy earnings are more difficult to discern from the reported figures, but point to a steady decline. BDO Stoy Hayward’s consultancy income dropped dramatically from the #12m reported in 1996 to #3.2m in 1997. Most of the accountancy firm’s reported fees were earned by its London-based consultancy wing, but a group of the firm’s management consultants negotiated a management buyout in 1996 and now operate independently.

The Stoys listing also does not include the #3.6m earned by one of its associate firms, Solomon Hare of Bristol.

Neville Russell, too, experienced a decline in consultancy fees from #3.3m in 1996 to #2.5m in 1997.

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