When you’re already part of a ‘big four’, dropping down the rankings within that group is just relative, but KPMG isn’t having the best time at present. It has just announced a 7% fall in UK profit for its last financial year and that it has dropped behind EY in revenues, making it the smallest among its elite group of peers.
This is the second year in a row that KPMG’s profits have fallen, after increasing spending on its consulting arm and upgrading offices. While revenues increased (up 2.6% from £1.9bn to £1.96bn), the profit drop to £383m in the year to September meant partners were given a 13% pay cut. This works out as a reduction of £92,000 year-on-year – though don’t shed too many tears, they were still awarded an average of £623,000 each.
Simon Collins, UK chairman of KPMG, said, ‘If you look at the way we’re investing this year, the profit story is more "deliberate self harm", to allow us to grow.’ Dubious wording aside, he claimed the investment would be ‘a springboard for growth in the future’. Well, you’d hope so, wouldn’t you?
During the year, the professional services firm invested £49m in acquisitions, £120m in property, plant and equipment and £27m in staff training and development. A look at the details shows KPMG’s advisory work – its biggest business line – was the let down for 2015. Earnings fell 5% to £308m as the firm focused on restructuring its teams, IT enhancements and acquisitions of boutique consultants Nunwood and Boxwood.
‘If I’ve got one disappointment this year it would be the advisory growth rate,’ Collins said. ‘It was perhaps a bit optimistic to think that we could make this type of change in operations and still power through with the same level of growth.’
Audit work looked better though – profits grew 9% to £197m after winning mandates from the likes of British American Tobacco and Barclays. Similarly its tax practice increased profits 17% to £151m, with Collins saying there has been a noticeable switch to compliance work (rather than helping people not to pay tax).
These latest results though, will likely take a back seat as the company waits to see whether the Financial Reporting will investigate KPMG for its role in the collapse of HBOS. The bank was given a clean bill of health in an audit by KPMG shortly before needing to be bailed out by the government and Lloyds TSB back in 2008. The sooner that isn't hanging over the company, the better.
