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KPMG UK profits fall 13%

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17th Dec 2012
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KPMG reported UK profits down by 13% to £349m last year, due to the current economic situation and Eurzone crisis.

The Big Four firm's European umbrella LLP, which saw profit fall across Europe by 5% to €861m overall in the year to 30 September, released its annual report this week. 

The firm's turnover grew 9% to a fraction under €5bn across Europe, but profits were affected by increased costs and reorganisations in audit and tax and fell to €861m from €903m the previous year. 

The UK picture was similar with fee income up 9.6% to €2.2bn (£1.8bn), driven by risk management.

But declining profitability saw the profit share for KPMG's 602 UK partners fall nearly 20% to £508,000.

The firm's departing senior partner, John Griffiths-Jones, nevertheless enjoyed a salary increase to over £3m.

UK senior partner Simon Collins said 2012 had been a "challenging year". 

"We were pleased to grow revenues and some parts of our business such as risk consulting and management consulting have seen double digit growth. We continue to invest in these areas and in helping our clients prepare for growth," he said. 

"Our profitability fell because of investment and because we maintained high staff levels in some areas of our business in anticipation of a wider economic recovery that failed to materialise. Nonetheless we continue to invest for the future," he added. 

There are signs that UK market conditions are improving and KPMG are confident for 2013, he went on to note.

The firm recently confirmed 275 redundancies within KPMG UK and warned that further job cuts may be necessary. 

"In future, we will reduce both our administrative costs and complexity by slimming down our management structure," said chairman Rolf Nonnenmacher. 

"We have seen a creditable performance from ELLP firms in what remained a difficult marketplace. The downturn in Europe has become a very long and lingering one and the environment is difficult for companies across sectors. Meanwhile, the debate  over the future of audit continues in the wake of the financial crisis," he added. 

Risk consulting services saw a high level of growth in the firm, at 16%. Other areas that grew include management consulting and transactions and restructuring.

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Replies (7)

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By Bob Harper
18th Dec 2012 09:58

Time to change the business model

Its time to change the business model for big and small. 

Move away from time based billing thinking to Value Pricing and completely change the management mindset by getting rid of timesheets.

Bob Harper

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
18th Dec 2012 10:23

Bob - I don't think KPMG is listening...

Bob - are you sure your message is really a "one size fits all" prescription that would apply to a pan-European entity such as KPMG or any other of the Big Four?

These are huge organisations that have invested heavily in their business models during the past century. Even if they wanted to reshape themselves, I really don't think they're capable of implementing your suggestion. Part of the reason for their reduced profitability this year is due to restructuring.

How much is it going to cost them to reshape their businesses and retrain all their staff?

I also think you haven't acknowledged the extent to which KPMG and the other Big Four have moved into business consultancy, risk assessment, and all manner of added value services away from the compliance arena (which is the loss leader that pulls in business for them).

And finally, while I don't profess to be intimate with KPMG's internal work management processes, do you really know that they haven't dispensed with time sheets and applied value pricing in some areas?

In common with many other accountants, they probably also keep timesheets so that they can plan and manage resourcing and profitability - if you're working on fixed fee engagements, it would be important to be able to assess the costs going in to ensure that you extract a reasonable margin.

We've pursued your line of reasoning so many times before that I'm a little reluctant to stir up the arguments again. But I also think parroting the same message over and over again no matter what the circumstances diminishes your credibility and that of value pricing among many accountants.

Thanks (7)
By Bob Harper
18th Dec 2012 12:07

Yes

@John - Yes, I am sure Value Pricing is the right business model. Not interested how big they are because market share doesn't = profit share.

No, I don't expect KPMG to listen to me...a bit like most accountants but I do believe they can change. Even if this means getting rid of clients/staff. 

Timesheets are not needed for planning, managing and/or measuring profitability. There are more effective ways to do these things.

You think what you want about my comments. I think your comments reveal you are also stuck in "time is money" paradigm and don't really understand Value Pricing. If you did you'd support my call for the profession to change it's business model.

Cheers

Bob

 

 

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By Jeeves
18th Dec 2012 16:01

Nicely put John

Bob it's good you've no expectation of a global practice to change based on your comments. But are you really suggesting that the top 4 accountancy firms haven't mastered the art of extracting money from clients?

I appreciate that, as you put it, market share doesn't equal profit share, but even after a 20% fall the partners profit share was £508,000.  Can you point to a practice using the Value Pricing model who have improved on that?

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By Bob Harper
18th Dec 2012 16:36

Nice

@Jeeves - when I was at PW the billing was time based and I guess is that they all keep timesheets so I believe they are not optimising their pricing.

What's £508,000 as a percentage of sales? We could then compare that against accounting firms that use Value Pricing.

My point is that they are doing what the majority of the profession is doing; leveraging resources (people's time) and the sheer amount of resource is what delivers £508,000.

Sales increasing, profits falling and less people needed in the future...this is what has been predicted for the profession for years and it now seems to be starting at all levels.

Over the next 10 plus years most firms will notice average fees falling and more competition for clients. Without a change in the business model the end game is fewer firms and accountants.

Bob 

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By BigBadWolf
19th Dec 2012 10:33

@ BOB

Change the record!

If your ideas/ theories were so good and practical - you would be running a successful Accountancy Practice - not have a long trail of failed businesses behind you!

Thanks (1)
By Bob Harper
19th Dec 2012 11:37

BBB

@NotSoBigOrBad - for the record, Value pricing is not my idea/theory and one liquidated software company in the only "failure".

I don't call it a failure because the underlying business is sound - the liquidation was forced due to accountancy firms not be able to get finance agreements because of the Credit Crunch. The software and the firms that use it are doing well thanks.

I stopped being involved in an accountancy practice to do the software. But, getting back involved is an option with the re-launch of Crunchers franchise in April this year. But, do franchisees want me building my practice or helping them build their?

Would me running a successful practice mean I'm right? 

Bob

 

 

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