BDO records £25m Covid hit to profits
10 Dec 2020
Mid-tier firm BDO has recorded a £25m reduction in profits from the impact of Covid-19, resulting in partner distributions dropping 14%, and is warning lower levels of profitability look set to continue
10 Dec 2020
BDO posted revenues of £660m for the financial year 2019/20, a 14% increase on the previous year, but said the rise was due to a strong first nine months prior to the pandemic, with the situation changing dramatically in the spring of this year.
Around 9% of the revenue increase reflects the first full year of BDO’s merger with Moore Stephens back in 2019, with 5% coming from organic growth.
Accounting profit before tax was flat at £137m with underlying business profits falling by £25m, the firm said.
The first nine months of the financial year (July 2019 – March 2020) showed strong growth for the firm, but the impact of Covid-19 and the subsequent lockdown, saw a reversal in BDO’s profitability. In the final three months of the year (April to June 2020), revenues fell by 13% while profits were down 50%.
The fall in revenue in the last quarter equated to a drop of £25m and a £25m corresponding reduction in underlying business profits.
The reduction in profits was absorbed by BDO’s partners, with average distributable profit per partner, before taxation, for the year decreasing by 14% to £518,000 compared to £602,000 last year.
The audit business posted revenues of £247m, up 24% on the previous year. The tax business reported growth of 11%, generating revenues of £187m, with tax compliance and risk advisory services in increasingly high demand. BDO’s advisory revenues grew by 8% to £226m.
Paul Eagland, managing partner at BDO, said: ‘To fully understand our annual results, they should be broken down into two very different periods: pre-lockdown and lockdown.
‘The strength of our overall financial results derives entirely from the first nine months before the crisis hit us.
‘The last three months tell a completely different story with revenues and profits falling as lockdown took hold.
‘Covid-19 has already had a huge impact on our business and we don’t know what lies around the corner. This means we have had to take a number of tough but prudent decisions to ensure the sustainability of the firm and to protect our people’s jobs – not just for the initial lockdown period but also looking ahead to the slow, challenging recovery.’
As well as asking partners to forego their quarterly distributions, BDO also made use of the coronavirus job retention scheme. The firm reported that furloughed employees were paid in full and it has since brought all employees back into full time employment with no redundancies made across the workforce.
BDO recruited 470 apprentices (graduates and school leavers) this financial year and has opened a new wave of apprentice recruitment for another 400 in Autumn 2021.
Looking ahead, the firm said it will be investing around £25m next year in new apprenticeships, technology and on improving quality.