Deloitte UK revenues up 11% as partner profits hit £882k

After a year of hostile criticism of the audit profession, Deloitte has reported a double figure increase in fee income to £3.97bn as the Big Four firm pays out a record partner profit share

Tax revenue from the UK business grew rapidly up 17.8% to £862m from £732m, while audit and assurance revenue hit £1.1bn, up 8.1% year on year from £1,027. Consulting also recorded substantial growth at 9% to £952m as the firm looked to build non-audit business.

The Big Four firm reported combined UK and Switzerland figures, which meant as a whole it increased revenue by 10.9% for the year ended 31 May 2019, from £3.58bn in 2018 to £3.97bn, as the firm continued to invest in each of its businesses and in its people. 

Stripping out the Swiss figures, the UK business reported fee income of £3.43bn, up 11% from £3.09bn in FY18.

For year end 31 May 2019, distributable profit was £617m, up from £584m in the prior year. Distributable profit benefited from a one-off gain on the sale of an investment, lower provisioning charges and currency gains; without these, distributable profit would have been flat.

The firm’s total tax contribution was £1,057m in 2019. This comprised £638m of employment taxes collected via PAYE and employee NICs, and VAT, and a further £419m in taxes including corporation tax, employer NICs and partner income tax.

Over the year, in terms of sanctions from the regulator the Financial Reporting Council (FRC), Deloitte was landed with a £6.5m fine over the Serco audit, reduced to £4.2m, with a hefty £150,000 fine for the audit partner. It is also in the midst of an FRC investigation over audit failures relating to SIG's financial statements.

Audit 

The growth in audit fee income continued as Deloitte picked up a number of major FTSE 100 audits, which started to impact on the books.

The major first year audits currently under way are for BP, with audit fees valued at £27m from the FTSE 100 business, while FTSE 250 Inchcape is worth £2.9m and PZ Cussons £800,000. It also won the £19.6m GlaxoSmithKline audit from year end 2018, earning total fees of £29.8m.

However, the firm has lost a number of major audits, including Close Brothers, but picked up, BAe Systems over the same period. It also walked away from the Ferrexpo audit after only two years in post after a scandal over charitable donations at the mining conglomerate. 

Although the proposals for root and branch reform of audit, driven by government and the public perception of significant audit failures at outsourcing giant Carillion and cake and cafe chain Patisserie Valerie, may not be denting overall profitability but it is putting the firm under pressure existentially.

Stephen Griggs, managing partner audit & assurance, said: ‘We need clarity about what all parts of society – the public, government, investors, business – expect of an audit and the ongoing Brydon review will provide much needed independent insight.

‘However, we do not agree with proposals that would see any form of separation of the audit business from the rest of the firm. Audit quality is considerably enhanced by the investment capacity and access to specialists that being part of a much larger and diverse multi-disciplinary firm allows.’

The firm is building up its out of London business, with the creation of a new Tech Foundry in Reading with plans to create 350 new regional jobs. It hired over 4,000 people in the last year, including 1,200 graduates and apprentices.

The Big Four firm also has a new senior partner, Richard Houston who took up the top job in June 2019 and comes from a consulting background. He originally joined the firm from Arthur Andersen, when it was dissolved after the collapse of Enron.

Sara White

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