KPMG sees profitability fall 20%

Despite a 5% increase in revenues, a mix of investment write-offs and one-off items have seen KPMG’s UK profits fall by 19.5%, Calum Fuller reports

The firm’s profit before tax and members’ profit shares fell from £374m to £301m, which led to a reduction in average partner remuneration from £582,000 to £519,000.

KPMG also cut the number of partners to 590, down from 631 in 2016. At the same time, staff numbers were up to 6.5% to 13,969 (13,112).

Growth areas for the firm included audit, which posted 10% growth after securing the audits of BT Legal & General and Micro Focus. According to Accountancy's FTSE 250 survey, audit generated £495m, up from £451m in 2016. KPMG had 63 FTSE 250 audits in 2016, generating £42.6m, while PwC took £63.3m from 69 clients. In the FTSE 100, KPMG took £113m in 2017 from 24 clients.

However, the firm has faced hefty criticism over its audit of HBOS prior to the bank’s near collapse during the financial crisis of 2008. The FRC elected not to pursue action against the firm, prompting the House of Commons Treasury Committee to launch an inquiry into the failure of HBOS and the role of regulators.

The committee was scathing of the FRC’s ‘very serious mistake’ not to pursue the case, which it said ‘appears to be as inexplicable as it is unacceptable’.

Meanwhile, KPMG’s consulting practice grew 1.7%, bringing in £539m compared to £530m, split between £285m for management consulting and £254m for its risk consulting services. Management consulting grew 11% from £257m, while risk consulting fell 7% from £273m.

The implementation of international regulatory initiatives, such as the OECD’s Base Erosion and Profit Shifting project, stimulated demand for tax compliance services and advice, the firm said, leading to an increase of 4% to £425m, up from £410m.

Despite activity in the European M&A market reaching its most intense levels since the financial crisis, and advising on the merger deal between Tesco and wholesaler Booker, KPMG’s deal advisory revenues fell 4% to £372m from £386m.

The chairman’s pay was £1.4m, which reflects nine months remuneration for the former chairman Simon Collins and three months remuneration for the current chairman and senior partner, Bill Michael.

KPMG's UK annual report 2017 is available here

Report by Calum Fuller

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