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September 27, 2010

Deloitte results: Cause for optimism

Deloitte: Fiscal breakdownDeloitte has increased global revenue by 1.8% to $26.6bn, momentarily inching ahead of rival PricewaterhouseCoopers.

The network has also unveiled plans to hire 250,000 accountants in the next five years, including 40,000 this year – a sign the network believes the global economy is recovering.

Deloitte’s growth is due to the strength of its consulting business and solid demand in Asia and Latin America. PricewaterhouseCoopers is due to release its global figures in a month and will need to grow combined firm revenue by at least 1.7% to hold onto top spot.

Deloitte global chief executive Jim Quigley told the International Accounting Bulletin that it is too early to tell whether Deloitte’s results are indicative of a wider recovery from professional services networks. In the 2009 reporting year, network revenue contracted by 6% on average.

The Deloitte is seeing some major differences in business sentiment compared with this time last year.

“Last year the question we were asking is are we going to see a recovery,” Quigley said. “What has changed is we now are talking about the shape of the recovery [and] I believe we have begun a sustained recovery.

“I am seeing the economy firming and confidence growing. Some of the capital that has been on the sidelines is coming off and capital transactions create opportunities for us.”

It is impossible to predict how Deloitte’s great rival PwC will perform this year. In the past few years, Deloitte has closed the gap on its rival (see chart above), although in the UK PwC recently reported stronger growth than Deloitte. Whichever network ends up on top, the lead is likely to be marginal.

Any revenue growth by accounting networks is a positive result because economic conditions are still tough in most western markets.

Race to the top: In the past five years Deloitte has closed the gap on PwC as the world’s largest accounting network

Fee pressure should ease

Deloitte’s global audit revenue declined 1% to $11.7bn despite the network increasing its market share of the Fortune Global 500 by 1%.

“We do have increased volume in the context of service power but on a rate-per-hour basis there was some softness and it is simply an outgrowth of the pressure broadly for us to reduce [clients’] break even point and to try to squeeze ever dollar,” Quigley said.

“[I expect to see this pressure easing] because of the recovery, and through our continued innovation and use of technology in delivering those services, we will become more efficient.”

Tax revenue and financial advisory revenue also dropped, with a global M&A drought affecting these services.

Deloitte’s strongest business was consulting, which increased fee income by 15% to $7.5bn. This growth included the acquisition of several consulting firms, such as BearingPoint’s North American public sector practice and the UK real estate consultancy Driver Jonas.

“As we see public sector spending becoming an increasingly significant component of global GDP there’s going to be an opportunity to serve the public officials who have the stewardship responsibility for that significant component of our economy,” Quigley said, adding that public sector work increased 38%.

The other advisory areas that performed particularly well were restructuring, strategies and operations and technology consulting.

Quigley believes governance and risk management is a service of the future and Deloitte is investing in this area accordingly.

“We are assisting many businesses as they become risk intelligent enterprises,” he says. “Also, there is so much capital on the sidelines that we believe M&A is going to be an area of significant growth opportunity. There’s also the whole broad area of finance transformation in business processes.”

Another area Deloitte is looking to get more involved in is data analytics.

Quigley notes that Asia-Pacific has been the fastest growing region for Deloitte in the past five years and he predicts this to continue.

Deloitte is investing most heavily in the BRIC countries, followed by the Middle East and South-East Asia. Quigley believes Indonesia and Vietnam are markets to watch.

Deloitte has more than 170,000 employees. It plans to add to this by recruiting 50,000 new hires a year. This indicates the network is optimistic about the future and committed to remaining the largest employer of accountants in the world.

In a month, the network could also be crowned the market leader in revenue.


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