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April 30, 2008

Deloitte UK reports a bumper year

Deloitte UK reports a bumper year

In what has been a good period for the professional services market, Deloitte UK is on target to reach the £2 billion revenue mark by the end of the year, according to chief executive and senior partner John Connolly. He speaks to Arvind Hickman about the company’s recent performance and future ambitions.

The past 12 months have been the best in recent years for Deloitte UK – who has reported growth of 15.6 percent and fee income of £1.8 billion ($3.7 billion) for the year ended 31 May 2007.

UK senior partner John Connolly tells IAB that the firm is on target to exceed year-end revenue of £2 billion.

“This year our overall performance was a little better than our growth in earlier years so we are very pleased with our growth rate,” he says.

“Obviously the business has been growing quite well generally over the recent past but this was a good strong performance that we are pleased with. It is broadly in line with the overall direction that we anticipated.”

Deloitte’s results reflect a buoyant year for the professional services market in the UK. Connolly points to factors such as a strong financial services sector, a flurry of investment and mergers and acquisitions  activity as key drivers. Although, he adds, such healthy growth rates are not sustainable long term: “I think it will slow down a little bit but I still anticipate a fairly active market overall. You clearly cannot predict a market, unless you’re in China or India, for the long run where businesses can grow at 14 to 15 percent. That would be unsustainable.”

Model example Connolly believes Deloitte’s decision to retain its consultancy arm in the wake of Arthur Andersen’s 2002 collapse continues to pay dividends. “We’ve managed to maintain a very successful model for consulting and we find that we are very attractive as a place where people want to work in consulting” he says.

“This is partly reflecting the performance of the business and partly reflecting the kind of work we do, the kind of clients that we work with. So it has worked very well for us and we anticipate that to be the case as we go forward.”

Connolly adds: “The focus continues to be on building a strong, balanced practice with a broad range of clients across the private and public sectors. We have seen continued strong demand from across the sectors for high-quality integrated business and technology services.”

In the past year, Deloitte’s consulting practice grew 12.9 percent to generate £430 million gross revenue.

Deloitte’s audit line brought in the highest gross revenue of £557 million, an increase of 14.4 percent on the previous year.

“Our audit practice includes revenues related to the audit of financial statements, audit-related services for audit clients and due diligence risk consulting and advisory services provided by our audit staff for audit and wider-firm clients,” Connolly explains, while adding that financial services and enterprise risk services were particularly strong areas of growth.

Other core audit markets saw weaker growth, which Connolly says follows “reduced activity from IFRS conversion advice and preparation for Sarbanes-Oxley compared with the previous year”. However, he notes: “We have expanded our presence across all client segments. We now provide significant services to 95 percent of FTSE 100 companies and have worked for more than 80 percent of central government departments, devolved administrations in Scotland and Northern Ireland and more than 50 of the larger local authorities and regional bodies.” Bigger and better Deloitte’s fastest growing service line based on gross revenue was tax, which grew by 19.2 percent to £508 million. It also yielded the biggest profit of £165 million. Connolly points to an increasing focus by authorities and tax payers on accuracy, efficiency and timeliness of tax reporting for the rise in workload. He says recent government actions to address business tax competitiveness have also driven demand among international clients.

The remaining service line, corporate finance, grew 15.8 percent to £307 million. Deloitte claims it ended the year at the top of the Big Four in mergers and acquisitions league tables in the UK and also in continental Europe.

The firm’s workforce achieved similar levels of growth to revenue. In the past year, the average number of partners and staff was 11,300 – an increase of 14 percent over the previous year. Deloitte recruited its largest ever intake of 1,400 new graduates and promoted or hired 80 new partners from outside.

The average profit per partner of the firm is £877,000 (up from £765,000) while Connolly’s profit share is £4,656,000 – an increase of nearly £500,000. 

 Looking ahead, Connolly tells IAB there is no particular service line or industry sector the firm will focus heavily on. He remarks: “We’re always looking for new areas where we can help our clients. Some of the skills that we hire are skill areas that we might not have a huge presence in and therefore we are bringing people in to help build a new area of activity.”

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