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.”