Partners at KPMG UK are to take an 11 per cent cut to their pay, as the Big Four firm’s continued investment in staff amid the Covid-19 pandemic held back profit from otherwise resilient revenues.
In annual results that were delayed for two months to assess the continuing impact of coronavirus, the business reported on Wednesday that like-for-like revenue in the year to September 30 fell 2 per cent.
Total revenue was down 4 per cent, from £2.4bn to £2.3bn — reflecting the sale of the firm’s pensions business, which completed in March 2020.
Before the pandemic hit, KPMG UK had been achieving “high single-digit growth”, but revenues fell sharply as clients’ discretionary spending and deal activity dried up. As a result, planned investment in technology and staffing reduced the firm’s full-year underlying profit by 6 per cent year on year, from £307m to £288m.
Average partner profit distribution has been cut by more, however — by 11 per cent, from £640,000 to £572,000 — to protect other jobs and spend on supporting employees across the business. KPMG did not furlough any staff when the pandemic hit and went ahead with recruiting more than 900 graduates and apprentices, plus 950 “experienced hires”. Other costs included moving all UK staff to remote working and introducing an unlimited paid leave scheme.
Bill Michael, senior partner and chair of KPMG, said: “I am more optimistic than I was two months ago but the business is being as prudent as possible and making sure partners take a bigger hit than anyone else. It is about the wellbeing of our staff and our people.”
Partners will take a smaller hit than some rivals, though. In September, Deloitte, another member of the Big Four accounting firms, announced a 16 per cent fall in annual profit, and a 17 per cent cut in average partner pay, to £731,000. BDO, the UK’s fifth-largest firm, later reported that average partner profit distributions would drop 14 per cent, to £518,000, as it chose not to cut costs.
PwC said in December that its partner pay would fall by a similar 10 per cent, to £685,000. Only EY has performed significantly better, with average partner pay sliding just 1.8 per cent to be £667,000.
At KPMG, audit was one of the strongest-performing operations, in spite of a series of damaging scandals at former client companies, including the failed UK outsourcer Carillion and a fund associated with collapsed German fintech Wirecard. It delivered 3 per cent year-on-year growth in net sales, to £606m.
Mr Michael said audit revenue had been boosted by winning new mandates and the extra time and work necessary to scrutinise company accounts amid Covid lockdown curbs.
“Despite the ‘tumble dryer’ the firm has gone through, any chair you speak to will tell you that audit has never been more important,” he added. “The environment is such that, to perform a high-quality audit, the effort you have to put in results in more work . . . assessing [whether a company is a] ‘going concern’ takes a lot of time.”
Mr Michael said KPMG was preparing for the government to set out its proposed reform of audit work and the regulations that govern it this month.
“We are all waiting for the white paper to come out — delay has been our enemy,” he added. “It is really necessary we get this out as the reviews [into audit competition and standards] have been out for a long time . . . I hope the consultation period is not a year but months — otherwise, we are missing an opportunity.”