Deloitte UK Profit per Partner increases to GBP970,000

Against a background of turbulent and complex markets, Deloitte in the UK reported a strong performance for the year ended 31 May 2008. Gross revenues grew by 11.5% to reach GBP2,010m, just exceeding the GBP2 billion target set two years earlier. Net revenue (revenues net of client disbursements) grew by 11.8% with good growth in each division. Profits available for distribution to partners and retired partners increased by 19.4% to GBP683m. Deloitte has appointed 60 new partners in the year and 1,400 new graduates will join the firm in the next few months.

John Connolly, Deloitte Global Chairman and UK Firm Senior Partner and Chief Executive, commented:

Markets and Business Performance
“Following a continuous period of high growth, the environment for advisory services was adversely impacted for much of this year as the US sub prime crisis and its wider consequences reduced the level of business opportunity across the firm. Our performance, which I regard as very strong in these markets, reflects a continuous and relentless twin focus on our clients and our people.

“On the client side, we have combined an obsessive commitment to quality with a sharpened focus on clients’ needs in these changing and challenging markets. We have re-emphasised our actions to retain our people seeing the value of being fully and appropriately resourced, especially as the economic and credit environment improve.

“The significant reduction in the number and value of M&A transactions and the marked reduction in the level of real estate activity had an adverse impact on our revenue across the firm, but especially so in Corporate Finance and Tax where we have a leading position in Private Equity.

“Achieving double digit growth in the firm and each division reflects the strength of the Deloitte brand, the scale and value of our client relationships in all segments, the resilience of our broad-based capabilities and particularly our efforts to identify and capture high growth opportunities which emerge in this environment.

“Our Audit practice built further upon the winning position it has attained in the last few years achieving net revenue growth of 11.1% with particularly strong performances from our security, risk and regulatory teams, combined with a continuing flow of new clients in our core audit division. New clients this year included Barratt Development, Corus, Gallaher and Taylor Wimpey. Deloitte is now the co-leader in share of FTSE 250 audits.

“Tax had a very good year, notwithstanding the significant impact of the downturn in M&A activity. Net revenue growth was 10.6% fuelled by our leading position in many service lines and the opportunities offered by a tax environment that remains uncertain with continuing legislative change leading to a demand for our compliance, reporting and accounting services. The accelerated interest in the UK from emerging markets has led to a healthy demand for the services of our international tax team.

“Consulting net revenue grew by an exceptional 13.2%, with particularly strong performance in enterprise applications, the business systems planning and implementation unit. From an industry perspective, the highest growth was achieved in the financial services and the technology, media and telecommunications practices. A particular success in the year was securing a number of major contracts which were supported by our key propositions, including finance transformation, enterprise cost reduction and business critical programmes.

“Finally, our Corporate Finance division achieved extremely robust net revenue growth of 13.1% notwithstanding a significantly reduced rate of growth in the last quarter. Whilst boom time M&A work has tailed off, growth was buoyed by debt, forensic and restructuring work and our agility in responding to changing client needs. Of the five significant Structured Investment Vehicles (SIVs) restructurings that occurred in 2008, Deloitte led the four largest projects including the headline grabbing $9bn receivership of Cheyne Finance. Our forensic and dispute services group has seen tremendous growth over the past year, with revenues up 50% and our corporate finance advisory team had a successful year assisting with multinational deals particularly those involving Infrastructure or Sovereign Wealth Funds.

Profit
Profit before tax grew by 16.0% to GBP654m and total profit available for distribution to partners and retired partners increased by 19.4% to GBP683m.

The average profit per partner increased to GBP970,000 (GBP877,000). The profit share of the Senior Partner and Chief Executive was GBP5,696,000 (GBP4,656.000) and the share of profit allocated to the partners who were members of the Executive Group, which includes the Senior Partner, totalled GBP44m (GBP34m).

Audit Transparency Report
Simultaneously with the publication of our Annual Report, we will publish an Audit Transparency Report a year ahead of that required under the Statutory Auditors (Transparency) Instrument 2008. This early release underpins our commitment to delivering quality and openness.

The Audit Transparency Report presents an overview of our approach to governance, quality, quality control and risk management, and outlines our standards relating to independence, conflicts of interest and ethics.

The report includes financial information designed to highlight the importance of the auditor’s statutory audit work as required by the Statutory Instrument. Key features of this information include:

• Audit division gross revenues of GBP619m (GBP557m) represents 30.8% (30.9%) of the firm’s revenue;
• The revenue earned from undertaking statutory audits was GBP367m (GBP332m) representing 18.3% (18.4%) of the firm’s revenue.

Corporate Responsibility and the Community
Emphasising the value our people place on the firm taking a leading position in contributing to the wider community and running our business responsibly, this year we set a new benchmark in commitment showing leadership in the business community.

In December 2007, we announced the ground-breaking sponsorship of the London 2012 Olympic Games and Paralympic Games alongside our appointment as the official provider of professional services to the London Organising Committee for the Olympic Games and Paralympic Games. Our appointment is a source of great pride to our people and reflects our longstanding commitment to the ideals of the London Games and our market-leading position in the business of sport. Our work in support of LOCOG will bring to life the depth and breadth of Deloitte’s capabilities, and our exceptional track record in delivering the most complex and challenging projects. We are already seeing the difference our association with the London 2012 Games is having on our graduate recruitment, and in motivating and retaining our people.

We are also proud to have an equally exciting partnership with the British Paralympic Association and SportsAid, where our support for disability sport at the grassroots has been hailed as transformational by the Olympic Minister, the Rt Hon Tessa Jowell MP, and where our financial backing for talented young athletes means that 23 Deloitte-supported athletes will be joining the Paralympics GB team at the Beijing Paralympics.

Alongside the 2012 development, we also announced a five year partnership with the Royal Opera House to stage a new annual cultural festival, Deloitte Ignite, which is targeted at young professionals. The first festival will be in September this year.

Our new Green Agenda programme, now in its second year, addresses what Deloitte needs to do to develop a sustainable and environmentally-friendly business, and supports our increasingly broad portfolio of client services in the environmental and sustainability areas. Our environmental impact comes mainly from the way we serve our clients, including business travel and premises and our focus has been on long term investment and innovation: for example, 50% of the carbon emissions from our business travel are now offset through our Barclays corporate charge card programme, and the architectural and engineering solutions we employed in our London campus refurbishment were both practical and far-reaching, with a green wall and roofs incorporated into designs, 87% of surplus furniture recycled, and achieving 80% of waste recycling across our London offices. These and other achievements set us well on our way towards achieving ISO14001 accreditation in 2009.

We are proud of our reputation as leaders amongst business in our commitment to corporate responsibility. Highlights include our selection as one of The Sunday Times 50 Best Green Companies and securing a Gold rating in the Business in the Community Corporate Responsibility Index.

Looking Ahead
“I can add little to the long trail of negative economic and market assessments. We are unlikely to see much growth in most business segments of the UK economy in the next year but a pick-up is likely in the latter part of 2009 or first half of 2010. Economic activity has held up in many parts of the world. I believe the US economy has the capacity to rebound more quickly than generally expected and to be a positive influence on the global recovery. For the UK the key driver of the recovery will be an improved supply of credit and lower market interest rates.

“Notwithstanding the market outlook, how do I see the position for Deloitte?

“Over the last few years we have achieved market leadership largely for two reasons. First, we have a broader range of skills than any other professional services firm. We seek to anticipate the changing needs of our clients in deploying these skills and in helping our clients develop and implement pragmatic business solutions. Secondly, we are relentless in our pursuit of quality and innovation. The market and our clients increasingly recognise this.

“Even in low growth markets there will be winners in every business segment. We have exceptional people and we nourish and develop their talent. I remain very optimistic that the winning business in our professional services market will be Deloitte.”

Operating segment analysis

Operating Segments
The group has four reportable operating segments; Audit, Tax, Consulting and Corporate Finance. The audit segment provides audit, internal audit, regulatory, risk & control and accounting & financial reporting services. The tax segment provides business tax, employer and personal tax services. The consulting segment provides strategy, operations, human capital, enterprise application and technology integration services as well as actuarial & insurance solutions. The corporate finance segment provides transaction support, reorganisation services, forensics & dispute services and advisory services.

The reportable segments reflect the group’s principal management and internal reporting structures and are strategic business units that offer different services. They are managed separately because each business requires different skills and methodology.

The accounting policies of the operating segments are the same as those described in the summary of accounting policies. The group evaluates the performance of the segments on the basis of revenue and profit or loss from operations before finance income, finance cost and tax expense.

Performance assessment of the segments includes a review of certain assets such as client receivables, amounts to be billed to clients and prepayments, segment liabilities reviewed include accruals and specific staff liabilities. All other assets and liabilities, including non-current assets, balances with partners, cash, provisions and retirement benefit balances are controlled centrally and are not allocated across service lines.
Inter-segment revenue is not material as revenue is shared proportionately by those service lines delivering services to clients.