Margin pressure and the fragile economy have failed to dent confidence among Scotland's accountancy firms, according to Insider's annual review of the sector
Margin pressure and the fragile economy have failed to dent confidence among Scotland's accountancy firms, according to Insider's annual review of the sector.
Diversification is an increasingly strong theme as competition intensifies for traditional tax and audit work. Aberdeen remains a bright spot in the economy with oil and gas firms generating a string of deals. Several firms are hiring, although fee income is generally flat, with a lack of credit still hampering the business community at large.
Insider's rankings - which are based on total staffnumbers - continue to be dominated by The Big Four, but with a significant change at the top.
After leading the way in terms of headcount over the last decade, PricewaterhouseCoopers, with 820 staff in Scotland, has been overtaken for the first time by Ernst & Young, which has 852 staff following 49 hires during the year across its Edinburgh based financial services practice and UK and Ireland advisory teams in Glasgow, Edinburgh and Aberdeen.
"We are committed to recruiting the best and brightest talent as we build the number one professional services firm in Scotland," says Ernst & Young senior partner in Scotland Jim Bishop. "Increased investment in the business during times of economic uncertainty has been vindicated and the figures would suggest our long-term approach is paying off."
Bishop says the firm - which has 80 fewer fee earners than PwC but 39 more partners - expects to recruit another 50 staff in financial services over the next 24 months and is running out of space in all of its four offices in Scotland. Key growth areas include oil and gas, advisory, financial services and the public sector, where it is working with local authorities on issues such as priority-based budgeting.
On transactions, Bishop feels Scotland could benefit from more deal flow in the £25m to £100m range. "While there's been a number of highly prominent transactions in the listed company and private equity sectors - for example, companies like Weir, Aggreko, Clyde Blowers Capital and Wood Group continue to be highly entrepreneurial - there's a lack of deal activity in the smaller private company side," he says. "There are deals being done, but nothing like the volume of five years ago."
PricewaterhouseCoopers (PwC), which reported fee income of more than £60m in Scotland, has shed 24 staffover the year but says it is continuing to recruit in specialist areas. "As a firm, we continually review our people requirements to ensure we have the appropriate resources with the right skills and experience to meet the needs of our clients," says PwC Scotland's head of assurance Lindsay Gardiner, who takes over from senior partner Frank Blin in June. "While we have seen some natural attrition over the year, we have also continued to recruit in specialist areas, for example the energy sector and Aberdeen, where the market has remained particularly buoyant."
The firm's Aberdeen office now has five partners following three internal transfers during the year.
The oil and gas and engineering sectors are also driving deal flow, with transactions including Doughty Hanson's acquisition of offshore logistics specialist ASCO and international acquisitions for Mubadala of Brazil and US-based Jacobs.
Tax and audit are also doing well despite intense competition and price pressure.
Gardiner feels the economy has proven more resilient than he expected three years ago after the banking crisis. "There are some really well performing Scottish companies out there with good business fundamentals," he adds, citing Aggreko, Weir and Stagecoach as examples. As in previous years, Gardiner says PwC will be welcoming around 70 graduates into its Scottish practice at the end of the summer, significantly more than its competitors.
At Deloitte, senior partner for Scotland Ian Steele says M&A activity has picked up since the end of last year, with more cross-border deals, particularly in technology and manufacturing. New areas include data analytics - helping organisations predict future trends, opportunities and threats. The firm's Aberdeen office and financial services practice were also very busy.
"The financial services industry is reacting to regulatory requirements and the need for efficiency," Steele explains. "Challenger brands including Tesco Bank, Virgin Money and Blackrock are beginning to establish a presence in Scotland. There's an ongoing focus on core operations across all groups to remain competitive in the market.
"The reasons behind the boost in M&A activity are more difficult to identify given the continued uncertainty over the Eurozone and the potential for crises in the Middle East. Bank lending appetite for big quality borrowers is strong - which may go some way towards explaining the increase - but there's still room for improvement for those that really need it."
Deloitte publishes its annual results every June, and last year posted a seven per cent increase in revenues to just over £2bn for the UK as a whole.
KPMG has also had a good run in M&A, advising on 14 deals that completed over the last few months. They include Weir Group's purchases of Novatech and Seaboard, Clyde Blowers' acquisition of Moventas and the sale of ASCO in Aberdeen.
Audit, tax and forensics were strong, offset by a dip in larger consulting assignments as purse strings tightened. New areas of diversification include data security, business resilience, risk and regulation, all driven by market demand.
Senior partner for Scotland Craig Anderson says the firm returned to growth in the six months to March after reporting its first decline in sales for seven years last September. "The clients are in pretty good shape and the doom and gloom that's been reported probably feels worse than it actually is as the names on the High Street that have gone down are big retailers everyone knows," he says. "However, it doesn't take much in terms of bad news to send shock waves through the system. The Eurozone crisis hasn't been solved, just deferred, and while that hangs around there are still issues."
In a KPMG survey of 3000 European business leaders, 'cost, cash and people' ranked as top concerns, with competition for resource in Aberdeen particularly fierce.
Aberdeen-based recruitment specialist Thorpe Molloy says it has seen a significant increase in demand for permanent and contract accountancy and finance professions across all sectors since the start of the year. "Candidates with upstream experience and niche skills including tax, internal audit and project accounting are highly sought after, as are analyst and economist roles," says managing director Amanda McCulloch. "Of course, newly qualified accountants remain in demand and this is elevating basic salary levels. There's also more movement at the senior end of the market than we witnessed in the previous 12 to 18 months".
Candidate shortage is a constant challenge and clients will eventually have to look outwith the sector for talent, she adds.
Leading the mid-tier, Johnston Carmichael chief executive Sandy Manson describes a challenging economic landscape but says the firm, which has 11 offices across Scotland, continues to see steady growth. "There's no question the economy continues to be challenging, but I believe the 'background music' for the economy as a whole is certainly improving," he says. "We feel it's a good time to be investing in the business across Scotland and have opened a new office in Stirling, taken on new recruits and established our first business recovery team in Glasgow, so we're positive about the future."
The firm grew fee income by four per cent last year to £27.9m and is particularly busy in tax advisory and in the oil and gas, renewable energy and financial services sectors.
Respondents to Insider's survey cited a number of new areas of interest. Dundee-based Henderson Loggie, with fee income of £11.3m last year, mentioned renewable energy and employee ownership.
"We have a growing renewable energy team who are ideally placed to help clients in their forward planning in this sector, in particular providing advice in the lead up to the potential opening of North Sea offshore wind farms," the firm said.
In conjunction with Co-operative Development Scotland, Henderson Loggie is also helping to explore options to increase employee ownership across Scotland.
In Aberdeen, payroll and international tax advisory are key growth areas for Anderson Anderson Brown, up two places at Insider's tenth slot with fee income of £12.5m against £14.2m last year.
Mike Brown, managing partner, expects the confidence experienced by the oil and gas sector in 2011 to continue in 2012. He describes the North Sea windfall tax announced last March as an 'unpleasant surprise', but adds: "Everyone said it was going to be a disaster, that it would stop people investing in the North Sea, create uncertainty and have a negative impact on oil and gas investment. Some of these things were true, but to a lesser extent than everyone envisaged.
"I believe one reason for that was because the oil price remained above $100 a barrel for the whole year. That breeds confidence right through the sector from the very large operators to the very small service contractors, and everyone benefits from that confidence."
This year's announcement on tax relief for North Sea decommissioning costs was also welcome.
In terms of threats to the profession, Brown points to downward price pressure as everyone looks to their suppliers to reduce costs. "I think we're too easily convinced that we should reduce our prices," he says. "We're very good at telling our clients what the features are of our products and services, but not so good at communicating the benefits and how we add value to their businesses."
Brown says a key focus for AAB is leadership development, with the aim of developing its people to be leaders in business as well as good technicians.
Grant Thornton is also focusing on people and has announced seven new hires, with their sights set on another five. They include Wendy Ferguson, who joins from the life and pensions division of Lloyds Banking Group to head up the firm's newly established business risk services team. She says the Financial Services Authority's Retail Distribution Review, which aims to simplify the way financial advice and products are distributed, is a major driver of change.
Mazars, one of Europe's largest accounting firms and ranked ninth in the UK by audit fee income, hints it is on the lookout for acquisitions as it expands north of the border. "Consolidation has been quicker to reach the legal market place, but many of the same issues apply within the accountancy sector," says Mazars Scotland managing partner Peter Jibson. "We're well placed to take advantage of any such opportunities in the continued development of our Scottish operations."
Jibson says insolvency and tax are performing well, but the lack of deal activity is hampering corporate finance, while fee pressures in audit are depressing margins.