KPMG Revenues Increase 14.5%, Some Credit Crisis Impact, BRICs Shine

KPMG just announced today its 2008 revenues, which have increased 14.5% from US$19.8 billion to US$22.7 billion for the year ending September 30, 2008. In local currency terms growth was only 8.4%, the difference of 6.1% being attributable to the declining US dollar against all major world currencies in this period.

By service, Audit grew to $10.7 billion in 2008 from $9.4 billion in 2007, up 14%; Tax increased to $4.7 billion from $4.0 billion, up a strong 18.3%; and Advisory increased to $7.3 billion from $6.4 billion, up13.0% for the year.

By geography, Americas grew to $7.2 billion in 2008 from $6.6 billion in 2007, up a modest 8.8%; Asia Pacific grew to $3.1 billion from $2.6 billion, up a whopping 21.6%; and Europe, Middle East, Africa increased to $12.4 billion from $10.7 billion, up a solid 16.3%.

While Americas grew relatively modestly, growth outside the US was strong, notably the BRIC countries saw spectacular growth, Brazil was up 39%, Russia saw revenues rise 64.5% India zoomed up 49%, China rose 26% and Africa revenues increased 16.5%. Central and Eastern Europe was up 34.4%, the Commonwealth of Independent States grew 62, Spain posted 29% and Denmark 25%.

In Europe, KPMG in Spain, KPMG in the Netherlands and KPMG in Belgium voted this year to join the KPMG merger in Europe along with U.K., Germany and Switzerland, making KPMG Europe LLP Europe’s largest fully integrated accounting firm.

Despite these great numbers, KPMG was not immune from the credit crisis. Timothy P. Flynn, Chairman, KPMG International, said. “As we witnessed the accelerated impact of the credit crisis in recent months, it became clear that businesses in every region and in every sector are being confronted with unprecedented challenges to maintain liquidity, anticipate fluctuating customer demand and maintain operating performance.”

KPMG’s fiscal year starts on September 30, 2007 and ends September 30, 2008 which coincides exactly with the onset of the global credit crisis in October 2007. Compared to the other Big 4 accounting firms, KPMG captures a full three months more of economic impact in this fiscal year. Its growth is then expectedly smaller than that say of Deloitte which grew 18.6% and E&Y which grew 16.2%.

We’ll blog on comparative Big4 performance shortly.

KPMG’s 8-Point Prescription for Managing Through Economic Crisis

On KPMG’s home page, we find an interesting prescription for strategic management through these tough times, much like a top-tier consulting firm would provide in their CEO glossies, entitled, “The subtle art of turning round your business in a storm.” The article is a good read, since it has lots of real-life companies which exemplify each action.

We paraphrase here KPMG’s “eight guiding principles for a corporate turnaround.”:

1. What state are you in?
Start with figuring out where you are today with respect to all your stakeholders - customers, suppliers, employees, markets, growth prospects etc. This will provide a clear picture of critical issues which need to be addressed in the short term to keep the organization survive through the turmoil.

2. Do you need your CEO?
Really? This is almost heretic, but perhaps all the business needs is a Chief Restructuring Officer who can lead a team of existing senior and middle managers, and dispense with the CEO. It appears more and more companies are resorting to this type of drastic management structure.

3. Hunt for buried treasure
KPMG calls this the “treasure-in-the-attic approach”, insisting that the company look deep into the balance sheet or hidden assets (customer, market or patents for example) for any sources of undiscovered value. A bonus, but not a life saver.

4. Sort out your priorities
Make a comprehensive and well-thought plan, and manage to a clear strategy. Focus, focus, focus on your top priorities, which need urgent attention in the near term.

5. Who needs to know?
Multilateral flow of information is as critical as cash. KPMG wants everyone to know the bad news truthfully, it’s best you disseminate rather than through rumors.

6. Take back control
Central command is vital in tough times, rein in far-flung divisions and ensure the company operates from the center as an unified entity. But, as KPMG points out, “It’s a short step from pragmatic centralization to meddling micromanagement. And you need people on side: if staff don’t believe in the turnaround, it won’t happen.”

7. Understand your costs
And then cut the right costs, not all across the board. Costs which have no benefits need to go, but you have to stay away from those which adversely affect the core of the business can have disastrous consequences. And having accurate, up-to-date information is of course critical to this exercise.

8. Think the unthinkable
KPMG says, "You need contingency plans….Most companies go bust because they run out of cash. If you’re not proactively managing your situation, you increase the risk that you will go bust."

Managers must shed hope and denial, two enemies of the reality of the current situation.


Finally, KPMG opines on “what not to do when business turns infernal”, closing cash-cows, selling sacred assets, ignoring internal value creation, glorifying immediate cash can lead the business into more trouble.

Our wrap-up conclusion on this is that while this is a good overview of what every company needs to ideally do in this difficult economic environment, the circumstances for each organization are unique and some of these points may be fully applicable. What is on point however is that a rigorous, well-thought plan along these general principles is really needed for each and every economic entity.

For the full article, see http://www.kpmg.com/Global/IssuesAndInsights/ArticlesAndPublications/Pages/subtle-art-business-turnaround.aspx