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Kreston North European Conference
Update on strategyand current developments
22- 24 May 2008, St Petersburg Jon Lisby, Executive Director
Agenda
Overall performance in 2007• Analysis of our growth• Our current resources • How do we compare?
Referral performance• Regional analysis• A change in the fee basis
Network v Association- What’s our strategy? Where on the line?
Now, where, how
Another outstanding year
$1.708bn Growth 30%
$642m
$836m$990m
$1.128bn
$1,317bn
$1,708bn
2001 2002 2003 2004 2005 2006 2007
$1.142bn
Resources
236 (213) firms, 665 (543) offices 92 (75)countries, 18,500 (15,000) staff
1138 1128 1167
18,348
1,043 1,138
10,9799,843
7,7607,400
665
543
485509
448
2003 2004 2005 2006 2007
Partners
Total Staff
Offices
2007 Recruitment
MoscowBrazil – 2 firmsDominican
RepublicUkraineVietnam Isle of Man
United KingdomGuatemalaMexico – 3 firmsAustralia – 3 firms
15 new firmsand ……….
Exco France
France
Africa (former E&Y)
• Côte d’Ivoire• Gabon• Niger• Mauritania• Congo• Togo• Benin• Mali• Burkina• Cameroon• Tchad
• Morocco
• Poland
• West Indies, New Caledonianand Reunion
Over 2,000 professionals
Fee income US$203m
Analysis of growth
30% growth comprised• 15% impact of recruitment less retirements• 15% average organic growth
Overall organic growth in line with Big 4
Recruitment of Exco France brings improved balance between Eurafne and North America
North America now 49% previously 60%
Eurafne now 41% previously 29%
Membership
analysis
National
position
Kreston
Growth
Average
Growth
Fee
Revenue
Kreston
%
Offices Partners Total
Staff
2007 % % US$m % No. No. No.
USA 12 7 14 836 49 153 305 6649
UK 18 26 13 100 6 23 96 891
Australia 14 46 15 31 2 11 34 251
Germany 17 6 8 79 5 27 55 658
Canada 23 10 11 10 1 5 12 88
China 7 30 23 56 3 59 50 1,590
Netherlands 9 6 7 74 4 20 45 697
France 7 1200 8 194 11 109 139 1,794
Italy 17 -19 11 5 6 6 59
Russia 10 122 49 27 2 6 12 615
Middle East 16 8 19 6 16 15 208
Mexico 11 95 4 12 1 27 49 501
Other 277 16 203 349 4,347
World Total 15 30 20 1,707 100 665 1,167 18,348
Regional strength/recruitment targets(Source: International Accounting Bulletin Surveys 2007)
Regional analysis
Region 2008
2007
% Fees US$m
No of
Firms
% Fees US$m
No of Firms
Asia Pacific 6 110 34 7 93 35Australia/New Z
2 33 13 2 27 13
Eurafne 41 697 146 29 387 125Latin America (reunited)
2 23 33 2 20 30
North America
49 845 10 60 791 10
Total 100 1708
236 100 1,318 213
The Top 10 ( Green up - Red down)
Place International affiliate/firm Most recent year's fee income ($/m) Growth (%)
1 PricewaterhouseCoopers 25,200 15
2 Deloitte Touche Tohmatsu 23,100 15
3 Ernst & Young 21,104 15
4 KPMG 19,810 17
5 BDO International 4,704 20
6 Grant Thornton International 3,500 25
7 RSM International 2,998 11
8 Praxity (Merger MRI / Mazars) (10) 2,839 -
9 Baker Tilly International (8) 2,501 9
10 Horwath International (9) 2,424 12
How do we compare?
Place International affiliate/firm Most recent year's fee income ($/m) Growth (%)
11 Nexia International (13) 2,310 54
12 Moore Stephens International (11) 1,883 22
13 HLB International (12) 1,729 14
14 PKF International 1,723 17
15 Kreston International (16) 1,708 30
16 Leading Edge Alliance (17) 1,613 21
17 Fiducial International 1,357 4
18 AGN International 1,317 14
19 DFK International (21) 877 22
20 Mazars 874 -
Strength of membership
• Kreston International at start of 2008
• 30% Growth takes us to – 15th ($21m from13th!)
• 92 countries
• with 665 offices
• 18,500 staff and
• fee income of US$1.7bn.
2008 Recruitment to date
Belarus(thanks to IEI !)
Bulgaria
Central America• Panama• El Salvador• Honduras• Nicaragua
Cyprus
Mexico – 6 firms
India
Venezuela
Colombia
International referrals
0
10
20
30
40
50
60
70
80
1998 2000 2002 2004 2006
Strong growth in value of reported new referrals
US$1.4m in 2007
88% between Europe and North America
Still too low!
Past 10 years – Value 1997/2007
10% payable by receiving firm
5% receivable by giving firm (in respect of referrals given after Jan 08 and only payable if paid)
Adjusted on annual fee subscription
2 years only
No fees due on national referrals from 2007
Referral fees – a change
Network v Association
Network definition…………….
A larger structure:
That is aimed at co-operation; and
That is clearly aimed at profit or cost sharing or shares common ownership, control or management, common quality control policies and procedures, common business strategy, the use of a common brand-name, or a significant part of professional resources
Both IFAC and European 8th Directive
Association
Network
Sovereignty
Local
Global
Integration
Loose
Tight
Social and Travel club
Reactive to client needs
Shared working practices
Client acceptance & sign off rulesGlobal strategies imposed
Brand shared Conflict checks
Ongoing quality monitoring
Technical support & Training
Profile attracts staff & clients
Low
High
Networks within an Associatio
n
Risk
Low
Increased
Cost & Value
Pro-active joint targeting of prospects
Cohesive and credible
Joint purchasing incl. PI insurance
Service lines limited
Special interest groups
More about status than international business
Association - Network
Forum of Firms
Network definition
The Kreston strategy? Which option?
• Networks within an Association
Network definition
All Kreston members are required to make amendments to
any document, stationery, website, signage or promotional material and
eliminate the word “network” and
at all times refer to a “global association of independent accountants and business advisors”.
15th ( or equal 13th!) largest global group
Low central cost structure maintained
Referrals between members driven by client needs – mainly reactive and little co-ordination of working practices
Excellent global coverage and strong growth but with• Some location gaps• Need to strengthen service line capability in certain locations
Brand recognition – low but growing
Now?
“High profile association (including some networks) working in closer collaboration to proactively win multi national assignments and compete more effectively in the marketplace of mid-tier accounting networks”
Where to?
The strategy remains…………..
Raise the profile
Increase collaboration
Proactively target quality international assignments
And win!! Both national and international
The challenge
Raise the profile
• Continued growth and admission of new strong firms
• National and regional business development plans
The challenge
Increase collaboration
• Introduce the tools
- Global web portal - unlimited users
• Share working practices
• Share information – extended Fact Sheet
• National and regional development strategies(Examples – Mexico,India,Australia/New Zealand)
• Build multi-firm teams- Special interest groups (“SIG”)
The challenge
Building collaboration
• Special interest groups
Numerous groups including:-
• Global audit • Global Risk and Advisory (Internal audit, Sarbox)• International tax• Transfer Pricing• Corporate finance – IPO’s, Acquisitions, Due Diligence• Global Payroll
Building collaboration
• Global audit
An update on progress
• Proposal made at Chicago World Conference in October 2007 by MHM for a “branded” global audit network
• Objective – to complete more effectively against BDO, GT, RSM etc
• Many members interested
• No agreement to brand from major North American and European firms
• Discussions ongoing and focused on increasing capability to target, win and efficiency service quality transnational audits
• Las Vegas Conference –June 2008
• Our goals remain …………..
• Build cohesion and
• Accelerate the growth of high quality referrals bothnational and international
• Build the value of Kreston firms and
• Do more and better business with people you know, like and trust!
Eurafne Conference
Hamburg, 18 -20 September 2008
World Conference