Deloitte posts $2.85bn revenue but soft conditions loom

Consulting giant Deloitte is warning its prices may rise and business growth could slow over the next year as softer economic conditions and cut-backs take their toll.

Deloitte Australia is warning its prices may rise and business growth could slow over the next year as softer economic conditions and cut-backs from corporate and government clients take their toll.

In its full-year results to May 31, released on Tuesday, Deloitte revealed a 14 per cent jump in revenues as a mix of bolt-on acquisitions and new business buoyed the audit and consulting giant.

Profits, while undisclosed, grew “in line with revenue”, which hit $2.85bn for the year.

Distributions to partners increased more modestly, up 1.6 per cent to $950 per partner unit from $935 last year.

Deloitte Australia chief executive Adam Powick said the rise reflected the increase in partners in the firm, which exceeded 1025 in May, split almost evenly between equity and non-equity partners.

Deloitte’s consulting practice was the standout performer for the year, with revenues climbing 21 per cent to $1.36bn.

Audit and assurance revenues lifted 9 per cent to $517m, followed by financial and advisory incomes, which grew 11 per cent to $393m.

Mr Powick said Deloitte’s audit practice was profitable and provided the firm with “a strong annuity business and a strong brand foundation in good and bad markets”.

He said the firm was fielding approaches from disgruntled PwC staff and was “prepared to explore options for people with the right skills and cultural ­values”.

Tax and legal revenues were up 6 per cent to $346m, followed by Deloitte’s risk advisory with $292m.

Deloitte Australia CEO Adam Powick. Picture: Lucas Dawson

Mr Powick said Deloitte was seeing “consistently strong client demand” in several key areas that were driving revenue growth.

These included spending on climate transition and reporting projects, digital transition and cyber, data and AI platforms, as well as core accounting and tax services, regulatory compliance and restructuring activities.

But Mr Powick said Deloitte was concerned about a softening economy, with the last six months to May 2023 showing a pullback in spending.

“We’re now seeing some further economic slowing and expect growth to be lower over the next 12 months,” he said.

“There will be some sectors, such as consumer business, where we’ll see some natural softening and there may be an impact on some services that are perhaps more discretionary, but our core services focused on accounting, tax, and technology are continuing to be in high demand by our clients.”

Deloitte reported 12.2 per cent workforce growth in the year, with 2910 new staff joining the firm from June 2022 to May 2023, including 1421 graduates.

Mr Powick said he expected headcount growth to slow in the coming year, but there were still “areas of high demand”.

“We’ll continue to invest significantly in bringing graduates into the organisation,” he said.

The big four audit and consulting giants, Deloitte, EY, PwC and KPMG, took on many new staff during the pandemic, as work for the firms boomed.

But many faced a shortage of skilled migrants.

Mr Powick said the situation had improved since the reopening of borders, taking some of the wage pressure off Deloitte.

He said Deloitte, like other corporate players, faced wage demands from staff and this was putting pressure on the firm to raise its prices. “That means we need to lean into workforce productivity and how we better underpin what we do with digital and data technology,” he said.

“Prices need to reflect the market, but ultimately they’ve got to be reflective of the value we drive for our clients, underpinned by productivity, quality and capability.”

Mr Powick is now in his third year of a four-year term as CEO, after taking over from Richard Deutsche who left after only two and a half years, and he now faces a far more hostile environment as politicians turn up the heat on the consulting sector after PwC tax scandal.

PwC has been under siege over revelations the firm used confidential government briefings to shape tax strategies for clients.

It recently offload its government services business for just $1 in a deal with distressed assets buyer Allegro Funds.

Last Monday Mr Powick was called to a Senate hearing, where and other leaders of the firm faced questions over the partnership and its government business, which generated almost a quarter of Deloitte’s total ­revenue.

Former competition tsar Allan Fels has told the Senate the big four firms should be broken up and their audit and consulting arms separated.

Mr Powick said Deloitte was committed to the partnership model which “drives collective and joint accountability” but noted he was open to a different structure for the firm.

“We are open to looking at different models such as the UK model of limited liability partnership with more robust reporting requirements,” he said.

“We accept the terms of the inquiry, and we’re very prepared to constructively engage and explore topics such as the strengthening of the regulatory and reporting regime for our ­profession.”