KPMG flags flat 2021, but audit, assurance and risk business booming

KPMG will return all its staff to full pay from next month after recording better than expected revenues in July.

KPMG is reviewing its extensive CBD property lease agreements and said cost cutting would continue.

KPMG will return all its staff to full pay from next month after recording better than expected revenues in July, but the firm is forecasting a flat 2021 result in a year which chief executive Gary Wingrove is hopeful for a recovery in the second half.

On Thursday, KPMG Australia reported annual revenues of $1.905bn in 2020, up 7 per cent, but the result was dragged down in the last four months of the year when revenue averaged around 15 per cent down on budget.

The best result came from the firm’s flagship Audit, Assurance & Risk Consulting business, up 9 per cent on 2019.

While Mr Wingrove said the uncertain economic conditions meant the firm had only put in place a budget for the first quarter of 2021, the July results would allow all employees to return to being paid 100 per cent of their base pay from September 1.

Partners will continue on reduced income through to the end of September.

In April, KPMG asked employees to temporarily take a 20 per cent cut in monthly salary (from May until August), and partners an effective pay reduction of up to 36 per cent for the same period.

In June the firm repaid one-third of employee salary reductions for May and June 2020, but Mr Wingrove said it was too early stay if the reductions in July and August could be repaid.

“We will reassess later this financial year whether we can do more with the months of July and August. We are expecting flattish revenues in 2021 reflecting challenging business conditions across the economy. We expect a more difficult first half and hopefully some improvement in the second half,’’ Mr Wingrove told The Australian.

“The fall in revenue we saw in March on onwards has started to stabilise. With the pipeline we have there is still fairly strong activity across all of our businesses. It varies from the audit business, which is seasonally strong, to front end transaction work which is a bit slower. I do think from an economic perspective, we will come out the other side of this in the next few months.”

Mr Wingrove reiterated there would be no more forced redundancies after the big four accounting giant cut 200 staff in early April.

Deloitte and PwC have also announced significant headcount reductions, which has prompted one Deloitte partner to launch a landmark legal case alleging the firm’s mandatory retirement age of 62 breaches age discrimination law.

KPMG Australia has a voluntary retirement age of 58 in its partnership agreements and the firm said this week that its partners were aware of the clause at the time of joining the partnership and stressed none were forced to leave and all were treated fairly when they did.

Mr Wingrove declined to comment further on the issue on Thursday but it is understood several partners aged 58 recently extended their partnership agreements beyond June 30.

The firm also provides lump sum retirement payments for partners that decide to retire.

He said in the tough revenue environment cost-cutting measures would continue.

“At the moment there is no intention to do any further redundancies. But we will be looking to keep out cost structure tight around overheads,’’ he said, noting there would only be selective recruiting in the months ahead.

KPMG is also reviewing its extensive CBD property lease agreements.

“Rent is our second biggest cost. That is something we continue to look at. There is no intention to do any wholesale changes. (But) In our big geographic footprints of Sydney and Melbourne there is an opportunity to sublet some space,’’ Mr Wingrove said.

The group is currently looking to sub-let a floor of its head office tower at Barangaroo in Sydney.

Kick start the economy

Mr Wingrove said corporate deals were taking longer to consumate in the current environment, while he said the firm expected a pick-up in its insolvency business — which includes restructuring group Ferrier Hodgson — in the second half of 2021.

KPMG chairman Alison Kitchen said the whole business community was working hard to kick-start the economy in the wake of the COVID-19 shock and was focused on the upcoming October federal budget.

“We are very engaged with the BCA. The October budget we are all looking to for some ideas to stimulate the economy. But the situation is very fluid,’’ she said.

“If you look at how much of our economic activity is underpinned by consumer confidence, the second COVID-19 wave in Victoria has really knocked that. That is a conversation I am hearing, especially in the SME space.”

She backed calls by the BCA for the government to immediately introduce investment allowances to stimulate capital expenditure by companies.

“Anything that immediately stimulates demand makes a lot of sense. There is no question in my mind that is one of the levers we can use,’’ she said.