KPMG reports 17 per cent rise in revenues ahead of merger with Ernst & Young

KPMG, the UK accounting and consulting firm planning to merge with fellow Big Six practice Ernst & Young, will report today that it has produced its best fee performance of the decade, with gross revenues up 17 per cent at pounds 726m.

Mike Rake, chief operating officer at KPMG, pointed to the fact distributable profit had risen 25 per cent to pounds 145m and said the figures showed the merger was being developed from a position of strength. Ernst & Young recently produced figures revealing fees up 15 per cent at pounds 525m.

Moreover, KPMG's profit per partner of pounds 256,000 was broadly in line with the pounds 259,000 reported by E&Y last month, though Mr Rake acknowledged that the spread of earnings was greater at KPMG, with Colin Sharman, KPMG's senior partner, earning considerably more than Nick Land, his counterpart at E&Y. This was being dealt with as the merger proposal was developed, he added.

Today's figures from KPMG come in what it says is the first preliminary announcement by a leading accountancy firm. Mr Sharman described it as "a further indication of our openness and desire to demonstrate complete financial transparency". Full audited accounts for the year ending 30 September 1997 - showing the pay of Mr Sharman and his senior colleagues - will be included in the firm's annual report to be published early in the new year.

Much of the improvement was down to a 36 per cent rise in revenue, to pounds 153m, from management consulting. This amounted to a turnaround, since last year this part of the business had reported a decline in fees while it invested in changing its focus.

However, tax had another strong year, with fees 17 per cent ahead at pounds 152m, while transaction services, such as due diligence work connected with the buoyant activity in mergers and acquisitions, also grew strongly.

Finally, said Mr Rake, while investment, especially in consulting had paid off, overheads had been kept under tight control, particularly in London and the South-east.

Though he was worried about the potential impact of the turbulence in the Far East combining with difficulties in other parts of the world, he said that growth has held up since the end of the year.

Mr Sharman repeated one of the justifications for the planned merger by saying that the firm might have reported even stronger growth had it not been for "the constraint on human resources". He said: "Our clients have placed great demands on new and existing services and the level of fee and profit growth has been justly rewarding. It is interesting to note that both ourselves and Ernst & Young have produced very strong growth and this gives me confidence that our merged firm will grow at an even greater pace."