KPMG looks back on a successful fiscal year with pride. The firm has topped last year’s record-breaking results and boosted its gross and net revenues even further. KPMG’s range of comprehensive problem-solving approaches and its targeted use of digital capabilities are paying off. For us as well as for our clients.
Results by function
|2018 in CHF million||2017 in CHF million||Change||Share of revenues|
|Tax & Legal Services||123.6||120.6||2.5%||27.5%|
|Total net revenues||448.5||423.5||5.9%||100%|
Positive growth was stimulated by entirely new technological capabilities: These enable clients’ financial and leadership processes to be redesigned and standardization and centralization of key audit tasks. Supplementary, innovative assurance services also played a key role in this success.
Many corporate balance sheets contain enormous amounts of goodwill.Lukas Marty, Head of Audit
Audit improved its results even further with net revenues now up to CHF 225.9 million (+6.5%). This positive development is in part attributable to new technological capabilities on both ends. Not only do they enable financial and leadership processes to be completely redesigned on the clients’ end, but also let KPMG standardize, automate and centralize key audit tasks. This enhances both the reliability of our audit results, as well as the relevance of our reporting. Comprehensive data analytics let us offer our clients complementary, innovative assurance services.
The persistently low interest-rate environment combined with pressure to boost stock prices even further have ushered in a scenario in which companies are increasing their borrowed capital by taking out cheap new loans while, in some cases, reducing their equity capital through stock buybacks. Following years of brisk acquisition activity, many corporate balance sheets contain enormous amounts of goodwill. So far, substantial impairments are only being seen sporadically, yet the gradual downturn in the global economic outlook as well as a variety of uncertainties in global trade call for companies to make prudent use of the assets at their disposal, and this is where critical auditors play a vital role. On a similar note, financial service providers, particularly in the mortgage or rest of the lending business, are well advised to exercise caution in order to prevent the need for future write-downs.
Both regulatory pressure and the conviction that stepped-up regulation can solve economic and social problems are still holding strong, especially in Europe. This discussion directly impacts audit services and the expectation gap – or the disparity between an audit firm’s statutory mandate and what the public expects the audit firm to do – is widening.
Aware of both its responsibility to help ensure smoothly functioning, stable, transparent financial markets and its social responsibility, KPMG is investing large amounts across the world to develop state-of-the-art audit methods and technologies and to provide employee training. Being a global organization, KPMG deploys diverse teams of auditors and offers targeted development opportunities to build a workforce that has a wide range of professional experiences, preferably in multiple countries and cultural environments.
Business in Tax & Legal was mainly driven by high demand for compliance services and outsourcing solutions, increasingly frequent use of blockchain and initial coin offerings as well as computer-aided automation solutions which facilitate international approaches to fiscal requirements.
Importance of managed services on the rise.Peter Uebelhart, Head of Tax & Legal
Tax & Legal boosted its net revenues to CHF 123.6 million (+2.5%). The function’s good results were partly attributable to high demand for compliance services and related outsourcing solutions, with KPMG guaranteeing its clients integrated solutions. With the use of blockchain and initial coin offerings (ICO) on the rise, KPMG not only offers its clients a one-stop-shop for support on all types of fiscal and regulatory matters, it also helps more traditional companies deal with the new tax rules for digital goods.
The OECD’s program on base erosion and profit shifting (BEPS) is currently in the implementation phase and KPMG helps its clients make the necessary structural changes and ensure their compliance. Managed services now account for a growing share of the tax advisory business. These automated, computer-aided, rule-based processes (multi-shore tax reporting, global equity tracker, etc.) make it possible to adopt a legally compliant, reliable, international approach, even for dealing with complex fiscal requirements. It goes without saying that both the new technological capabilities and our clients’ expectations of these have a major impact on our training and development program for tax advisors.
The sluggish corporate tax reform process is weighing on the tax advisory business. The uncertain legal situation and the dampening effect this has on new investments in Switzerland will persist until the Federal Act on Tax Reform and AHV Financing (TRAF), which has been approved by parliament, has actually entered into force.
Growth here was driven by the large number of major transactions and strong demand for forensic, cyber security and data protection services. Other services that contributed to the function’s success included digital strategy development and comprehensive technological transformation projects.
Transformation consulting along the entire value chain.Anne van Heerden, Head of Advisory
Advisory increased its net revenues to CHF 99.0 million (+9%). This performance was mainly driven by the large number of major transactions involving Swiss companies for which KPMG provided comprehensive deal advisory services. The largest M&A deals were attributable to the industrial goods, consumer goods, technology, life science and pharmaceutical industries, with the number of cross-sector transactions on the rise. Given that peak returns in the real estate business are still on a downward trend, it is becoming even more important to adequately assess a deal’s potential value and risks.
In the industrial sector, forensic services were mainly sought out to get help when dealing with corruption, mismanagement and fraud, as well as third-party risks and compliance management systems. The digitalization of businesses and administration, more frequent cyber-attacks and greater risk awareness on the part of executive management also generated strong, steady demand for our expertise in services related to cyber security, data protection and highly specialized certifications.
Advisory services provided to finance and operational departments centered around large-scale technology transformation projects, such as designing and implementing new enterprise resource planning systems (ERP). The same also holds true for an entire series of financial transformation projects, all of which are driven by automation’s impact on finance departments, as well as the restructuring of procurement processes, which are increasingly being shifted to the cloud. Here, the life science sector exhibited an enormous amount of momentum.
One key feature of digital transformation consulting is defining a digital strategy and incorporating it into the business strategy. That also involves clarifying and exploiting the potential offered by robots, smart automation and a digital workforce, and KPMG has invested heavily in the development of new process automation platforms to do just that.
Audit and advisory services rendered to financial service providers were dominated by the search for answers to questions related to the ongoing low interest rate environment. We helped banks develop their digital business strategies and insurance companies in their efforts to introduce automation and robotization. These institutions’ battle against cyber risks and financial crime were another major driver.
Fight against cyber risks and money laundering has intensified.Philipp Rickert, Head of Financial Services
Audit and advisory services rendered to financial service providers performed well. Clients’ needs centered around the search for compelling answers to questions about how best to respond to both central banks’ expansive monetary policy as well as the persistently low interest rate environment. The increasingly shaky geopolitical climate put a damper on the international economic outlook and posed yet another challenge for capital markets.
Within the financial industry, banks are finding themselves faced with particularly tough challenges. Attracted by the prospect of creating long-term opportunities for profitable growth, they have engaged KPMG to help them carefully examine the topic of digitalization. Targeted investments in this technology should help them develop new products, services and client interactions. Overall, the search for new business strategies has superseded the torrent of new regulations as the central issue.
Persistently low interest rates and simultaneously gloomy growth prospects are increasingly prompting financial service providers in the mortgage business and other areas of lending to exercise greater caution in an effort to avert future loss risks. Banks, insurance companies and asset management firms are additionally taking special steps to battle cyber risks, financial crime, money laundering and corruption, all of which pose major reputational risks.
Insurance companies are taking a close look at issues related to digitalization as well: Internally, they are seeking out ways to boost efficiency and checking into the potential opened up by automation and robotization. Externally, their focus is on establishing new collaborations and partnerships. While insurers are closely examining how they can use their existing client and market data for their own digital transformation, many are simultaneously in the process of expanding their core business and offering related services, including pension fund management and mortgage brokerage services. Advice on how to deal with the new accounting standard, IFRS 17, was another area where KPMG lent its clients strong support.
Business development in the individual regions was both stable and sustainable. The key topics of the past fiscal year were digital transformation, the enormous regulatory burden, ongoing legal uncertainty as well as efforts to negotiate bilateral relationships with the EU.
Legal uncertainty is putting a damper on SMEs’ willingness to invest.Reto Benz, Head Regional Markets Switzerland
KPMG reported positive business performance in the individual market regions as well. The mid-size market segment is one of KPMG’s key mainstays and generates around 40% of the firm’s net revenues. Business development in Audit as well as Tax & Legal and Advisory was extremely stable and sustainable. Over the course of the year, KPMG also succeeded in acquiring several high-profile new clients in the regional market.
KPMG invested heavily in 2018: Not only in targeted measures to promote its young talent at the individual sites, but also in efficient, automated, digitalized processes and the development of multidisciplinary services from one source. This is particularly beneficial to the firm’s regional clients.
The main drivers and changes affecting regional clients are: digital transformation, the huge regulatory burden in areas like data protection, continued legal uncertainty in connection with the corporate tax reform, ongoing efforts to negotiate bilateral relationships between Switzerland and the EU, as well as general geopolitical uncertainties.
KPMG is actively involved in the regions in a number of different ways: Through cooperative efforts with key networks and local companies on specific topics like cyber security and taxes; through participation in trade associations and chambers of commerce and also through partnerships with regional innovation initiatives.
Our people are the key to extraordinary results. Innovative, expert, agile and passionate, they work tirelessly to lay the foundations for sustainable client relationships. To earn trust today and tomorrow.
We asked Philipp Hallauer, National Head of Quality & Risk Management, and Ed Cannizzaro, Global Head of Quality, Risk & Regulatory, how they define the concept of public trust and what is crucial for their work in today’s fast-paced environment.
Public Trust underlines the crucial role we play to make the economy work.Philipp Hallauer, Head of National Quality & Risk Management
Ed Cannizzaro: Public Trust for KPMG is quite simply the confidence our stakeholders have in our firm, not only in the quality of the professional work we perform, but also the culture of the firm and the ethics and values of the people within it.
Philipp Hallauer: Public Trust underlines the crucial role we play to make the economy work. We are well aware that it is key to our success and that we have to earn it, day by day.
Cannizzaro: We place a huge emphasis on our client acceptance and client retention procedures. This involves an assessment of the prospective client’s business as well as service-related matters. It includes obtaining and analyzing ‘know your client’ information on the prospective client, its key management and significant beneficial owners. A key focus in this review is the integrity of management. The evaluation considers breaches of law and regulation, anti-bribery and corruption, as well as ethical business practices, among other factors.
Hallauer: In today’s global and dynamically developing business environment, it is critical that we understand a prospective client’s background, the key players’ track record, and the purpose of a proposed engagement. KPMG applies a strict 4-eye principle to all its client and engagement acceptance, and, depending on the risk factors identified, different levels of risk management are involved in the approval process.
We look for the right values as well as skills in the people who join our firm.Edward Cannizzaro, Global Head of Quality, Risk & Regulatory
Cannizzaro: Our approach starts with the people we recruit. We look for the right values as well as skills in the people who join our firm. We have a culture of continuous professional development and learning, where ethics and values are reinforced through learning, coaching and policies, which are designed to ensure compliance with applicable laws and regulations.
Hallauer: Our Code of Conduct sets out what we expect from our people. The “tone from the top”, the way our leadership acts and communicates, underlines the importance that we attribute to our values. Compliance is ensured through a combination of extensive training and monitoring programs.
Cannizzaro: We know and respect the fact that our position can lead to partners and staff possessing what could, if used inappropriately, be considered as ‘insider information,’ To avoid this situation, KPMG people must maintain confidentiality of all client and former client information, and must affirm their understanding of the rules governing confidential client information and the prohibition of insider trading in writing once a year.
Hallauer: Additionally, KPMG policies require that our people must be free from prohibited financial interests in, and prohibited relationships with, audit clients, their management, directors and significant owners. KPMG’s policies go beyond those of the IESBA (International Ethics Standards Board for Accountants) Code of Ethics by prohibiting all Partners — irrespective of their member firm and function — from owning securities of any audit client of any member firm.
Cannizzaro: Meeting our public interest responsibility, and earning and maintaining public trust, demands that we have a relentless focus on quality and integrity. We understand that we need to drive continuous improvement and go beyond simply complying with laws and regulations. We do this through robust quality monitoring within KPMG, with a focus on getting to the root cause of quality issues and effective remediation. We are also working closely with regulators, business, investors and other key stakeholders to understand their evolving issues and enable KPMG to meet their changing expectations.
Hallauer: KPMG and the profession as a whole have been facing significant criticism in the recent past. The Swiss KPMG member firm is highly committed to join the important quality initiatives that our global firm is undertaking to respond to the current challenges. A key focus of our efforts here in Switzerland is placed on further strengthening our audit quality and rigorously maintaining our independence.
Our Board of Directors and our Executive Committee bring together many years of management and industry expertise and a proven track record in innovation. This lays the very best foundation for successful leadership in a digital future.