Digital transformation in business, persistently low interest rates and geopolitical uncertainty: Those were the key drivers of KPMG’s past fiscal year. During that time, KPMG provided its clients effective support and considerably boosted revenue in each of its functions: Net revenues rose to a total of CHF 448.5 million (+5.9%) with gross revenues amounting to CHF 602.6 million (+8.6%). Audit generated net revenues of CHF 225.9 million (+6.5%), Tax & Legal CHF 123.6 million (+2.5%) and Advisory CHF 99.0 million (+9.0%). KPMG acknowledges the report on the Federal Audit Oversight Authority’s (FAOA) ad hoc review of PostBus Switzerland Ltd. We are taking the results of this review very seriously and are currently working on implementing the measures agreed with the FAOA. KPMG also welcomes the discussion this case has triggered, which will help clarifying the interfaces between the transport companies entitled to compensatory payments, the supervisory authority responsible for them, and the statutory auditor.
KPMG acknowledges the report on the Federal Audit Oversight Authority’s (FAOA) ad hoc review of PostBus Switzerland Ltd. We are taking the results of this review very seriously and are currently working on implementing the measures agreed with the FAOA. KPMG also welcomes the discussion this case has triggered, which will help clarifying the interfaces between the transport companies entitled to compensatory payments, the supervisory authority responsible for them, and the statutory auditor.
In the past fiscal year ended 30 September 2018, KPMG Switzerland once again achieved excellent results with all functions contributing to the new record high. Gross revenues rose to CHF 602.6 million (+8.6%) and net revenues to CHF 448.5 million (+5.9%).
The key driver was increasingly intense digital transformation in the business world: It lets us perform comprehensive analyses of client data in Audit, automate standardized processes in Tax & Legal and create innovative process optimization platforms in Advisory. Persistently low interest rates were a second driver; they created fertile ground for numerous mergers and acquisitions yet also increased overleveraging risk. Growing uncertainty in the geopolitical environment had the biggest dampening effect and prompted export-oriented clients to at least delay possible investments both in Switzerland and abroad.
KPMG invested substantially again this year: in staff development, in technological innovations and in key partnerships. Last year, KPMG invested some 6% of its revenue in software and technological advances plus more than CHF 7 million in training and further development opportunities for staff. Some 666 new specialists were hired during the same period of time.
KPMG has opened its digital Insights Center in Zurich: This entirely new type of innovation center analyzes company data and visualizes them for clients. Thanks to a blend of state-of-the-art technology, predictive analytics and expertise, our clients discover not only new correlations and opportunities, but also looming threats. KPMG has also joined forces with UK-based cyber security firm Immersive Labs to launch the Digital Cyber Academy, which is freely accessible to students at all Swiss universities. KPMG’s acquisition of software developer Terria Mobile put it in a position to expand its range of digital transformation services in a targeted manner.
KPMG has been a key contributor toward efforts to position Switzerland as an attractive, sustainable and trustworthy business location, particularly within the scope of its commitments at economiesuisse, digitalswitzerland and many other national, regional and specialized networks as well as the KPMG CyberLab at Digital Festival Zurich. Universities and universities of applied science have also profited from KPMG’s support. The publication of important studies on key issues related to the Swiss economy has allowed KPMG to further solidify its opinion leadership in these subject areas.
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, societal 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.
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 & Legal 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 & Legal 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 Parliament-adopted Federal Act on Tax Reform and AHV Financing (TRAF) has actually entered into force.
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.
Now, ten years after the financial and economic crisis, business strategy has replaced regulatory matters as the hot topic being addressed by providers of financial services. Otherwise, Europe’s low-interest rate environment and expansive monetary policy dominated the business: Especially banks, in their quest for profitable growth, invested heavily in technology and the development of new products, services and client interactions. Financial service providers also focused on the fight against cyber risks, financial crime, money laundering and corruption, all of which pose significant reputational 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. Transformation consulting has been focusing on the entire value chain, also including the front, middle and back office aspects, for some time now.
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. KPMG had the chance to develop new digital strategies for both finance and industrial clients, and we also supported our clients from the public administration sector by providing quality assurance services for their large-scale transformation programs.
KPMG hereby acknowledges the report on the Federal Audit Oversight Authority’s (FAOA) ad hoc review. This review represents an important component of the systematic analysis of roles played by the various governmental and private players involved in the events surrounding PostBus Switzerland Ltd. This further includes the independent investigation conducted by Kellerhals Carrard and the opinion prepared by three independent experts (Andreas Donatsch, Stephan Bachmann and Felix Uhlmann) on Kellerhals Carrard’s investigation report. The ad hoc review conducted by the FAOA looked at the quality of the work performed by the auditor with respect to its attestation of the annual financial statements of the Swiss Post Group and PostBus Switzerland Ltd (the entity); it did not, however, include the audit of the entity’s financial reporting under subsidy law.
KPMG appreciates the FAOA’s important role and efforts to safeguard the quality of audit services provided in Switzerland. Accordingly, the FAOA had our full cooperation and we are taking the findings of this review very seriously: We have agreed on several forward-looking measures with the FAOA, some of which have already been implemented. These will help us strengthen the quality of our audits even further.
Clarifying the question of how an auditor should take subsidy law into consideration in the future when auditing companies entitled to compensatory payments is important to us. Against that backdrop, we welcome the candid discussion between the Parliament and Federal Council as well as the talks currently underway between the Federal Office of Transport, the Public Transport Association and EXPERTsuisse regarding the supervisory authority’s audits under subsidy law. They highlight the need to take legislative action and will help harmonize, at least to a certain extent, the apparently very different expectations of transport companies, statutory auditors, the government and the general public. KPMG is ready to make an important contribution to these efforts.