Transformational year for Baker Tilly, revenues rise by 50% and consolidated pre-tax profits double
In a transformational year for the Baker Tilly group following its acquisition of RSM Tenon in September 2013, the accounting and business advisory group has posted a 47% growth in turnover to £245m for the financial year ending 31 March 2014, with post-acquisition annualised revenues on track to be around £300m.
Highlights for the year include:
– Double digit revenue growth in all service lines (tax and advisory up 41% to £107m, audit and assurance up 23% to £66m, restructuring and recovery up 14% to £27m, corporate finance up 35% to £16m, while the new risk advisory service added £15m).
– Company consolidated profit before tax up 112% to £11.9m, while Baker Tilly UK Group LLP partner profit was up 28% to £32.5m.
– Financial services business sold for £25m.
– Bank loan of £32m drawn to finance the Tenon acquisition fully repaid within 15 months.
– Dividend increase of 4.2% to 3.75p marking five years of continued dividend growth.
– Group net assets per share up 33%.
– Business integration largely completed within twelve months of acquisition.
– International network move to RSM International, the world’s 7th largest global network with revenues of $4.5bn and represented in 111 countries.
– 55% increase in staff uptake of company shares in year bringing total subscribed to date of nearly £3m.
– Cash headroom of £38m at 30 November 2014.
Laurence Longe, managing director at Baker Tilly, said: “This has been a transformational year for the group which has seen a full integration take place within a year of our acquisition of Tenon in September 2013. This achievement was only made possible by the huge contribution and commitment shown by partners and staff from both firms who largely succeeded in providing a ‘business as usual’ environment for our clients whilst a full merger and integration process was underway.
“Although the financial performance of a professional services firm in the year following any major merger or acquisition can often be a challenge, it is certainly pleasing to note that both consolidated profits and partner profits rose by significant amounts. Also pleasing is the fact that since the year-end, we have fully repaid the long term loan of £32m taken on to finance the Tenon acquisition. This was largely made possible by the sale of the financial management businesses acquired in the Tenon transaction which were not considered to be core to our long-term strategy and we have now returned to a net cash position.”
Audit and Assurance grew by 23% to £66m.
Laurence said: “The market remains highly competitive but the acquisition has added considerably to our sector expertise and geographical footprint. Our policy of consistently delivering a high quality audit service, at sensible and sustainable commercial rates will continue, as we believe that this is the only policy that is in the best long-term interests of the firm and of our clients.”
Tax and Advisory figures were up 41% to £107m.
Laurence said: “We have benefitted considerably from the Tenon acquisition and now have even more extensive expertise in this critical area. Advisory services showed a significant increase, and our sector driven approach will continue to reap benefits in the coming years. International tax for large corporates is a key market for us and huge opportunities exist with ever increasing conflicts being faced by companies in the market.”
Restructuring and Recovery
Revenues were up 14% to £27m.
Laurence said: “Our restructuring and recovery operations have now been reshaped to match the reduced demand for these services in what continues to be an overall benign market for businesses in financial difficulty, driven by historically low interest rates and creditor forbearance. Greater propensity by banks to sell blocks of debt rather than liquidate their positions directly with customers has also had a significant impact and our route to market for our services has been adjusted accordingly. Growth in this service line was 14% for the period, and this includes a much enlarged forensic services offering.”
Revenues grew by 35% to £16m.
Laurence said: “Capital markets activity showed good signs of recovery, particularly in London and the South, and the specialist sale mandate operations and company advisory services performed well. Performance was good for our transaction support services, despite their having to operate in a highly price-sensitive market.”
This new service line was acquired as part of the Tenon business, and contributed £15m to group turnover during the post-acquisition period. This service line provides internal audit services to the public and private sectors, as well as IT consultancy and assurance and fraud investigation services.
Laurence said: “The acquisition of this service line has allowed us to expand into areas where we previously had limited representation, and also enabled us to greatly expand our service offering to new and existing clients.”
On 15 April 2014, Baker Tilly joined the RSM International network of independent firms.
Laurence said: “The decision to change our international network membership from Baker Tilly International to RSM International was taken after a very detailed and careful comparison of the relative strengths of both networks and, in the board’s opinion, it was clear cut given the quality and size of the RSM firms in some of the largest global economies. A detailed review is currently underway, at network and country level, to determine how best to align the network and independent member firm brands around the globe.”
Consolidated profit before tax was up 112% to £11.9m and average profit per member of Baker Tilly UK Group LLP rose 28% to £328,000.
Laurence said: “The growth in our business revenues and profits demonstrates the strength of our combined firm and our continued focus on providing high-quality audit, tax, accounting and advisory services to the middle market.”
Laurence said: “Upon the acquisition of Tenon, the enlarged group’s annualised salary cost was some £117m, and following the restructuring of our offices and locations, this was reduced to £100m on a comparable basis. Staff numbers (excluding discontinued activities) were reduced by 600 and fewer than 100 formal redundancies (out of a combined workforce of over 4,000) were required where acceptable alternative positions in the restructured firm could not be found. We are now actively recruiting into the newly merged and restructured firm high-calibre partners and staff around the country.”
Laurence said: “Our core market remains the middle market which is the driver of economic growth for all. Our service delivery is constantly reviewed to ensure that we continue to deliver a quality service to meet client needs in an ever changing marketplace.”
Outlook for 2015
Laurence said: “The outlook for the current year looks promising, with group results on budget for the first eight months and signs of growth throughout our service lines. Our strategy of growing the business profitably is at the core of this and a greater emphasis on advisory services is a strategy that is being actively pursued. Nearly 80% of our revenues are considered recurring from our current client base and, while this provides inherent stability, it also provides an ideal platform from which to grow new advisory service lines to meet ever changing client needs.
“It has been a very successful year for the group, and the Tenon transaction has effectively consolidated the mid-tier accountancy firm market. We look forward to the future with considerable optimism.”