Members' report

The Executive Board submits its report and the audited consolidated financial statements of PricewaterhouseCoopers LLP for the year ended 30 June 2009. This Members’ report should be read in conjunction with the other sections of this annual report.

Financial performance

Our turnover grew marginally to £2,248m, compared with growth of 7% in the prior year. The outturn is particularly pleasing given the current UK and global economic conditions and the reduction in deal-related activity. It results from our strategy of having a diverse range of top-quality businesses and services.

Operating costs

Staff costs increased 2% to £974m, reflecting the impact of prior year pay awards and staff termination costs, offset by a 17% decrease in staff bonuses to £71m (including National Insurance).

We paid particular attention to tight control over other operating costs which, expressed as a percentage of turnover, improved to 14.5%, compared to 15.4% in the prior year. Notwithstanding this, we continued to invest in our business, in particular in IT, sales-related training, our property infrastructure and in risk and quality.

We measure the quality of our infrastructure and support services by reference to both service level agreements and cost and by regular Your Services Your Say surveys. Our latest survey results show that internal service satisfaction levels have remained high at 92% (2008: 93%).

Staff pensions

Some 8,300 of our staff are active members of the firm’s various pension arrangements. The majority are members of the firm’s defined contribution scheme, with some 1,200 staff being members of, or having eligibility to join, one of the firm’s defined benefit arrangements.

The latest triennial actuarial reviews of the defined benefit schemes, as at 31 March 2008, have been finalised. As a consequence the firm has committed to make incremental deficit reduction payments totalling £132m over the next four years. The actuarial valuations carried out for the purpose of these accounts indicate a total deficit of £140m, compared to £42m in the prior year.

The increase in the deficit primarily reflects a decrease in the long-term discount rate used to value scheme liabilities, combined with reductions in asset values as a result of economic conditions.

Profit for the financial year

Total profit for the financial year of £680m comprises profit available for division among members of £667m and profit attributable to minority interests of £13m.

Profit available for division among members increased by £3m from £664m to £667m. Average profit per partner, which is stated after excluding the impact of members on overseas secondment, decreased 3%, down from £797,000 to £777,000.

Net assets and financing

Our balance sheet remains strong, with net assets of £497m (2008: £508m). Working capital management remained strong, with profit after interest, tax and working capital adjustments generating a positive operating cash flow of £718m (2008: £653m).

The firm is financed through a combination of members’ capital, undistributed profits and borrowing facilities. Members’ capital contributions totalling £144m (2008: £116m) are determined by the Executive Board, having regard to the working capital needs of the business. They are set by reference to an individual member’s equity unit profit share and are repayable following the member’s retirement.

The Group’s bank facilities totalled £262m at the year-end (2008: £138m), with the Group’s principal facility renewed in June 2009 under a £250m three-year arrangement that expires in June 2012. The Group’s facilities are spread across a number of banks and are maintained at a level sufficient to meet the expected peak cash requirements of the business.

Our treasury focus is on ensuring there are sufficient funds available to finance the business and managing foreign currency exposure. Surplus cash is invested in short-term money market deposits. Hedging is undertaken to reduce risk, but no speculative activity is permitted.

Members' profit shares

Members are remunerated solely out of the profits of the firm and are personally responsible for funding pensions and other benefits. The final allocation and distribution of profit to individual members is made by the Executive Board, once their performance has been assessed and the annual financial statements have been approved. The Supervisory Board approves the process and oversees its application.

Each member’s profit share comprises three interrelated profit-dependent components:

• Responsibility income – reflecting the member's sustained contribution and responsibilities
• Performance income – reflecting how a member and their team(s) have performed
• Equity unit income – reflecting the overall profitability of the firm.

Each member's performance income, which in the current year represents on average approximately 35% of their profit share (2008: 37%), is determined by assessing achievements against an individually tailored balanced scorecard of objectives, based on the member’s role. These objectives include ensuring we deliver quality services and maintain our independence and integrity. There is transparency among the members over the total income allocated to each individual.

Drawings

The overall policy for members’ drawings is to distribute a proportion of the profit during the financial year, taking into account the need to maintain sufficient funds to settle members’ income tax liabilities and to finance the working capital and other needs of the business.

The Executive Board, with the approval of the Supervisory Board, sets the level of members’ monthly drawings and interim profit allocations, based on a percentage of their individual responsibility income.

Total tax contribution

The Group contributes to UK Government finances through taxes borne and taxes collected. We pay a range of taxes including employment taxes, property taxes, indirect taxes and environmental taxes. Our largest UK tax borne is National Insurance Contributions of £82m (2008: £81m), reflecting the fact that people are essential to our business. This tax is part of our total taxes borne of £139m (2008: £139m). In addition to taxes borne, the Group collected taxes on behalf of the UK Government of £484m (2008: £484m), comprising employment taxes and indirect taxes. These taxes are an indication of the value we add in society through our business activities. They demonstrate our wider economic impact and overall contribution to the Government. This year, in addition to taxes paid in the UK, the Group has paid taxes in the Middle East which are not included in the figures below.

The majority of the Group’s tax on profit and capital gains is borne directly by individual members and is therefore not reflected in the financial statements of the LLP or the Group. Members of the LLP bear income tax, broadly at about 40% on their individual share of the profits of the LLP, together with a further 1% National Insurance Contribution. The Group administers the payment of these taxes and makes periodic distributions of profit to enable members to settle their tax liabilities.

Creditor payment policy

We seek to agree commercial payment terms with our suppliers and, provided performance is in accordance with these terms, to make payments accordingly. The number of days outstanding between receipt of invoice and date of payment, calculated by reference to the amount owed to the Group’s trade creditors at the year-end as a proportion of the total amounts invoiced by suppliers during the year, was 18 days (2008: 16 days).

Political donations

The firm does not make any cash donations to any political party or other groups with a political agenda. However, in the interests of the firm and its clients, we seek to develop and maintain constructive and balanced relationships with the main political parties. In pursuit of this objective, we may, subject to the agreement of the Executive Board, provide limited non-cash assistance to those parties in areas where we have appropriate expertise.

Areas of assistance may include observations on the improvement of legislation or proposed legislation, the exchange of information relevant to effective policy development and the encouragement of liaison between parties and groups affected by legislation or policy. In considering any assistance, the Executive Board has regard to the possible impact on clients of the firm and the firm’s overall reputation. We provided some 5,500 hours of free technical support to political parties during the year (2008: 1,200 hours).

Designated members

The designated members (as defined in the Limited Liability Partnerships Act 2000) of PricewaterhouseCoopers LLP during the year were Ian Powell, Richard Collier-Keywood, Keith Tilson and Owen Jonathan.

Going concern

The Executive Board has a reasonable expectation that the firm has adequate financial resources to meet its operational needs for the foreseeable future and therefore the going concern basis has been adopted in preparing the financial statements.

Statement of members' responsibilities in respect of the financial statements

The Companies Act 1985, as applied to Limited Liability Partnerships, requires the members to prepare financial statements for each financial year that give a true and fair view of the state of affairs of both PricewaterhouseCoopers LLP and the Group and of the profit or loss of the Group for that period. In preparing those financial statements, the members are required to:

• Select suitable accounting policies and then apply them consistently, subject to any changes disclosed and explained in the financial statements
• Make judgements and estimates that are reasonable and prudent
• State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements
• Prepare the financial statements on the going concern basis, unless it is inappropriate to assume that the LLP or Group will continue in business.

The members are also responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the LLP and the Group and enable them to ensure that the financial statements comply with the Companies Act 1985, as applied to Limited Liability Partnerships. They are also responsible for safeguarding the assets of the LLP and Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

These responsibilities are fulfilled by the Executive Board on behalf of the members. The Executive Board confirms that it has complied with the above requirements in preparing the financial statements.

Auditors

The independent auditors, Horwath Clark Whitehill LLP, will be proposed for reappointment.

On behalf of the Executive Board

Ian Powell, Chairman
7 August 2009