Warwick Hunt, COO & managing partner - international
I’d like to take you through highlights of our financial performance for both our UK and Middle East businesses.
We have seen respectable revenue growth given challenging headwinds during an extraordinary year. The fallout from the EU referendum and UK general election impacted business certainty, including in a number of key industries, such as the financial services sector. Geo-political events outside the UK such as the presidential election in the USA and political and economic tensions in the Middle East further contributed to the challenge.
In light of this, we experienced a relatively slow first start to the financial year, but activity started to improve in the second half as the post Brexit referendum environment started to become clearer.
Our revenue growth of 5% to £3.6bn is a testament to the resilience of our business in both the UK and the Middle East. Our balanced portfolio of services, cross-industry sector expertise and global reach are key strengths that have served us well.
The 2% revenue growth in the UK reflected the uncertainties in the local market, with overall revenue growth fuelled by a very encouraging 23% in our Middle East practice, buoyed by public sector spending across the region as oil dependent countries implemented plans to diversify their economies and also the fall in value of sterling against the US dollar.
Looking at industry performance, strong Middle East public sector performance was offset by a slowing of UK public sector spending as government focused on Article 50 and the snap June general election.
Despite economic uncertainty, our overall financial services sector revenue increased, with strong demand for insurance, regulatory and real estate services.
The technology, information and communications sector proved highly resilient, with significant transaction led activity in the hospitality and leisure sectors. We expect to see strong ongoing growth in this sector as the opportunities and challenges inherent in Artificial Intelligence and robotics applications manifest themselves.
And in consumer and industrial products, we saw strong demand for business services, supply chain and cost reduction support.
Our Line of Service revenue performance further demonstrate the overall resilience of our business, with the majority of areas showing good ongoing growth. Within our Deals business we continued to see strong transaction based growth, but this was offset by lower insolvency and forensics activity following the completion of some significant projects in prior years.
The picture across our UK regional offices continued to be encouraging as we saw aggregate growth, with Northern Ireland expanding strongly and the South East, Midlands and Scotland also performing well. The Channel Islands also saw solid overall growth.
Our strategy to deliver excellence in client service based on a target operating model that has a strong regional presence across the UK - and we have continued with our investment in the regions by moving into new premises in Leeds and Aberdeen and refurbishing our Southampton office.
Our investments in cloud and other contemporary technologies also support our client centricity, enabling our People to work remotely and collaborate more easily with our clients and with each other across not only the UK and Middle East but the entire PwC Network.
This year we implemented Google for Work and we are already experiencing the benefit of more innovative and flexible working behaviours.
We have also been investing in innovative technology solutions for our clients, including the use of artificial intelligence, virtual reality and data analytics to help business interpret and utilise the benefits of big data.
Looking outside the UK and Middle East, our investments in our strategic alliances in Central and Eastern Europe and Africa continue to generate sound revenues as we support them and their clients to address the unique challenges that exist in these developing markets.
Within the UK, facing challenging conditions early in the financial year, we took the action necessary to re-shape our business and ensure we had the right skills to meet evolving market demand. Whilst some people left the business as a result, we continue to recruit and invest in our intern and graduate programmes.
We also saw an increase in costs related to client claims and regulatory investigations on a number of historic cases. We continue to focus on quality improvement and were pleased that we experienced our best ever audit quality review results in 2017.
The relatively subdued growth in the UK, coupled with action taken to control our costs, right size our resource base and our continued investment in technology and growth areas led to overall distributable profit per partner declining 8% for the year.
Profit per partner is calculated on a pre-tax basis and the taxes borne individually by our partners include both income tax as well as corporation tax on subsidiary profits. The overall effective tax rate for our UK partners in the current year was 48%.
We are committed to leading by example and acting with integrity and we believe being transparent on our own tax position is key. For more than a decade we have published our total tax contribution - the total tax paid by our UK business and its partners, which this year was more than £1.16bn, an increase on prior year.
Our balance sheet at 30 June remains healthy, with total members’ interests in excess of £500m.
So in conclusion, whilst it’s been a challenging year, our business has proven resilient; we have continued to respond to client needs, including providing innovative technology based services in such areas as cyber, data analytics and in artificial intelligence; and, despite short term headwinds, we have continued to invest in our people, technologies and property to deliver on our vision of being the leading professional services firm.