Big 4

EY turnover up 12%, appears to be heading for split up in Luxembourg

Adriana Boixados Prio, people leader, Olivier Coekelbergs, country managing partner and CEO, and José Longrée, managed services leader, pose for a portrait during an EY Luxembourg press briefing on the firm’s annual results and possible demerger, 29 November 2022. Photo: Romain Gamba/Maison Moderne

Adriana Boixados Prio, people leader, Olivier Coekelbergs, country managing partner and CEO, and José Longrée, managed services leader, pose for a portrait during an EY Luxembourg press briefing on the firm’s annual results and possible demerger, 29 November 2022. Photo: Romain Gamba/Maison Moderne

EY has posted double-digit revenue growth and has strongly hinted that a mooted split up of its audit and consulting businesses will be approved early next year.

The big four audit and advisory firm EY Luxembourg has recorded its second largest turnover growth rate. The consultancy posted total revenue of €325m for the financial year ending 30 June 2022, a year-on-year increase of 12.3%. EY notched up turnover growth of 10.2% the previous year and 13% in 2020, its highest ever jump.

The recent uptick was due to “both” overall growth in the Luxembourg market and the firm “taking marketshare in a number of areas,” Olivier CoekelbergsOlivier Coekelbergs, country managing partner and CEO of EY Luxembourg, said during a press conference on Tuesday 29 November.

Last week, rival Deloitte reported a 7% increase in annual turnover, which reached €405m for the 2022 financial year. PWC posted an 11% gain in turnover, breaking the half billion euro mark for the first time.

EY’s strategy and transactions segment, one of its smallest, posted a year-on-year increase of 44.2%. Coekelbergs said that the appointment of two new partners, a rise in real estate transactions and “more recurring mandates” drove much of those gains.

Its consulting business saw “record growth” of 26%. Partnerships with technology providers such as Microsoft and SAP were key drivers and the division now employs around 200 people.

The audit segment was up by 11.1%, much of that coming in the investment fund sector. Coekelbergs said the increasing “importance of assurance on non-financial information” became apparent to the business.

Its tax practice grew by 9%, partly down to its new operational tax sub-service line.

EY employed approximately 1,800 staff in the grand duchy, ranking behind archrivals PWC, Deloitte and KPMG.

Split up plans

Globally, EY is considering a split up of its audit and consulting businesses. Although Coekelbergs said that no decision had been made in the grand duchy, executives at the press briefing appeared confident--and used language strongly suggesting--that a demerger would likely happen in Luxembourg.

Arguments in favour of the split up included regulatory pressure to reduce potential conflicts of interest between audit and non-audit clients, the trend towards multiyear consulting contracts which in turn increases the risk of conflicts of interest, EY’s increased use of alliances with technology providers, and the need for the firm to boost its tech investments, which “would be facilitated” by a split, Coekelbergs stated. A demerger would additionally “bring more trust to the business environment” and bring “more profitability” to both entities, he argued.

(The counter-argument is that having a wider set of in-house expertise collectively brings more added value to both clients and staff.)

Room for manoeuvrer

Two independent firms would increase its client prospects, commented José LongréeJosé Longrée, managed services leader at EY Luxembourg. Currently the firm cannot perform a number of tasks, such as recurrent services and secondments, for audit clients. That rule would disappear if the split-up went through.

The newly freed services company would be able to enter deeper alliances with technology firms, which would expand professional development opportunities for EY staff, according to Adriana Boixados PrioAdriana Boixados Prio, the firm’s people leader. The spun out consulting company could make “acquisitions more easily,” Longrée added. Two separate firms would be “more successful” in recruiting both recent graduates and experienced staff, Coekelbergs reckoned.

Profile of demerged firms

About 1,000 of EY Luxembourg’s current staff would stay with the audit company, with roughly 800 staying with the consulting bit, Coekelbergs stated.

Boixados Prio said the firm would end up hiring more staff to “duplicate” centralised service and support roles, such as finance, HR and marketing. Coekelbergs estimated that more than 30% additional staff could eventually be hired.

Coekelbergs said during the press briefing that between one-third and one-half of current revenue would be attributed to a separate advisory business.

Decision due Q1 2023

EY partners in each country, including the 65 equity partners in Luxembourg, will vote on demerging in the coming months. Coekelbergs said that the vote would be held “at some point in the first quarter.” However, partners will “discuss internally” prior to the vote, in order to reach “a united decision”. In other words, he hoped that partners will reach a unanimous decision prior to the official poll.

From informal internal conversations so far, Coekelbergs has concluded that “all are convinced it’s the right thing to do.”