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• Revenue of $1.905 billion (up 7 percent on FY19, but well short of pre-COVID plan
• Growth in all divisions
• COVID-19 transforms ‘new normal’ workplace
• Gender target achieved
• Carbon neutrality achieved
• First Modern Slavery Statement submitted: no harm identified
• Community contribution up 50 percent on FY19

Delivering the results to his workforce today, Gary summed up: “We’ve had a good financial year, all things considered, and I’m proud of what we’ve achieved working closely together as a firm, and continuously supporting our clients. I thank our people and partners for their resilience and unwavering efforts in delivering this hard won, and pleasing result.”

Up until February the firm was tracking to plan, at around 13 percent revenue growth. As the effects of COVID progressively impacted the business, revenues fell for the last four months of the year, averaging around 15 percent down on the original plan.

“As the health and economic impacts of the pandemic deepened, it became inevitable we would fall well short of the strong growth projections set at the start of the year. We had invested quite heavily in the first half to deliver that growth, which has now had a flow-through negative impact on profit.

“By acting swiftly and decisively early in the pandemic, we have protected the underlying health of the firm. That challenge ahead is for this to continue,” said Gary.

Alison Kitchen, KPMG Chairman responded: “The Board considers that Gary and his team has done an excellent job in deeply challenging circumstances. They have kept us in good financial stead, while delivering balanced and thoughtful outcomes for our people, clients and partners.”

At year’s end, the firm employed more than 9,000 people. Graduate hires were around FY19 levels, at 600. Partner and director promotions were postponed until January 2021.

Despite the unprecedented environment, all divisions made positive contributions to the firm’s results:

Audit, Assurance & Risk Consulting (AARC) up 9 percent on FY19 – The External Audit business produced solid growth with a key focus on its ongoing program of enhancing Audit Quality. The Risk Consulting business performed very strongly as market demand for risk management services continued post the Royal Commission. The Forensic and Risk Strategy businesses performed particularly well in Financial Services, while the Project Risk Consulting team had a strong year working on major infrastructure projects.

Deals, Tax & Legal (DTL) up 8.1 percent on FY19 -The Infrastructure Advisory and Restructuring Services practices performed particularly strongly, as did the International Tax group. Legal capability continued to be built out and delivered good growth, although not to planned levels. COVID-19 stymied the ability of financial advisory and deals teams to execute transactions and created significant uncertainty in these markets.

Enterprise up 5.8 percent on FY19 – With a strong ethos of going ‘above and beyond’ supporting clients during the pandemic, KPMG’s mid-market and family business division continued its growth trajectory.

Management Consulting (MC) up 4.6 percent on FY19 – Despite uncertain economic conditions, financial performance remained fairly constant across the year. However, the nature of work performed changed. Demand shifted away from longer-term project and transformation work, to supporting clients with crisis-based responses (bushfires, floods, pandemic) – notably resource augmentation, digital enablement, and logistics/supply chain solutions. On an industry basis, Financial Services and Energy and Natural Resources recorded significant growth while Infrastructure, Government and Health sectors remained relatively stable.

KPMG Strategy up 13.5 percent on FY19 – Continued investment saw a range of capability added over the year, but the result was considerably below pre-COVID plans.

COVID-19 played a significant role in shaping the firm’s FY20 results, particularly the last quarter. From the outset of the pandemic, KPMG’s guiding principles encompassed prioritising the health, safety and wellbeing of its people whilst doing everything it could to protect jobs and ensure continued service for clients.

Workplace

As well as following government advice, the firm quickly mobilised to enable its people to work from home, rolling out new technology at speed.

“KPMG people rallied and adapted quickly so that we could continue to deliver for our clients at a time when they needed us most. Agile working has long been a staple at KPMG, but the success of working from home en masse has changed the firm forever, with our people now having, and making, real choices about where and how they work – the home hub, the office hub or the client hub,” said Gary.

Wellbeing

The firm’s wellbeing response included expanding its Mental Health Strategy to accelerate support for its people. A dedicated Family and Domestic Violence phone line and mailbox provided a discreet means to trigger support, including the provision of emergency accommodation for people who did not feel safe in their home.

“We expanded our Mental Health Peer Support Network leveraging our partnership with the Heart On My Sleeve Movement to help alleviate the impacts of unforeseen disruption on our people’s mental health and trained our leaders to have greater confidence discussing mental health with our people. Many of our leaders are hosting virtual cafes with small teams to check in, listen and respond to their concerns, and weekly wellbeing peer support circles are gathering in digital meeting rooms.

“Our partners at Parents At Work are facilitating live webinar sessions to help with responding to the new needs of parents, carers and managers as we adapt to combining remote work with family and childcare needs. To our people in Melbourne, we have offered further flexible leave options during the second lockdown,” he said.

Cost measures

As COVID began to hit in March, the firm reviewed its business plan and revised down financial forecasts. A series of pre-emptive cost measures were introduced to safeguard the business and protect jobs. These encompassed strident discretionary spending cuts, a recruitment pause, redirecting resources to where they were most needed, targeted redundancies (200), asking employees to temporarily take a 20 percent reduction in monthly salary (from May until August), and partners taking an effective pay reduction of up to 36 percent for the same period. Two associated commitments were made: first, that if the firm didn’t need to use all these funds it would pay back what it could, as soon as it could; and second, that the firm would prioritise any repayments to staff above returns to partners.

In June, leadership felt in a position to repay one-third of employee salary reductions for May and June 2020. The repayment was not applied to partners or executive directors. Partner earnings were 12 percent down and employee remuneration 2 percent down for the year.

“Today, I have told our people that we will return all employees to 100 percent of their base pay from 1 September, following a review of July results. This was our primary financial goal as we went into the new financial year. I thank our people for assisting the firm and their colleagues through this unprecedented time – their contribution did save jobs,” said Gary. He noted that Partners would continue on reduced income through to the end of September. “It’s currently too early to say if we can payback anything further from the temporary pay cuts for July and August, given the continued evolving nature of this pandemic,” he added.

By year end the proportion of women partners grew to 31.2 percent. The firm had achieved its stated gender target – 30 percent women in partnership by July 2020, set in 2015.

Alison explained, “Gender targets have been a significant element of our Diversity & Inclusion strategy and have seen the firm move 11 percent points in its women in partnership representation in a five-year period. We have seen the positive benefits and results that targets can achieve and therefore believe it is critical to continue to stretch ourselves by setting new targets, which I’m pleased to announce today.”

“We are maturing, broadening and expanding our inclusion ambitions at the leadership level, announcing a new gender target in addition to our first cultural diversity target. We know that we have a strong culturally diverse talent pool at our entry levels, which significantly declines as you move up the firm’s leadership structure. We want to have a leadership population that reflects our diverse client base and the community in which we live and work, and also provides equal opportunity for career progression for all of our people. We believe that setting cultural diversity targets, underpinned by a strong strategy and work program, will mobilise action and create visibility of our commitment to greater diversity required in our future leaders,” she said.

KPMG Australia’s new inclusion targets are:

• Women in partnership target of 40 percent by 2025
• 20 percent culturally diverse partners by 2025

The firm achieved carbon neutrality and launched a refreshed Climate Action Plan incorporating a new 100 percent renewable energy target by 2022.

After making a formal public commitment to respect human rights via the publication of its first Human Rights Policy during the year, KPMG Australia recently submitted its inaugural Modern Slavery Statement for FY20. No instances of modern slavery harm were identified.

Alison added: “The Statement reports our foundational work this past year, and sets a baseline for us to mature our response. We will continue to recognise respecting human rights as a core element of doing business. We are practically implementing respect for human rights and are committed to the long-term change we can all make if we prevent modern slavery.”

KPMG Australia completed one acquisition during the year, Action Sustainability Asia Pacific, which specialises in social and environmental sustainability advisory services. This expanded the firm’s existing human rights, social impact and sustainability capabilities and builds on KPMG’s acquisition of leading human rights consultancy Banarra five years ago.

KPMG’s community contribution increased by more than 50 percent to encompass almost 44,000 hours of time. The growth was primarily driven through KPMG people joining a global day of action in support of the UN Sustainable Development Goals (SDGs).

On 25 September, more than 3500 KPMG people volunteered their time to the firm’s inaugural #Act4SDGs Day, contributing almost 16,000 hours in support of approximately 120 not-for-profit organisations. Led by Alison planting trees for Landcare in Melbourne and Gary helping cook for the disadvantaged at Our Big Kitchen in Bondi, thousands of KPMG people left their offices to volunteer at youth shelters, donate blood, put together solar lights for children living in energy poverty, clean animal sanctuaries, train as mental health mentors, upskill staff of not-for-profit organisations distribute food and more.

Almost 200 pro bono engagements were undertaken, including an important project for Suicide Prevention Australia, developing its white paper, Turning points: Imagine a world without suicide.

KPMG developed and executed a comprehensive response plan to support its people, clients and communities through the national bushfire crisis. The contribution involved significant pro-bono work helping impacted clients manage their financial response, build sustainable capacity and resilience, and support community-led recovery efforts. The firm and its people also assisted with substantial fund-raising activities, primarily to the Australian Red Cross. This included donations from KPMG Australia, US, Canada and Ireland, and local fundraising events from offices across the country. KPMG also provided support to over 30 of its people to undertake emergency and first responder duties.

“Although we head into FY21 with less certainty than we had hoped, we are managing this well. Maintaining agility in our decision making will be critical to enable us to respond to change quickly. Going into 2021, we have put a budget in place for Q1 only, and we’re now close to finalising Q2. We are keeping overheads tight,” said Gary.

“Looking ahead, our business and investment decisions will reflect the commercial reality of where our firm sits at a given point in time, and the economic reality of our environment.

“Currently, we expect revenues for FY21 to be flat on last year – and we’ll experience a tougher first half before starting to get back on more of an even keel,” he commented.

KPMG’s latest modelling suggests the economy will continue to decline into the September quarter 2020, albeit at a much shallower rate than experienced in the June quarter. And the national economy is now likely to take to the end of 2021 to recover to the levels of economic activity experienced at the end of 2019.

Alison concluded: “Australian business continues to display innovation and resilience, and we are pleased with the level of engagement of business with industry groups and other organisations in collaborating and constructively providing ideas to government on how to stimulate economic activity. We are confident that business will recover and return to growth. For our part, we are well positioned for the year ahead and ideally placed to assist our clients with the challenges they are facing as the COVID situation unfolds.”