2020/2021 was again a year of considerable economic uncertainty. Despite this, clients and staff maintained their trust in us. As a result, over the past year, we were able to focus fully on our strategic priorities.
For 2020/2021, we reported a strong increase in both revenue and profit, due mainly to increased demand from clients for our services. With regard to variable costs, we spent less on travel, training and social activities during the pandemic. We also saw improved efficiency; our time spent on chargeable hours increased again. In addition, our 2019/2020 profit included a substantial one-off impairment (totalling just over EUR 20 million, linked mainly to our Digital Risk Platform (DRP)).
Our full financial statements are available in the respective section.
Revenue from our assurance business rose 6%, thanks to continued demand from both new and existing clients. This additional demand more than offset a decline in client disbursements, covering mainly travel costs. Operating profit was also up, as a result of increased efficiency from new smart audit technologies and the use of KPMG Centres of Excellence, including KPMG Global Services in India.
In Advisory, revenue was just under 12% higher, with our Deals, Strategy & Operations and Technology practices all posting strong growth. We saw increased client demand from infrastructure, government & health, consumer & retail and financial services – all among the sectors affected by the pandemic. Our digitalisation services were also in strong demand, underpinned by the KPMG Connected, Powered, Trusted product suite.
During the year, our employee expenses increased by 10.4% – this was despite a decrease in professional staff. The increase in expenses was due mainly to higher variable pay and additional one-time bonuses. We also decided not to delay promotions or salary rises, despite the pandemic – a reflection of the firms higher profits. For 2021/2022, we have raised our recruitment targets to reflect increased client demand in both our assurance and advisory businesses.
Smart audit technology, including the introduction of KCw
Digital solutions in both Advisory (including Sofy) and Assurance
We also invested in expanding our portfolio of services, in line with KPMG’s global objectives. Our focus was on technology, including cybersecurity and digital transformation.
In 2020/2021, we spent EUR 1.1 million on intangible assets (mainly software and digital assets). Spending on property, plant and equipment amounted to EUR 3.5 million, mostly on home office equipment, investments in our new clubhouse concept and replacing out-of-service assets.
Our policy is to maintain a strong capital position, so that we retain the confidence of the firm’s clients and creditors and can continue to invest in business growth. Most financing comes from contributions from our equity partners (up to EUR 180,000 from each partner, unchanged from 2019/2020). Partners also provide additional financing through mandatory and voluntary loans. In 2020/2021, our total funding rose by just over 40% – a result of increased working capital and profits that are only distributed at the end of the calendar year.
Higher financing from partners – and a continued focus on capital management – led to a significant increase in our cash balance (which more than doubled to EUR 165 million by the end of 2020/2021). Our solvency ratio, which includes equity and partner financing, was also higher, up to 35.5% from 28.3% the year before. Throughout 2020/2021, we maintained our unused EUR 50 million facility with our bank; this amount is available for either credit lines or guarantees. At the end of the year, our Board of Management considered our capital and cash position to be healthy, and able to withstand market volatility or operational losses within the business.
We do not foresee any material changes in our financing structure.
In 2020/2021, we continued to professionalise our Business Services function. We put emphasis on further improving quality, service and cost-effectiveness. Over the past year, we restarted – or accelerated – projects that had been put on hold because of the pandemic, including marketing automation, cyber security, the transition to ISQM 1, and the introduction of cloud technology. Where possible, we’ve improved efficiency by strengthening internal controls and combining processes.
We sold our 15% shareholding in KPMG Investments Malta Limited to KPMG UK per 29 November 2021 for a total consideration of EUR 4.6 million. As part of this external sale, certain non-compete warranties have been provided.
Our total net profit before tax is subject to standard corporate income tax at the same rate as Coöperatie KPMG U.A., KPMG N.V. and the individual equity partners’ practice companies. Only a limited part of our total income tax expense is included in KPMG’s profit & loss account as the majority of our tax is paid via the equity partner's practice companies. Our income tax expense includes both prior-year adjustments and temporary differences for which a deferred tax asset or liability has been accounted. KPMG N.V., the Coöperatie KPMG U.A. and the individual equity partners pay their taxes in the Netherlands.