The latest robust operating profits from the UK arm of accountancy giant KPMG show that there is still strong money to be made out there by the big four players, even if it is interspersed with scandals ranging from Enron and Global Crossing to Parmalat.
The 10 per cent rise in profits at the group, part of KPMG International, is also good news for the 568 partners at the firm. The average profit to be distributed to them is £449,500 – up 13 per cent on the previous year.
However, the comments by Mike Rake, chairman of KPMG International and the UK senior partner, about the damaging effect of high-profile fraud cases on the accountancy profession shows he is quite well aware that seldom has his members’ work been under so much scrutiny.
As he says, the big players have not only got to be rigorous, robust and independent in their work for plcs, but they have got to be seen to be so.
Extraordinary events such as we are witnessing at Parmalat in Italy give a handy sense of perspective as regards the sometimes arcane debate on accounting standards.
Those standards are all very well, but pale into insignificance when we see frauds of this scale in action.
Looking at the breakdown of KPMG’s results, it shows that bread-and-butter audit work has been tootling along nicely, with income up 9 per cent, while corporate finance work in a depressed climate for mergers and acquisitions fell 12 per cent.
The scale of influence of the big four players is shown by the fact that KPMG audits the accounts of 22 per cent of the FTSE 100 blue-chip index, and 25 per cent of the FTSE 250.
Corporate recovery work was the star turn this time around for the company, with income up 24 per cent, showing that it pays to have a spread of business in the major firms.
Driving a hard bargain
The selling and streamlining of Stagecoach into a thinner, more focused vehicle continues. Yesterday, the group announced that it has sold the majority of its 30.6 per cent stake in Road King Infrastructure, the Chinese road toll operator.
It is not so much about raising cash, as the stake is broadly in line with book value. But the deal continues Stagecoach’s new strategy to get rid of non-core operations in order to focus on its UK bus and rail operations above all, plus its remaining commuter bus business in the US, and its profitable New Zealand operations.
Stagecoach has got rid of the bulk of its loss-making operations in America and last year also announced it was getting rid of its Citybus business in Hong Kong, despite the latter’s profitability.
Some even wonder whether the New Zealand operation will also eventually go the same way, simply because of the massive distance involved from the Scots head office.
It certainly would not go for strictly financial reasons as New Zealand has been a solid profit performer for Stagecoach for many years.
Regarding the other disposals, the Scottish company has made a conscious virtue of what it calls its “de-risking” strategy after the switchback ride it had between 1999 and 2002.
That uncomfortable time was overwhelmingly due to the ill-starred Coach USA acquisition, but was further complicated by a period of serial management upheaval.
It may all have left Stagecoach looking less buccaneering as it once did, but its share price recovery suggests that the City expects a less bumpy ride.
Even with yesterday’s 2.25p fall, the stock is currently trading at 89.25p compared with a 52-week low of 28p.
Cairn’s cup runneth over
That's what you call a happy start to the New Year: Cairn Energy has announced a significant oil discovery in western India that could transform its prospects.
It is the stuff oil companies dream of, and shares in Cairn have raced to a six-year-high as a result.
They closed yesterday up nearly 50 per cent at 552p.
Sometimes hyperbole runs rife in the oil industry – witness Shell’s embarrassing turnaround on oil reserves just recently. But even investment bank ABN Amro reckons that Cairn’s discovery in Rajasthan was likely to be one of the biggest discoveries in the world this year.
Preliminary estimates suggest there could be up to 200 million barrels of realisable oil in the field.
Towards the upper end, this could almost double the company’s reserve base – a Shell story in reverse if ever there was one.
There are also two similar prospects in the vicinity yet to be drilled, which could mean Cairn’s prospects are enhanced even further.
Cairn was originally involved in North Sea exploration, but has increasingly had India and Bangladesh as its main area of focus.
Yesterday’s announcement will do everything to convince management under chief executive Bill Gammell that it has made the right geographical choice.
The emerging industrialisation of India is probably second only to China worldwide as the big story over the next ten to 20 years.
Supplying local oil to feed that growth could be an attractive position – and Cairn looks to be an early beneficiary.
