EY asks partners to beef up firm's cash buffers with millions

14 May 2020 Consultancy.eu 4 min. read
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The board of EY in the Netherlands has asked the roughly 260 local partners of the firm to beef up the company's financial buffers. In the past weeks, millions have been transferred into private company bank accounts linked to the professional services giant.

EY is seeking to ensure that its cash position is strong enough to counter the impact of the Covid-19-induced crisis. The accounting and consulting firm is starting to feel the bite of the crisis, as clients pause external work (especially non-strategic projects) and others delay the launch of new projects. 

Formerly Ernst & Young, EY generated fee income of €877 million in its latest financial year in the Netherlands, of which 40% is realised by its Assurance division, 33% by Tax, and 26% by Advisory services including consulting and mergers & acquisitions work. 

Revenue of the Big Four in the NetherlandsIn particular the latter division is seeing a fallout, because clients typically regard consultancy as a discretionary service that can be stopped relatively easily. Assurance on the other hand is more resilient to economic volatility, especially in the months before companies need to craft and declare their financial statements.

The financial position of EY is backed by the reserves of partners and cash positions built up in previous years. In the past eight years EY has been on a roll, only seeing growth. As a result, the professional services giant can rely on solid financials to help it come through the crisis.

But following years of high profits for partners – average partner income was above €500,000 per partner over the eight year period – they now will have to take a financial blow, as partners are the ‘owners’ of the company and therefore first in line to absorb potential losses. 

Reporting from Bloomberg suggests that “tens of millions of euros” have meanwhile been transferred to partners’ private company bank accounts linked to EY. The Big Four firm declined to comment on the news.

EY is one the four largest accounting and consulting firms in the world, together with Deloitte, KPMG and PwC. In the Netherlands, EY is the third largest of the quartet, trailing PwC by a small margin and Deloitte by a wider margin. Deloitte was on track to become the first of the Big Four to break through the €1 billion barrier in the Netherlands, but that now seems unlikely given the impact of Covid-19 on demand and financial performance.

Revenue of the Big Four in the Netherlands

Covid-19 measures

Globally, the picture is no different. The quartet have been forced to take drastic measures to curb costs. In several countries, the Big Four have asked partners to lower their pay by 20% to 25%, while employees are seeing their contract hours reduced and sent on (voluntarily) furlough. In Australia, Deloitte had to shut its doors for a week for the first time in history, and in Canada, the Big Four have started firing employees. 

The Dutch arms of the Big Four have so far taken less far-reaching measures, but that is partly due to the stringent employment laws in the country and their financial reporting period. PwC, Deloitte and EY all have a reporting period from the summer of 2019 to the summer of 2020, and so far, they have been able to incur much of the coronavirus blow because of the good performance they realised in the first three quarters of their financial year. 

However, people close to the matter told Dutch platform Consultancy.nl that the start of the new financial year will see measures ramped up, with layoffs in under-performing units on the table, if needed, and based on the economic situation in the summer.

The Netherlands is a country of 16 million people. The Dutch consulting industry is estimated to be worth €1.8 billion, with the consulting arms of the Big Four commanding a large share of that market.