Kreston North European Conference

Update on strategyand current developments

22- 24 May 2008, St Petersburg Jon Lisby, Executive Director

Agenda

Overall performance in 2007• Analysis of our growth• Our current resources • How do we compare?

Referral performance• Regional analysis• A change in the fee basis

Network v Association- What’s our strategy? Where on the line?

Now, where, how

Another outstanding year

$1.708bn Growth 30%

$642m

$836m$990m

$1.128bn

$1,317bn

$1,708bn

2001 2002 2003 2004 2005 2006 2007

$1.142bn

Resources

236 (213) firms, 665 (543) offices 92 (75)countries, 18,500 (15,000) staff

1138 1128 1167

18,348

1,043 1,138

10,9799,843

7,7607,400

665

543

485509

448

2003 2004 2005 2006 2007

Partners

Total Staff

Offices

2007 Recruitment

MoscowBrazil – 2 firmsDominican

RepublicUkraineVietnam Isle of Man

United KingdomGuatemalaMexico – 3 firmsAustralia – 3 firms

15 new firmsand ……….

Exco France

France

Africa (former E&Y)

• Côte d’Ivoire• Gabon• Niger• Mauritania• Congo• Togo• Benin• Mali• Burkina• Cameroon• Tchad

• Morocco

• Poland

• West Indies, New Caledonianand Reunion

Over 2,000 professionals

Fee income US$203m

Analysis of growth

30% growth comprised• 15% impact of recruitment less retirements• 15% average organic growth

Overall organic growth in line with Big 4

Recruitment of Exco France brings improved balance between Eurafne and North America

North America now 49% previously 60%

Eurafne now 41% previously 29%

Membership

analysis

National

position

Kreston

Growth

Average

Growth

Fee

Revenue

Kreston

%

Offices Partners Total

Staff

2007 % % US$m % No. No. No.

USA 12 7 14 836 49 153 305 6649

UK 18 26 13 100 6 23 96 891

Australia 14 46 15 31 2 11 34 251

Germany 17 6 8 79 5 27 55 658

Canada 23 10 11 10 1 5 12 88

China 7 30 23 56 3 59 50 1,590

Netherlands 9 6 7 74 4 20 45 697

France 7 1200 8 194 11 109 139 1,794

Italy 17 -19 11 5 6 6 59

Russia 10 122 49 27 2 6 12 615

Middle East 16 8 19 6 16 15 208

Mexico 11 95 4 12 1 27 49 501

Other 277 16 203 349 4,347

World Total 15 30 20 1,707 100 665 1,167 18,348

Regional strength/recruitment targets(Source: International Accounting Bulletin Surveys 2007)

Regional analysis

Region 2008

2007

% Fees US$m

No of

Firms

% Fees US$m

No of Firms

Asia Pacific 6 110 34 7 93 35Australia/New Z

2 33 13 2 27 13

Eurafne 41 697 146 29 387 125Latin America (reunited)

2 23 33 2 20 30

North America

49 845 10 60 791 10

Total 100 1708

236 100 1,318 213

The Top 10 ( Green up - Red down)

Place International affiliate/firm Most recent year's fee income ($/m) Growth (%)

1 PricewaterhouseCoopers 25,200 15

2 Deloitte Touche Tohmatsu 23,100 15

3 Ernst & Young 21,104 15

4 KPMG 19,810 17

5 BDO International 4,704 20

6 Grant Thornton International 3,500 25

7 RSM International 2,998 11

8 Praxity (Merger MRI / Mazars) (10) 2,839 -

9 Baker Tilly International (8) 2,501 9

10 Horwath International (9) 2,424 12

How do we compare?

Place International affiliate/firm Most recent year's fee income ($/m) Growth (%)

11 Nexia International (13) 2,310 54

12 Moore Stephens International (11) 1,883 22

13 HLB International (12) 1,729 14

14 PKF International 1,723 17

15 Kreston International (16) 1,708 30

16 Leading Edge Alliance (17) 1,613 21

17 Fiducial International 1,357 4

18 AGN International 1,317 14

19 DFK International (21) 877 22

20 Mazars 874 -

Strength of membership

• Kreston International at start of 2008

• 30% Growth takes us to – 15th ($21m from13th!)

• 92 countries

• with 665 offices

• 18,500 staff and

• fee income of US$1.7bn.

2008 Recruitment to date

Belarus(thanks to IEI !)

Bulgaria

Central America• Panama• El Salvador• Honduras• Nicaragua

Cyprus

Mexico – 6 firms

India

Venezuela

Colombia

International referrals

0

10

20

30

40

50

60

70

80

1998 2000 2002 2004 2006

Strong growth in value of reported new referrals

US$1.4m in 2007

88% between Europe and North America

Still too low!

Past 10 years – Value 1997/2007

10% payable by receiving firm

5% receivable by giving firm (in respect of referrals given after Jan 08 and only payable if paid)

Adjusted on annual fee subscription

2 years only

No fees due on national referrals from 2007

Referral fees – a change 

Network v Association

Network definition…………….

A larger structure:

That is aimed at co-operation; and

That is clearly aimed at profit or cost sharing or shares common ownership, control or management, common quality control policies and procedures, common business strategy, the use of a common brand-name, or a significant part of professional resources

Both IFAC and European 8th Directive

Association

Network

Sovereignty

Local

Global

Integration

Loose

Tight

Social and Travel club

Reactive to client needs

Shared working practices

Client acceptance & sign off rulesGlobal strategies imposed

Brand shared Conflict checks

Ongoing quality monitoring

Technical support & Training

Profile attracts staff & clients

Low

High

Networks within an Associatio

n

Risk

Low

Increased

Cost & Value

Pro-active joint targeting of prospects

Cohesive and credible

Joint purchasing incl. PI insurance

Service lines limited

Special interest groups

More about status than international business

Association - Network

Forum of Firms

Network definition

The Kreston strategy? Which option?

• Networks within an Association

Network definition

All Kreston members are required to make amendments to

any document, stationery, website, signage or promotional material and

eliminate the word “network” and

at all times refer to a “global association of independent accountants and business advisors”.

15th ( or equal 13th!) largest global group

Low central cost structure maintained

Referrals between members driven by client needs – mainly reactive and little co-ordination of working practices

Excellent global coverage and strong growth but with• Some location gaps• Need to strengthen service line capability in certain locations

Brand recognition – low but growing

Now?

“High profile association (including some networks) working in closer collaboration to proactively win multi national assignments and compete more effectively in the marketplace of mid-tier accounting networks”

Where to?

The strategy remains…………..

Raise the profile

Increase collaboration

Proactively target quality international assignments

And win!! Both national and international

The challenge

Raise the profile

• Continued growth and admission of new strong firms

• National and regional business development plans

The challenge

Increase collaboration

• Introduce the tools

- Global web portal - unlimited users

• Share working practices

• Share information – extended Fact Sheet

• National and regional development strategies(Examples – Mexico,India,Australia/New Zealand)

• Build multi-firm teams- Special interest groups (“SIG”)

The challenge

Building collaboration

• Special interest groups

Numerous groups including:-

• Global audit • Global Risk and Advisory (Internal audit, Sarbox)• International tax• Transfer Pricing• Corporate finance – IPO’s, Acquisitions, Due Diligence• Global Payroll

Building collaboration

• Global audit

An update on progress

• Proposal made at Chicago World Conference in October 2007 by MHM for a “branded” global audit network

• Objective – to complete more effectively against BDO, GT, RSM etc

• Many members interested

• No agreement to brand from major North American and European firms

• Discussions ongoing and focused on increasing capability to target, win and efficiency service quality transnational audits

• Las Vegas Conference –June 2008

• Our goals remain …………..

• Build cohesion and

• Accelerate the growth of high quality referrals bothnational and international

• Build the value of Kreston firms and

• Do more and better business with people you know, like and trust!

Eurafne Conference

Hamburg, 18 -20 September 2008

World Conference