EY Luxembourg announces strong revenue growth of 12% reaching EUR 147.3 million for the financial year ending 30 June 2013
Luxembourg, 17 October 2013
EY Luxembourg announced total net revenues for the Luxembourg practice of EUR 147.3 million for the financial year ending 30 June 2013, up by 12% from the EUR 131.7 million net revenues registered last year.
“I am very proud to announce this year that our Luxembourg practice has achieved a double-digit growth by roughly 12% for the financial year ending 30 June 2013, which is a record growth for EY and is around the double of the growth rate of around 6% that we had achieved the last three years and that was already a strong performance in a difficult economic environment. This year’s growth like the uninterrupted growth registered over the last four years is the fruit of rigorous, continuous work of the EY professionals in all our service lines, and of a strong relationship with our clients founded on quality service, insightful and responsive advice and a relationship based on transparency and trust”, explains Alain Kinsch, Country Managing Partner of EY Luxembourg.
“Of our practice areas, our Tax practice achieved the highest growth rate with revenues up by 16%. This is a remarkable performance of our tax practice and reflects the investments that we have been doing over the past years, in areas such as International Tax, Transfer Pricing, VAT, Human Capital Tax and transaction related tax services. This growth also shows that our country remains a very attractive platform for structuring international transactions and cross-border investment. Our audit practice has achieved a double digit growth rate of 12% and remains the 2nd largest audit practice in Luxembourg measured by its revenues. We have been making important investments in our Advisory practice and service offering this year that should bring us to higher growth rates again next year following a year of consolidation this year”, says Alain Kinsch.
On a global level, EY announced last week combined global revenues of US$25.8 billion for its financial year ended 30 June 2013. This represents 7.7% growth over the previous financial year in local-currency terms - EY’s fastest growth since 2008 revenues grew 5.8% in US dollar terms. Worldwide headcount now reaches an all-time high of 175,000 professionals. All EY’s service lines and geographies continued to grow revenues and headcount despite uneven market conditions in many parts of the world.
Last September over 150 staff members joined EY Luxembourg, raising the number of employees to almost 1,100 professionals of 47 nationalities.
“This integration is an evidence of our commitment to attract and retain the widest variety of talent within our company and to capitalize on this difference. In a multicultural world, diversity presents an opportunity, as it offers the chance to be more responsive and more innovative for our clients, employees, partners and stakeholders. As we intend to recruit exponentially over the next years, we aim at demonstrating how much we are committed to invest in people and to pay attention to our capacity to innovate from all points of view, and thus contribute in a different way by offering to go further in understanding businesses and enable executives to make forward-thinking decisions. With our Vision 2020, as we have adopted and articulated a further-reaching purpose to build a better working world, we have the ambition to attract the best talent with varied and specific backgrounds from all over the world, but also and above all, to give them the opportunity to develop their potential for the benefit of our clients”, says Alain Kinsch.
“We are indeed committed to create and sustain a distinctive high performance culture at EY. As part of multidisciplinary and borderless teams coming into contact with a variety of companies and decision-makers, EY employees acquire sound technical and sectorial expertise enabling them to understand their daily issues. Furthermore our integrated global network, which helps us to form multicultural teams, whose common goal is to collaborate and exchange best practices and latest trends all together, helps us serve our clients, wherever they are based, on the right level, meaning that we offer a close and quality relationship and call on international experts when necessary. In this context, we do not only want to continue to promote the mobility of our professionals to foster the development of relevant and innovative solutions for our local and international clients, but we also aim at continuing to invest in the training and the development of our people. On a larger scale, we aspire to create for our people a work environment conducive to the development and fulfillment of each individual. It is important to us that our people take pride in carrying out their work, which cannot exist without a stimulating work environment”, adds Olivier Lemaire, People Partner at EY Luxembourg.
For these reasons, EY was ranked the world’s most attractive professional services employer – and second most attractive employer overall last month – in Universum’s annual World’s Most Attractive Employer ranking.
“We are very proud to maintain this year again such a level of recruitment, demonstrating the strength and attractiveness of our brand and firm with all the young graduates and experimented professionals operating in our profession. As we manage our teams with rigor and courage and take advantage of their diversity and differences, we are determined to continue to offer exceptional client services to our clients, wherever they are based, and therefore to contribute to the attractiveness of Luxembourg”, says Alain Kinsch.
Build on the strength of our global network… with the mission to build a better working world
“With 175,000 people in 137 countries and a wide range of nationalities represented in each office, the EY integrated global network allows us to form multicultural teams, to mobilize experts effectively around the world, including professionals based in Luxembourg, and to address the problems faced by our clients globally, including in Luxembourg. In brief, our professionals can act as ambassadors for Luxembourg and share their talents with our clients, wherever they are based in the world, while they are abroad, and will return to our country with the skills and knowledge they acquired while working in other leading financial or commercial centers”, says Alain Kinsch.
On 1 July EY announced a new global brand name, unveiled a new logo and adopted Building a better working world as its purpose and tagline.
“This means that every day, every EY person of our network is part of building a better working world – for our clients, our communities, and our families. We believe that everything we do – every audit, every tax return, every advisory opportunity, every interaction with a client or colleague – contributes to building a better working world,” says Alain Kinsch.
A global center of excellence… in Luxembourg
“At the same time, we preserved and even increased our local firepower. Luxembourg partners have leadership roles at an EMEIA level. As an example, the EMEIA leaders for Regulated Funds (Michael Ferguson), Real Estate Funds (Mike Hornsby), Private Equity Funds (Alain Kinsch), for the telecom industry (Olivier Lemaire) and the Global leader for Telecom Tax (Bart Van Droogenbroek) are partners of the Luxembourg office who have brought the Firm’s centre of excellence for these industries to Luxembourg. In addition to the recognition of Luxembourg as a major financial center for investors from around the world, we are also very proud to contribute to the attractiveness of our country while hosting here in Luxembourg professionals with outstanding profiles, who have developed significant experiences of our sectors and industries at the local and international level,“ adds Alain Kinsch.
POINTS OF VIEW
Special focus on AIFMD and alternative investments
Luxembourg continues to consolidate its leading position as the domicile of choice for global onshore private equity, real estate and hedge funds with cross-border distribution. In the past year, many global as well as smaller specialized service providers decided to establish their center of excellence for serving alternative investment funds in Luxembourg. In addition, many fund managers strengthened and continue to increase their presence in Luxembourg by opting for an authorization as Alternative Investment Fund Manager (AIFM) with the CSSF.
The Luxembourg alternative investment funds community as well as the CSSF has been working hard to ensure that the implementation of the AIFM Directive into Luxembourg law was as smooth as possible. The aim is to maximize new opportunities presented by the Directive, such as improving the efficiency of fund distribution, consolidating and streamlining back and middle office platforms across Europe. The AIFM Directive will benefit from a harmonized set of rules across Europe for depositary banks operating in this space, as well as tackle the challenges of the Directive in a practical and proportional way.
Luxembourg was amongst the first countries to adopt the AIFM Directive. Being a first mover as well as having adopted a pragmatic approach in implementing the Directive will certainly help keeping up the positive market environment for alternative investments in Luxembourg. In addition, Luxembourg has implemented a number of measures, both on the product as well as on the tax side that will help to develop the alternatives sector in the long run. As an example, managers now have the possibility to use a new special limited partnership structure which is based on the UK limited partnership. This should surely be a striking argument for many private equity managers to consider Luxembourg as an onshore fund domicile with a partnership vehicle well known to the industry.
“The Luxembourg-based EY Alternatives Team, consisting of more than 250 Private Equity, Real Estate and Hedge Fund professionals, have kept busy in supporting many players in the alternative investment market throughout the past year in order to become AIFMD compliant. The Advisory practice has successfully implemented target operating models for depositary banks on a pan-European level, defined the right structure and set-up of diverse fund managers, helped them with their new organizational as well as operational models and helped interpret and implement new functions tasks such as risk management and reporting. Much of EY’s thought leadership developed during the past year was shared and discussed in the AIF Club which had a record year in both terms of number of events held as well as participants in attendance” says Kai Braun, leader of the EY Alternative Investments advisory group.
“Investment funds, both traditional and alternative products, are again generating strong positive inflows. The inflows into traditional products were initially driven by fixed income, but later widened to equity products. Alternative investment funds, which had seen slow but sustained growth over a long period, have also experienced stronger growth recently.
This is good news for the asset management industry overall. Luxembourg is very well positioned to benefit from this growth with its “UCITS” platform and the emerging “AIF” brand. Assets under management in Luxembourg domiciled funds have reached an all-time high of USD 3. 3 trillion as of June 30, 2013, split between USD 2.7 trillion in UCITS and USD 0.6 billion in alternative investment funds. However many challenges remain, and the question is, with investors appearing to be expressing renewed confidence, will some of the fundamental challenges facing the industry slip down, or even off, the agenda?
One of the major challenges facing the industry today is dealing with the increasingly sophisticated regulatory environment. Mastering regulation will be a source of real competitive advantage for asset managers over the coming years. The cost of regulation will ultimately squeeze many smaller asset managers and service providers out of the market, potentially limiting choice and leading to higher costs. The global players are exploring ways of sharing these costs with clients and developing added value services.
Apart from performance, investors are demanding greater asset diversification and risk mitigation. Asset managers are responding by combining skills that were previously offered separately by traditional and alternative asset managers. This will further drive the convergence of the traditional and alternative managers. At the same time, low cost, transparent products, such as exchange traded funds (ETFs), will continue to experience strong growth. We have seen an array of these products being created in Luxembourg over the last year.
Looking forward, overall, the product offering will need to change substantially. Long-term investors need a greater level of certainty that the investment outcome will meet their requirements; this will entail significant re-designing of products, and greater focus on techniques such as liability-driven investing. These products, such “target date” investment funds are also being developed and distributed from Luxembourg. This will also mean, in the future, greater alignment between the compensation paid to both the manufacturer and distributor and the ultimate outcome for the investor.
The industry continues to generate relatively high margins. The real debate is how these margins should be shared between the manufacturer and the distributor; the distributor generally has the upper hand as it “owns” the client relationship. Manufacturers continue to explore possibilities to break big banks’ and insurers’ stranglehold on distribution in continental Europe, but with limited success so far. In some countries, the commission-based model is being replaced by a fee-based model; this could mean that “open architecture” will remain just a “concept”. The key question is: will the ban on commissions have the desired result of ensuring investors get the right product at a reasonable price – or will it result in investors purchasing no product at all because they are not willing to pay the fee for the advice? From a practical Luxembourg point of view, we have seen several modifications to products to cater for this new distribution landscape, including the creation of so-called “clean” and “super-clean” share classes for various distribution channels.
This is a never-ending discussion, much has been done to improve the clarity and transparency of investment fund products, but there is still much more to do. The introduction of Key Investor Information Document (KIID), while not perfect, represents real progress. The real issue here, is the real impact and ultimate valued-added to the underlying investor.
Investor education must be a priority going forward. Key questions include how should we deliver it, who should deliver it and, of course, who should pay for it? For the younger generation, embedding financial education in school curricula would appear to be the way forward. However, education is a much broader issue; it must also focus on the distributor (the UK’s Retail Distribution Review (RDR) could serve as a model), the manufacturer and the press”, says Michael Ferguson, EMEIA Regulated Funds Practice and Luxembourg Asset Management Leader.
The Global Wealth Management industry is becoming increasingly complex. With the mature economies of the “old world’ and the developing economies of the “new world” moving at different speeds, wealth managers in different regions are grappling with complicated sets of problems. In essence, the core challenge in the old world is how to make the most of this modest growth that is expected in traditional markets, while players in the new world are trying to capture a substantial share of the wealth that is being created. Diverse strategies will be required on either side to succeed and to maintain the overall momentum that the industry realized over the last 12 months.
At the same time, regardless of their home market or principal region of activity, wealth managers globally still have much in common. All must find ways to gather new assets, generate new revenues, manage costs, maximize IT capability, comply with regulators and find winning investment solutions that lead to deep and long-standing client relationships. Indeed, the battle for success in this increasingly complex industry landscape will intensify throughout the rest of the decade.
Indeed, since 2008, the industry has faced a series of challenges related to the sharp increase in the volatility of capital markets, the low-rates environment and the increasing scope of regulation in the US, Europe and elsewhere. The impact of these factors means that the profitability of most private banks worldwide is far below the levels before the financial crisis. What some industry observers were describing as cyclical changes have now become structural, hence requiring significant changes to traditional business models.
In 2012, for a fourth consecutive year, many private banks have faced substantial challenges, regardless of where they are based or their business model. Despite capital market performance driving attractive growth in assets under management (AUM) top line revenue growth remains subdued. This has caused players to focus their attention on actively managing their cost base to maintain - or improve - profitability. Private banks, regardless of where they operate across the globe, also face similar demands emanating from a much more complex operating environment. A number of developments are shaping the future of the private banking industry. Among them are: the shift in growth and profit pools towards developing economies; the need to change the value proposition and delivery models to serve the specific needs of a new generation of clients; and the necessity to restore trust in the true ability of private banks to deliver superior investment advice. Coupled with these demands is a rapid multiplication of local tax and regulatory requirements. Furthermore, all of this is occurring as increasing competition blurs the frontiers between onshore and offshore markets, which is pushing private banks to be more selective in their geographical coverage, client mix and services offered. We believe that the traditional value proposition for most private banks is indeed fading. In order to succeed in capturing profitable growth in the future it is our view that private banks must define what makes them distinct from rivals and combine this with a high quality of execution.
“At EY Luxembourg, we have significant experience in assisting large, medium and small wealth management providers in the development of their cross-border frameworks. We have advised clients with booking centers internationally, providing regulatory, risk, transaction, tax and advisory services. Our experience can help clients navigate the challenges this area brings and assist in the development of leading practice frameworks. We can help develop a cross-border framework that includes market and service analysis conducted in the target country. Our analysis is designed to categorize risks and inform strategic decisions about the type of marketing and range of services / products for every targeted market. The analysis assists in the development and implementation of a suitable organizational structure,” explains Bernard Lhoest, Banking and Capital Markets Leader of EY Luxembourg.
Technology, Media and Telecommunications
The Technology, Media and Telecom practice remains one of the key industry sectors at EY Luxembourg, Luxembourg, having achieved a 35% growth in turnover in comparison to last year and now counts over 100 professionals.
“We continue to strengthen our activities in the TMT industry, and give our utmost support to the Luxembourg government to successfully compete in Europe and establish itself as the right place for international ICT and TMT activities. Despite the upcoming changes in tax regulations we remain convinced of the advantage of Luxembourg and the quality of its ICT infrastructure to continue attracting TMT companies. In that respect we have set up, together with other partners, Europe 4 Start Up (E4S), a platform which helps promising eBusiness and multimedia companies to start up or boost their ventures in Europe out from Luxembourg, by providing initial business services for free. The first year of E4S has been very successful with 10 startups being accepted in the program. We are now running the second year where we should select around 12 start ups to enter the program. Furthermore, we continue to invest in the US and more particularly in the Sillicon Valley where our foreign desks, composed of EY Luxembourg professionals representing Luxembourg in our foreign offices, continue to work with US technology and ebusiness corporates to establish their international operations in Luxembourg. Finally, most of our TMT partners continued to play a key role in our Global Centers of Excellence, which allows us to create more visibility for Luxembourg as the place to be for TMT companies. ” says Olivier Lemaire, Technology, Media and Telecommunications Sector Leader at EY Luxembourg.
The 4th edition of the “Entrepreneur of the Year” has been launched in Luxembourg this year. EY is proud to organize this program which celebrates the contribution and spirit of entrepreneurs operating in Luxembourg and throughout the world.
“The high potential of entrepreneurs is recognized as an important factor of our economy. Over the past years we have accompanied entrepreneurial companies starting at small and medium sized level and developing up to large multinationals. Our commitment to these entrepreneurs helps us to ensure that we’re working with more of tomorrow’s global leaders, today.
Furthermore, EY understands that family businesses have unique needs in comparison with large multi-national business operations. When your company’s main stakeholders are your family, one of your major concerns will be to secure the long-term existence of the business so that you can hand over a better business than you inherited. This means that topics such as financing and liquidity situations, or managing capital through consideration of refinancing or restructuring or even exploration of private or public capital injections are important factors of the business model. Furthermore, sustaining growth and profitability, next generation planning, effective tax management, balancing risk as well as culture and responsibility are part of the main pillars of this model”, says Yves Even, SME & Family Entreprises sector leader at EY Luxembourg.
EY Luxembourg has set-up a highly experienced and knowledgeable team focusing on the needs of family owned businesses as well as small and medium sized companies over the last 15 years. This team is composed of experts from our different service lines, being audit, tax and advisory. This multi-disciplinary team includes Luxembourgish partners cumulating cultural and technical knowledge of the local market and family owned businesses. All partners from this team are directly linked to the international EY competency center for small and medium sized companies.
There has been a lot of activity in the field of international taxation over the last 12 months, and an unusual high level of media coverage and public interest mainly focused on the question whether multinational companies pay their fair share of tax. In response to this public debate, the OECD released in February this year its widely noticed report on Base Erosion and Profits Shifting (in short called BEPS) followed by a comprehensive action plan in July 2013. The aim of this OECD initiative ultimately must be the adaptation of the governing principles of international taxation to a globalized economy where taxation has largely remained a local country level responsibility.
The last year has not been less eventful in the area of taxation in Luxembourg itself, above all with the announcement of the Luxembourg Prime Minister on April 10th to switch from the current withholding tax system to an automatic exchange of information as of 2015. Next to the partial abandoning of the Luxembourg banking secrecy for EU residents, the Luxembourg Government was faced with two other major decisions in matters of tax policy: whether or not to participate in the EU Financial Transaction Tax (FTT) and which model to apply under the so-called US FACTA legislation (Foreign Account Tax Compliance Act).
“Luxembourg had to take several decisions of strategic importance for the country’s sustainable future economic growth and development this year, particularly in relation to the changing business model of its banking and financial centre. The steps initiated by the Luxembourg Government in 2013 will enable the country to find its place and competitive position in a harmonized framework of internationally accepted standards,” explains Marc Schmitz, Tax Leader at EY Luxembourg.
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