Australia's energy & resources consulting industry is 2nd largest globally

06 December 2018

Australia’s energy & resources consulting market has grown by 4.7% to over $US1 billion last year, meaning that Australia’s industry remains the second largest in the world, behind only the massive market of the United States.

The professional services market of Australia is facing a period of strong growth, with the management consulting sector at its forefront. According to one estimate, Australia’s management consulting market expanded by over 4% every year since 2014, with last year’s growth estimated at 7%, taking the value of the industry to around US$5 billion. 

Spending by clients in the energy & resources space amounted to just over $US1 billion in 2017, one fifth of all revenue generated by management consultants in Australia, with the energy industry trailing just the financial services sector in terms of spending (share of 23%). Globally, the energy & resources consulting market is worth $US15.5 billion, according to data sourced analyst firm from Source Global Research. Roughly half of all fees are gained in the US market – the globe’s largest market for consultants by a distance – however, Australia follows as the world’s 2nd largest market in the landscape.

Australias energy & resources consulting industry

Much of Australia’s leading global position in the energy & resources space builds on the massive role mining plays in its economy. According to the Minerals Council of Australia, resources comprise 15% to 20% of the national economy and up to 60% of Australia’s exports, with major players such as Melbourne-headquartered BHP Billiton (the fourth largest company by revenue in Australia) and Rio Tinto (revenue of $40 billion) playing a chief role in the industry. 

Beyond mining & resources, companies such as energy generators (e.g. AGL, Origin and EnergyAustralia), energy retailers (e.g. Alinta Energy, BlueNRG, Click Energy, etc) and other players in the value chain are increasing their spending on consultants as they navigate the growing need they face for change.

Within the energy & resources landscape, energy remains the largest consulting sub-market, with work in this field valued at $US465 million. Utilities is the smallest of the three defined sub-market, valued at $US270 million, while primary resources sits in between the two segments with consulting spending of $US323 billion. Mining companies are the biggest buyers of consulting services in the primary resources sector – they ramped up their advisory spend in 2017 on the back of improving commodity prices.

From a services perspective, much of the work clients are tapping consultants for lies in the fields of strategy ($US259 million) and operations ($US217 million). The largest service area however is technology ($US368 million) – amid a booming landscape for digitisation, management and IT consultants are brought on board to help clients with developing digital business models and bringing them to reality.

Size of the global energy & resources consulting market

Outlook for consultants

The outlook for Australia’s energy & resources consulting market is bright: an improved oil price means that energy companies are able to free up more funds to invest in efficiencies and innovation. Similarly, rising commodity prices is likely to improve margins across landscape, which is set to spur demand for external consultancy. At the same time, awareness on the importance of embracing emerging technologies as a means to achieve differentiation and competitive advantage has now settled in well in boardrooms, with the digital transformation agenda of CxO’s expected to lead the growth of consulting spending in 2019 and the years beyond.

Meanwhile, renewable energy – climate change policy is a key issue in the battle for the electorate and for realising the Paris Agreement objectives – is becoming a growth market to watch for Australian consultants. Politicians have set an economy-wide target of cutting emissions by 26% relative to 2005 levels by 2030, opening up avenues to all kinds of projects for which consultants will be needed, from the development of market reforms and strategic work, to supporting proofs of concept and the execution of large change programmes.

Related: Gravy train continues to flow for Australian consultants.

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Big Four accounting and consulting firms booming in Australia

12 February 2019

The Big Four professional services firms – EY, Deloitte, KPMG and PwC – are enjoying a sustained boom in Australia. Services in consulting and financial advisory, which are more lucrative than accounting and assurance work, are driving local growth for the world’s largest advisory and accounting firms.

Looking at the development of Australia’s economy combined with client demand, 2019 looks set to be another good year for the country’s burgeoning professional services economy. While firms of all shapes and sizes are booming, though, Australia's professional services growth is in no small part due to the exceptional growth posted by the Big Four firms, leading Stuart Kells, co-author of a new book titled ‘The Big Four’ to describe their dominance as “proportionally larger to anywhere else” in the world.

The aggregated revenue of PwC, Deloitte, EY and KPMG topped $7 billion in the last financial year. Together the Big Four employ more than 25,000 staff across Australia, led by a total pool of almost 2,500 partners. Of these consulting behemoths, Deloitte has undoubtedly been the fastest grower in the last three years, seeing a 32% jump in revenue to $2 billion. In terms of growth, KPMG followed in second spot, with 27% growth, but it remains in fourth spot in terms of its revenues of $1.7 billion, behind EY, which grew by 20% to $1.8 billion. The market leader in Australia, PwC, saw its revenues rise to nearly $2.4 billion.

Revenue of the Big Four accounting and consulting firms in Australia

While the Big Four do have a reputation for buying up smaller competitors to inflate their performance, the booming revenues of the firms are partially built on organic growth, especially in areas experiencing high demand, such as cybersecurity, digital consulting and automation. At the same time, a drive to move into new areas of services, such as legal, design thinking, digital and creative services has boosted growth – but inescapably, the largest part of the Big Four’s success is due to their relentlessly aggressive campaigns of M&A.

Deloitte, which is biggest of the group at global stage, has taken over a staggering 28 companies in the nation in the past four years – featuring purchases of everything from an identity security company to a virtual reality illustration firm – including data science consultancy Connected Analytics, and Microsoft cloud partner Mexia. As for KPMG, it made 16 acquisitions in the past four years, including the recent move for innovation consultancy UDKU.

Elsewhere, PwC purchased companies which drive infrastructure projects, a stake in an advertising agency, as well as buying up corporate restructuring and deals business PPB Advisory in 2018. EY meanwhile snapped up a tax law firm, two data analytics units and a market research firm, among others, and continued this spree early in 2019 with the acquisition of Plaut IT

Consultants the money makers

While the bulk of the traditional media remain steadfast in their descriptions of the Big Four firms as ‘auditors’ or ‘accountancies’, this has long since ceased to capture the diverse and wide-ranging nature of these multifaceted companies. Audit is now just a side-business for the world’s largest professional services players, with the percentage of revenue derived from their core service of auditing financial statements falling to an all-time low in Australia of between 14% and 21% in 2019. The decline in importance of auditing work to the Big Four can be attributed to three major factors.

Global revenue of the Big Four firms (US$ / billion)

First, the companies that buy auditing services from the Big Four have typically become unwilling to pay a premium which the firms require to properly carry out the statutory work. They are instead looking to smaller rivals including BDOGrant Thornton and RSM, which charge lower fees. This is particularly the case in the mid-market auditing scene, where top 20 firms beyond the leaders are enjoying growing demand.

Second, the Big Four have come under mounting scrutiny regarding their audit portfolios. In 2016, Greg Medcraft, the then-outgoing chairman of ASIC, told The Australian Financial Review that the quality of auditing in Australia was "appalling", and went as far as to warn that it could lead to an Enron-style corporate collapse in the near future (Enron's collapse in the US led to the downfall of Arthur Andersen).

As a result, the Big Four have come to see auditing work as an increased risk, with little room for manoeuvre, and a low potential for positive press, as if they do audits well, it gains no attention. At the same time, if things go wrong, the negative press can sting them for months. Reputation damage has hit the Big Four hard in several countries globally, including Germany, the Netherlands, South Africa, the UK and the US.

Finally, the Big Four are shifting their attentions to consulting for the simple reason that it earns more. The margins for consulting work are usually higher than their traditional areas of business. An analysis of EY’s revenues for instance shows that last year assurance margins were 35%, compared to almost 50% for consulting and cyber-security work. At the end of the day, then, the departure from the Big Four’s origins is driven by the fact that consulting is now where the big money is made, so focus on consulting is growing at a much faster rate than the audit divisions of the quartet, both in in Australia, and as part of a global trend.

Related: Australia’s management consulting market set to expand in 2019.