BUSINESS IN WALES
Alistair Wardell of Grant Thornton talks to business editor Sion Barry on the firm’s presence in Wales, the potential for expansion, the separation of audit functions and the type of entrepreneur that inspires him...
Alistair Wardell of Grant Thornton on the firm’s presence in Wales, the potential for expansion and the type of entrepreneur that inspires him...
ONE of the unintended consequences of the new offices of Grant Thornton in the centre of Cardiff, is they afford partner and practice leader Alistair Wardell an unrivalled vantage point over Cardiff Central Railway Station and the arrival of his Penarth-bound evening train home.
Mr Wardell and the Cardiff office of the professional advisory firm recently relocated from long-standing offices on Cathedral Road to the top floor of the 3 Callaghan Square office scheme.
The move comes at the brink of a paradigm shift for the sector in the UK; with regulatory (Competitions and Markets Authority) and political clamour for breaking up the dominance of the Big Four, in PwC, EY, Deloitte and KPMG, with a separation of audit from consultancy functions in the wake of recent accounting scandals linked to highprofile corporate collapses such as Carillion and BHS.
The CMA is also calling for two auditors being appointed to large listed firms; accounts currently monopolised by the big four.
Whatever the implications for Grant Thornton, in the chasing pack of middle tier firms, Mr Wardell, who has a keen interest in eastern philosophies as well as being a vegan and keen practitioner of yoga, is bullish on its position in the Welsh marketplace.
He is also sanguine on the impact of automation and artificial intelligence on the sector, and, yes, the potential too, as Deloitte for one has achieved in Cardiff through its continually expanding delivery centre, for significant investment by Grant Thornton in south Wales.
The Cardiff office, with its workforce of 60, has main service lines in audit, tax, restructuring, corporate finance and forensic, as well as the capacity to ‘pull in’ anything else when required. It also has public sector audit expertise.
Mr Wardell, 44, originally from Carmarthenshire and the son of former Labour MP for Gower Gareth Wardell said: “I would say in Cardiff we have performed tremendously well over the last five to 10 years.
“I wouldn’t say it is a particularly tough market if, for example, you compare it with Bristol, where you have a presence for all the big four and a significant number of smaller competitors too.
“Our experience generally is that the big four have been increasingly retrenching away from Wales, where at one stage EY had a office here before focusing on Bristol.
“Deloitte is interesting in that they have a huge back office presence here [delivery centre] and, therefore, that encourages them to stay, but how active they are in the market I am not too sure, while KPMG have a small presence and PwC tend to ebb and flow.
“I understand with the big firms, particularly PwC and Deloitte, that the fee opportunities in this market [Wales] are lower and, therefore, they have to balance whether they want to go for the multi-million or multi-billion-pound projects and having a presence in this market. It is difficult to get it right.”
On potential for Grant Thornton rationalising its back office functions into large delivery centres serving its UK network of offices and clients, Mr Wardell said: “It has got to be an opportunity and it is something that we are constantly looking at as a firm. With the way technology and agile working is going, it becomes increasingly less sensible to have people sat in expensive office space in London for instance. So, you can see there is going to be a move to having more people working remotely and increasingly having centres of excellence.”
But does the city and the wider Cardiff Capital Region have the necessary workforce to deliver such an operation?
Mr Wardell said: “My sense is there are the skill sets to do back office from a regional location such as this, but I think the real challenge would come if you tried to get a volume of highly-skilled professional accountants here. There is a shortage UK-wide and a shortage here too, and once you have an operation like Deloitte, with its back office, they absorb quite a lot of people.
“However, the flipside to that is once you have big firms starting to do that, then people will start gravitating towards them, so over time more young people will say study in Cardiff because there are more opportunities here.”
On the impact of automation and artificial intelligence on the sector, Mr Wardell said: “Already our insolvency administration function is ‘back officed’ in Manchester with a unit that does all the letters to creditors and the reports that go out.
“And the technology is starting to get there to make that much simpler.
“You need some qualitative stuff on top of that, but increasingly you should need less people. There are teething problems with AI, but it will get there.”
The UK Government is considering recommendations to improve choice and quality in the audit market, including breaking up the big four through a separation of audit, as well as introducing mandatory joint auditing for large listed firms. Grant Thornton, due to the dominance of the big four, dropped out of competing for audits for FTSE 350 companies last year. The scale of how firms will be impacted by the changes, will be a matter for the next new government, following the General Election.
Mr Wardell said: “We are supporting a separation of functions, so if you are supplying audit then potentially you shouldn’t be supplying another service into that audit so that you can protect the integrity of it.
“We are very careful about it at the moment and it is definitely the direction of travel.
“However, there is a massive expectation gap between what audit has traditionally been expected to do and what government and people think it does. The level of checking and integrity of the data that the public expects an auditor to have done is much higher than what the regulators have asked and what the standards require.
“So when something goes wrong, and everyone is getting a ‘kicking,’ what is going to have to happen from
the regulators is a lifting of the level of detail we do, so that it matches the public perception.
“So, for us we think there is an opportunity as the baseline fees of audit are going to go up. It is going to be difficult for some clients as it is a cost they don’t necessarily want to have. However, you cannot have it both ways and be criticised if you are not doing the in-depth work that people expect and then people saying they aren’t prepared to pay for it.”
If anyone is tuned into the health of the Welsh economy it is Mr Wardell, through his business restructuring expertise. While it is businesses going into administration that often capture the headlines, most of his focus, and that of his colleagues too, is finding solutions to avoid administration.
Mr Wardell who is also Grant Thornton’s head of restructuring in Wales and the south of England, said: “We have definitely seen a pick up in the number of failures. This is both in Wales and the UK and the recent data supports that. It is not just a Grant Thornton thing, but a national issue. Our expectation is that this is going to continue for at least the next couple of years.”
He added: “My view is that it has been driven by a kind of shock to the system. Everything was stable for a long period of time and once we had Brexit and the currency rocket [devaluation] everything has shifted and there has been displacement activity. While we are busy on the restructuring side, we are also busy on the corporate finance side, because now deals are happening as people need to do things, as before they were just sort of plodding along. So, from an advisory perspective, it is quite an interesting time for us because there is more happening, but generally I would say from an economic point of view things have worsened.”
On the restructuring market he said: “People normally come to us when there is a level of distress, which is often cash distress. They come in saying we want more money as their existing lender either won’t lend to them anymore or want to reduce their exposure. We have a database of investors and lenders that is stratified so we know who will invest and lend and to what type of business and at what level. What is difficult for a company director is that they are often used to dealing with a high street clearer and when they want more money from another source they have no idea where to turn. As we meet with all these people [potential investors] we know exactly how to get the right money to the right people [firms].”
This includes access to high net worth individuals as well as institutional investors.
Mr Wardell added: “We look at the strategic interventions and what can be done to improve things. If this doesn’t work then we are on to an accelerated sales process and that could be selling the company and assets.
“Most people would look at a Dawnus or a Quinn Radiators [which both went into administration], and say that is most of what Grant Thornton is doing. However, the reality is that this is only a very small percentage and the big percentage is actually the things you don’t see where we have for example secured funding for a company, or managed to get a sale away.”
He said without doubt, for him professionally, it was much more satisfying to save a business. Mr Wardell said: “It is pretty deflating to get to a position where everything has got to shut.”
He concurs with the observation that firms in Wales, particularly family-owned and owner-managed businesses, are often reluctant to give up equity and control to secure new capital to expand.
Mr Wardell said: “You also get this bizarre situation, and it is not just in Wales, that as soon as someone is prepared to invest in the business, they think that it must be worth more. Unsurprisingly, new investment isn’t then realised. There is also this desire to have complete control. There has historically always been a bit of an aversion to investment, particularly to private equity. I would say family companies are more protective of their positions. However, some of the newer companies coming in, like in tech, are a bit more open.”
On the performance of devolution in Wales, he said: “Some of the decision-making I have seen over the years has been suboptimal.”
As for issues facing Welsh business, he said access to finance to expand isn’t one, with the market “awash with cash.”
He added: “Yes, sometimes it is expensive, but it is there. I guess things that will drive issues for Wales and the UK as a whole, are going to be some of the bigger things like AI and the impact of mass driverless cars.”
On entrepreneurship he said: “I think there are some incredibly inspiring entrepreneurs out there. They tend to generate a lot of ideas, although their attention and focus is not always great. So, if you can get a combination where someone is an executor and someone an ideas person, then that works well. And then you need someone who is going to watch the numbers.”
He added: “What inspires me are those entrepreneurs who aren’t focused on making the money, but those who are really interested in what they are delivering. It can be a product or service... but they just want to make things better. The money will very often follow as it is something that is needed. There are also those who are just focused on, say, looking at re-branding to make cash. That is okay, but is it really benefiting anyone apart from themselves?”
On Brexit he said: “From my perspective we either want to stay in, or you want a deal that keeps us as close on trading to the EU as possible.
“If you look at what the Bank of England is saying and forecasting it is on the basis of a soft Brexit, and it is pretty horrendous if there is a no deal. People might say that is scaremongering, but I think it is a pretty poor outlook, although from a restructuring perspective we would be busy.”
On the issue of wellbeing and diversity in the workplace, Mr Wardell said: “It is something we have a big focus on UK-wide at Grant Thornton. Here [Cardiff ] there are more women than men by some distance. Social mobility is an issue and how we get the right people in is something we need to look at.
“We regularly have someone coming in to talk about how to manage stress. I think what is happening is because people are talking about it they are more open. Before it would have been a case of ‘get on with it and man up.’
“The problem isn’t stress, but chronic stress where it continues over a long period of time. Stress in a short period can be positive and you can work more positively, but you have got to release it. Some of the things we are doing is giving people some of the techniques to release stress. I for one do yoga and we have had yoga lessons.“
Having been with the firm straight from university, does he see a career beyond Grant Thornton?
He said: “At some stage I would personally like to do something in the wellbeing space. There is a lot of depression and stress nationally and I would like to set up a facility which acts as an intervention so that it helps people break the cycle, but also equips them with the tools to deal with that stress going forward. What I am thinking about is less of a conventional medicine and CBT (cognitive behavioural therapy) approach, and more physical wellbeing like yoga.”