EY Luxembourg has announced total net revenues for the Luxembourg practice of €165.5 million for the financial year ending 30 June 2015, up by 8% from the €153.3 million net revenues registered last year.

“We are pleased to continue to pursue profitable and sustainable growth in our total revenues this year again, almost double the growth of last year. This increase has been generated by all our services lines, audit, tax and advisory, which all delivered a good level of growth. Despite volatile conditions in many individual markets and a slowing global economy, we have been very explicit about our purpose of building better working world under our Vision 2020 strategy, which has given us great momentum both inside and outside our firm. This Vision is of an environment that has capitalized on talent and has helped us attract, retain and motivate our people. Our purpose has also been valuable as we engage with our clients and in guiding our successful work on their complex issues. Our advisory practice achieved a record growth with revenues up by 32.5%, which is a result of the significant investments we have done over the past years in new solutions and services. Our audit practice has achieved this year a growth of 6.3%, consolidating our position of second largest audit practice in Luxembourg in terms of revenues. This growth provides evidence of our commitment to focusing on continued investment and innovation in our audit approach and in carrying out selective recruitment of highly qualified resources, which help us play an active role in regulating the financial markets, as we face increased regulation. In the context of a changing tax landscape, our tax practice has continued to grow with revenues up by 4.2%,” said Alain Kinsch, Country Managing Partner of EY Luxembourg.

On a global level, EY announced in mid-September combined global revenues of US$28.7 billion for its financial year ended 30 June 2015. This represents an 11.6% increase over the previous financial year in local-currency terms. Worldwide headcount now reaches an all-time high of 212,000 professionals, up by 23,000 over last year. The organization invested US$535m in training and delivered 8.2 million learning hours to give its people the skills needed to deliver in this fast-changing world. All of EY’s service lines continued to grow in FY15 ahead of their FY14 growth: Advisory grew 17.6% (vs. 14.4% growth in FY14); Assurance 8.1% (vs. 4.5% in FY14); Transaction Advisory Services (TAS) 15.5% (vs. 6.5% in FY14); and Tax 10.3% (vs. 4.3% in FY14).

Talent

“In September 2015, 160 professionals joined EY Luxembourg. We expect to recruit more than 400 professionals in FY 16 and we are currently looking for 80 experienced professionals across service lines. Our firm has reached 1,150 professionals representing 50 nationalities. We are very proud to maintain such a high level of recruitment of talented professionals this year again, which includes young graduates and experimented professionals of the advisory, tax and assurance sectors from various fields of expertise: from the commercial, industrial and financial sectors to the public sector. Firstly, in regard to our assurance activities, our firm confirms its commitment to continue to carry out selective recruitment of highly qualified resources, which will help us play an active role in regulating the financial markets, as we face increased regulation,” comments Olivier Lemaire, People Partner at EY Luxembourg. Once again this year, more than 100 young auditors with a bright future ahead of them, striving for a high-potential career, have decided to join EY Luxembourg for a truly unique experience. “With regard to our tax activities, we are operating in a more and more highly-competitive and complex environment with new rules and regulations being implemented on a global basis creating unprecedented changes and opportunities for our tax professionals. We are proud to assist our clients navigating through this changing environment with the technical and industry expertise of our experienced professionals, who can understand the most critical issues. Within our advisory practice, we will continue to consolidate our investments, as it offers a platform for strong growth in the future.” said Olivier Lemaire, People Partner at EY Luxembourg.

“Our purpose of building a better working world - aims to attract, retain and encourage the most talented people around the globe - professionals of excellence who share our belief that by asking better questions we can get to better answers and build a better working world. This means creating an environment that benefits our professionals and our clients and which is perfectly aligned with our people culture which supports talent of all types, encourages collaboration within performing teams and has the ambition to build a fairer and more balanced working world for our people, our clients, our stakeholders and our society. In practice the transformation of our profession - whether audit, tax or advisory - drives our talent strategy. Understanding the aspirations of the Millenials is key to succeed in the war for talent and diversity will continue to be a priority. In that context, Exceptional Client Service and creating Highest Performing Teams through in depth learning experience remain two key pillars of our talent strategy” added Olivier Lemaire.

“At EY, we want to make sure our people feel, and are valued. It is no coincidence that EY was voted in the top three in the Universum World’s Most Attractive Employer ranking for the third consecutive year. The leadership team and partners of EY Luxembourg are delighted to move to Luxembourg Kirchberg by the end of the year. All its employees will therefore benefit from a high-quality working environment, with modern designed workspace and facilities at the cutting-edge of today’s environmental standards. Creating a work environment conducive to the development and fulfillment of our professionals is an ongoing challenge for our management team. We are definitively very proud that our clients can also benefit from those great facilities,” said Alain Kinsch.

POINTS OF VIEW

Tax

“There has rarely been a time in the past where the international tax landscape has undergone such a profound transformation as it currently does. The implementation of the OECD’s BEPS action plans, and the EU combat against state aid and tax avoidance will continue to reshape the fiscal environment of the future. In this context of increased international pressure and tone, Luxembourg is set to redefine its longer term strategic fiscal policy embracing transparency in accordance with the new international tax standards. It will be important to take advantage of the announced 2017 tax reform to further modernize the fiscal framework in order to ensure that Luxembourg will also remain attractive to the international investor communities and competitive in comparison to other financial centers in that new international tax landscape. Next to the absorption of tax revenue shortfalls from VAT levy on e-commerce, the budgetary impacts of the decreasing tax contributions by multinationals using Luxembourg as a hub will need to be taken into account. Where the domestic corporate tax base will inevitably be broadened by the massive harmonisation efforts at the EU and OECD levels, the recently announced reduction of the corporate tax rates in compensation surely goes into the right direction. In this framework of ongoing change and constant uncertainty, the EY tax practice has continued to grow, with most of that growth generated by cross-border tax advice for multinational companies, banks and regulated and unregulated investment funds using Luxembourg as a hub. The attractiveness of Luxembourg for Alternative Investment funds (Private Equity/ Real Estate) and ICT sector is unbroken. We also experience continued strong work inflow from our Tax Desks in New York, Chicago, San Jose, London, Hong Kong and Doha. Main service drivers supporting our solid growth were (re-)structuring support, transfer pricing, tax policy and controversy, private banking, M&A, tax compliance and tax risk management, and tax assistance to mobile workers,” said Marc Schmitz, National Director of Tax at EY Luxembourg.

Digital

Digital technologies are emerging as disruptive forces for businesses across all industries. These technologies are moving beyond the experimentation phase and reaching levels of maturity that are forcing executives to take note or run the risk of falling behind. What is more, the rate of dissemination and adoption of these technologies is steadily increasing. Several technology discontinuities are emerging and converging in four main areas:

• Mobile is developing into the preferred channel for clients across all industries, owing to the “anytime, anywhere” and context-aware capabilities that mobile devices offer.
• Social media and collaboration tools provide clients the ability to interact with peers on everything: portfolio strategies and client advisor performance in the financial services industry, quality of manufactured products, satisfaction with service providers in the commercial and industrial sector.
• Through advanced analytics, companies can improve insight generation and decision-making by infusing data into all aspects of revenue generation, cost control and risk mitigation.
• Cloud-based computing provides businesses the opportunity to reduce infrastructure costs and increase agility and time-to-market.

The combination of these digital technologies will fundamentally shape client value propositions and operating models of businesses in the coming years. We have spotted a few emerging trends resulting from the advent of these disrupting technologies:

• Mobile-first development. User experience is designed for mobile first, then permeated to other channels
• Relationship orientation. Tablet usage contributes to shifting client experience from transactional focus towards stronger relationship orientation
• The social CEO: Senior executives use more and more social media to interact effectively with clients and engage within community
• Social media as service channel. customer service requests are diverted from costly call centers towards social media interaction
• 360° client profile. Customer analytics can combines internal with external data sources to create real-time and holistic view on clients
• People analytics. New approaches are adopted to attract and retain talent base through advanced analytics
• Pay-as-you-go cloud models. Ability to apply browser-based technologies for non-core business applications, such as enterprise content management, performance management cycle and recruitment

“Given Luxembourg’s focus on the financial services industry and the immaterial nature of this industry, digitisation appears to be the top priority of most actors. We see a wave of initiatives and projects aimed at making the most of this paradigm shift. Wealth management and investment product distributions are the areas where changes are the most to be felt. Technology favors the arrival of new entrants in financial services. Combining advanced IT components with financial skills, the so-called FinTechs significantly contribute to building the imperative for change in Luxembourg. Last but not least, Cybersecurity is taking center stage. The traditional image of the teen age hacker is no longer relevant. Cybercriminals are now more organized and have significant funding. They are also more patient and sophisticated, using a combination of social engineering techniques and technology tools. As recent cases have demonstrated, whole businesses can be ruined in almost no time. EY Luxembourg is on the side of market players to help them navigate this new digital world. We help our clients make sense of the digital revolution. We work with them on the impact for their business model. We assist them in building better customer experience, adjusting their processes and technology platforms and changing their culture and organisation,” said Olivier Maréchal, Financial Services Advisory Leader at EY Luxembourg.

Alternatives

The area of alternatives has had another successful year at EY with revenue growth of 15% in Private Equity and 17 % in Real Estate.

With the AIFM Directive, the alternative industry has gone through a major transformation, particularly in the Private Equity space where the impact of this new regulatory regime was more pronounced due to a historical preference for unregulated structures. Whilst the implementation of the Directive has been a major step for the alternatives industry, it does not mark the end of regulatory reforms.  Further changes are expected to follow as the European Commission implements its action plan to build a Capital Markets Union. The tax landscape has also become an area in continuous movement and one where the final outcomes remain uncertain. Overall, these factors combine to create an environment that will present challenges and opportunities for managers around the globe. Further to the AIFMD transposition into its national law, Luxembourg has positioned itself as a leading jurisdiction for alternative investment fund managers and their respective product ranges. This new wave of regulation and tax reforms will offer Luxembourg further opportunities to strengthen its position among the various Private Equity and Real Estate funds hubs.

“In an economic environment where the US continue to gain momentum with solid economic fundamentals, the Eurozone’s nascent recovery is moving in the right direction and the growth in emerging market remains patchy, the private equity industry has hit a new record in terms of capital raised with 484 US bn of capital currently available for buyout funds only, demonstrating more than ever the confidence of investors in the asset class. Over the past 3 years, our Private Equity practice has doubled in size and has become more than ever a strategic sector for our Luxembourg firm. While our pioneer role in its early days has given our firm a unique brand and a leading position in this industry, our strategy and focus has enabled us to i) capture the growth potential that the new wave of regulations has generated over the past three years, ii) consolidate our leading position and iii) maintain our brand” said Olivier Coekelbergs, Private Equity Leader at EY Luxembourg.

“Although the global economic environment remains challenging in most countries throughout the world, the Real Estate market is continuing to attract significant capital as the Real Estate sector represents an important asset allocation for institutional investors, Private Equity players or high net wealth individuals. Within EY Luxembourg, the Real Estate practice is ranking amongst the strongest growing industries and thanks to our leading position and our exceptional client service offering, we are convinced to maintain the growth rate to double digit going forward and to accompany our clients with utmost quality of our services delivered by an experienced, industry focused and diverse team of professionals” said Bruno Di Bartolomeo, Real Estate Partner at EY Luxembourg.

Asset Management

The headline numbers would indicate that the investment fund industry is in very good health with strong asset flows over the last 12 months and margins remaining broadly stable. These strong asset flows are driven by zero to negative interest rates and a greater realization by investors that they must take direct personal responsibility for their future retirement and saving requirements.

“However the fund industry will have to deal with a number of significant headwinds in the near future. These include the much discussed expected increase in US interest rates , a cooling Chinese economy and volatile markets, a weak EU economy still dealing with Euro matters, management of liquidity risk issues in addition to the potential fall-out from a range of potential political risks,” said Michael Ferguson, EMEIA Regulated Funds Practice and Luxembourg Asset Management Leader.

The passive sector experienced some of the strongest overall inflows, (despite some recent outflows) with assets in ETF types of products now estimated at around Euro 2.7 trillion. The growth of the passive sector has had many spill-over effects on the traditional passive sector with greater focus on fees and performance but also pushing the active managers into greater product innovation.

Overall European assets under management amounted to approximately €12.7 trillion as of July 2015, an increase of 12% since December 2014. UCITS assets in Europe stills dominate with a 70% share of the total AUM, the balance being made up of a range of non-UCITS products including those that come within the remit of the Alternative Investment Fund Directive. Luxembourg’s share of assets under management has grown strongly and now amounts to Eur 3.4 trillion with sales exceeding Eur 300 billion over the last 12 months. Over the coming years, we can expect further significant product shift with out-sized growth in the alternative, passive and solution segments resulting in the core traditional active sector coming under further pressure.

The implementation of the regulatory agenda continues unabated, with much focus and discussion on depositary reform, remuneration policies and practices, the future of money market funds, extension of the AIFMD Passport to non-EU domiciled products and managers, and the likely impact of MiFID II all being in the headlines. The unrelenting focus and investment on implementing the regulatory agenda, strengthening risk management and compliance will continue to put margins under some pressure.

The impact of technology, the digital world, utilization of big data are all much discussed topics with the overriding view that mobile technology will have a critical role to play in the distribution of investment funds to the next generation of investors.

Looking to the future, what should the fund industry be focusing on?  Many of the key areas of focus are highlighted in ALFI`s (Luxembourg Investment Fund Association) recently published 2020 Ambition Paper. The overall key ambition must be that the industry is “serving the interests of investors and the real economy”.

To achieve this overall ambition, ALFI has set itself five equally important key objectives:

- Promote practices that align the interests of investors and industry

- Articulate the essential role of investment funds for the global economy

- Connect investors with worldwide market opportunities

- Ensure Luxembourg remains the fund center of choice for asset managers

- Stimulate innovation, research, education and talent development

“We at EY strongly support these objectives and will work closely with ALFI and other stakeholders to achieve them,” added Michael Ferguson.