1. © Copyright 2009 H4 Partners: All rights reserved. Global Market Trends and the Importance of Branding Alan Hodgart 15 th October, 2009 Nexia International

2. © Copyright 2009 H4 Partners: All rights reserved. 1 Firms operating in the upper end of the accountancy market are segmented clearly by size Source:World Accounting Intelligence; H4 Partners Analysis Tier 1Tier 2.1 Tier 2.2  A very clear leading group followed by a less defined second group of firms

3. © Copyright 2009 H4 Partners: All rights reserved. 2 There is also a clear difference in revenue per professional between the Big 4 and the chasing pack Source:World Accounting Intelligence; H4 Partners Analysis Tier 2.1Tier 2.2Tier 1

4. © Copyright 2009 H4 Partners: All rights reserved. 3  The dominance of the Big Four is causing concern □Clients express concern about a lack of choice – see the Big Four as a somewhat undifferentiated oligopoly □Regulators are concerned about the impact if one fails – or approaches failure  There is a significant size gap to the next group of firms □Mainly operate in the mid-market □Are (generally) somewhat ‘looser’ organisations than the Big Four  Key issue is the ability (and willingness) of the second group to compete further up the “size/value chain” □Thereby providing an ‘alternative’ that closes the gap to the Big Four - but without creating a Big Five (plus)  A second issue is to defend their position against attacks by the Big Four □In both client and resource markets  Large corporates complain of lack of choice - but do not see the second tier as an alternative □Quality is patchy - especially internationally □Lack the experience in managing large, global audits □Do not present themselves as cohesive organizations The market for accounting services is in a state of flux at present

5. © Copyright 2009 H4 Partners: All rights reserved. 4 Consolidation below the Big Four will continue  Already underway: Mazars and Moores Rowland; Robson Rhodes and Grant Thornton  The size differential between the Big Four and the second tier can be bridged only by merger □Although size isn’t the only issue □Quality global coverage and global project management skills are ctucial  There is a grey area at the lower end of the second tier □A group of ‘groups’ likely to fall into a ‘third tier’ position  A large number in a ‘third tier’ position already □All working around a smaller corporate position □Audit of lower importance - focused more on accounting services, tax and other services (payroll etc) □Some offer a form of management consulting and business advisory services  A clear second tier will emerge - probably double the present size of a group/network □But will only be 5 or 6 firms or networks □Focus on mid cap Corporates for Audit and Tax plus growing owner managed businesses for Business Advisory services and Tax - and UHNWI □Others will move down to the third tier - increasing competition at this level

6. © Copyright 2009 H4 Partners: All rights reserved. 5 The second group can be divided into “upper” and “lower” based on revenue generation Source:World Accounting Intelligence; H4 Partners Analysis Tier 2.1Tier 2.2

7. © Copyright 2009 H4 Partners: All rights reserved. 6 But the same segmentation does not apply when revenue per professional is considered Source:World Accounting Intelligence; H4 Partners Analysis Tier 2.1 Tier 2.2  Several in the “lower” group produce higher revenue per professional than the members in the “upper” group

8. © Copyright 2009 H4 Partners: All rights reserved. 7 Within Nexia there are some clear differences in relative size across member firms Note: Ranks are based on Revenue of firms in Tier 2.1 and Tier 2.2 Source:World Accounting Intelligence; H4 Partners Analysis Rank Australia Brazil Canada China France Germany Italy Japan Mexico South Africa Spain United Kingdom United States 1 2 2 2 3 3 4 5 6 6 6 7 7 7 7 88 8 8 8 9 10 11 12

9. © Copyright 2009 H4 Partners: All rights reserved. 8 In Australia/Asia Nexia’s practices are consistent in relative size – albeit just below average in the group Note: Ranks are based on Revenue of firms in Tier 2.1 and Tier 2.2 Source:World Accounting Intelligence; H4 Partners Analysis RankAustraliaChinaJapan 1BDO Horwath 2PKFGrant Thornton 3 HLBKreston 4HorwathKrestonPKF 5Baker Tilly RSM 6 Leading Edge AllianceBDO 7Moore StephensHorwathNexia 8 Baker Tilly 9HLBPKFHLB 10PraxityMoore Stephens 11KrestonPraxity 12Leading Edge AllianceRSMLeading Edge Alliance

10. © Copyright 2009 H4 Partners: All rights reserved. 9 Compared to its peers Nexia’s size in the major European markets are above average – With a couple of peaks Note: Ranks are based on Revenue of firms in Tier 2.1 and Tier 2.2 Source:World Accounting Intelligence; H4 Partners Analysis RankFranceGermanyItalySpainUnited Kingdom 1 PraxityBDOPraxityBDOGrant Thornton 2 KrestonNexiaBDOGrant ThorntonBDO 3 Grant Thornton PKFPraxityNexia 4 Baker TillyMoore StephensBaker TillyHorwathBaker Tilly 5 HLBRSMMoore Stephens PKF 6 NexiaPKFNexiaKrestonMoore Stephens 7 RSMPraxityHLBNexiaHLB 8 PKFBaker TillyKrestonRSM 9 Moore StephensHLBRSMBaker TillyKreston 10 BDOKrestonGrant ThorntonPKFPraxity 11 Leading Edge Alliance Horwath HLBHorwath 12 Horwath Leading Edge Alliance

11. © Copyright 2009 H4 Partners: All rights reserved. 10 Nexia’s US presence is relatively small compared to its peers Note: Ranks are based on Revenue of firms in Tier 2.1 and Tier 2.2 Source:World Accounting Intelligence; H4 Partners Analysis RankBrazilCanadaMexicoUnited States 1Grant Thornton KrestonRSM 2BDO Nexia Leading Edge Alliance 3PraxityHorwathRSMHorwath 4Moore StephensBaker TillyMoore StephensPraxity 5Baker TillyPraxityGrant ThorntonBaker Tilly 6RSM BDOGrant Thornton 7NexiaPKFHLBBDO 8HorwathNexiaPKFKreston 9HLB Baker TillyMoore Stephens 10KrestonMoore StephensHorwathHLB 11PKFKrestonPraxityNexia 12 Leading Edge Alliance PKF

12. © Copyright 2009 H4 Partners: All rights reserved. 11 Clients with cross border needs tend to be relatively sophisticated, experienced in dealing with a range of professional advisors:  Their experience usually covers a range of different types of international networks - some good, some bad  They are not so much concerned with the arrangements between members - but they need to be assured that the network can deliver the right quality and on time  A core client to one member must be a core client everywhere  The aim is to create a sense of a consistent service throughout the network  No matter which office a client is dealing with they know it is ‘one firm’  One point of contact - who can make things happen anywhere in the network  Consistent practice strengths across the network - a similar position in each market  Consistent service delivery standards - everyone in the network meets the client’s expected requirements  Consistent documentation and processes - demonstrating a one firm approach and efficiency  Able to move people between locations as required  People know each other and can speak about their colleagues in different locations There are consistent views among sophisticated clients about what they expect from an international professional services network

13. © Copyright 2009 H4 Partners: All rights reserved. 12 In order to meet the clients’ needs some organizational requirements are necessary – Which in turn leads to a strong brand  There can be no financial or other organizational barriers to referring work between members  There needs to be a Management/Coordinating body with agreed decision powers  And a means of ensuring that members implement what is decided  Strong levels of communication and information sharing throughout the network Brand

14. © Copyright 2009 H4 Partners: All rights reserved. 13  A brand is a guarantee to the client  The client knows what to expect from the service/product through the brand  Independently of when and where the service/product is purchased  The brand “promises” a number of things  Quality  Product/Service; Delivery; Price for quality  Consistency  Over time; In different geographical regions; within practices  A brand is more than just “a name” - it is what the name conjures up  The promise behind the brand is the key  Important that the ‘brand promise’ be capable of being delivered throughout the network before a common brand is promoted  Inconsistencies will damage the brand - build brand and capabilities simultaneously A brand is a promise or guarantee to the client (1/2)

15. © Copyright 2009 H4 Partners: All rights reserved. 14  Nexia: “Delivering a consistent quality of service and local expertise on a global scale”  BDO: “…consistent seamless service worldwide … through common methodologies and shared IT platform”  GTI : “A cohesive global organization.”  PKF: “…seamless continuity of service globally”  Praxity: ”…unmatched client service and quality solutions globally”  Moores Rowland: “…professional excellence with consistent high quality service standards…”  Baker Tilly: “…international teamwork and outstanding client service…”  RSM: “ …close relationships between members - work together …highest quality service to clients…”  Horwath: “ …impeccable quality and highly integrated services to clients globally…” A brand is a promise or guarantee to the client (2/2)

16. © Copyright 2009 H4 Partners: All rights reserved. 15  What market position should Nexia aim for going forward?  Core clients?  Core services?  Competitive advantage?  Geographical coverage?  What level of consistency exists throughout the Nexia network today?  Clients?  Practices?  Reputation?  What improvements are required given where members wish to compete? There are a number of strategic questions that need to be answered going forward (1/2)

17. © Copyright 2009 H4 Partners: All rights reserved. 16 Does Nexia want to be a loose network of best friends or a truly integrated network as part of a leading group of ‘business focused’ firms? There are a number of strategic questions that need to be answered going forward (2/2)

18. © Copyright 2009 H4 Partners: All rights reserved. 17  Ensuring a network that can provide a consistent and seamless service demands a high level of commitment to the strategic vision  A growth in size for many members - probably by merger  A focused strategy to move up the value chain in many local markets  Tighter central management - able to achieve high levels of consistency - a sacrifice of some local autonomy  Investment in building consistent systems and processes across the network  Willingness to participate in various global initiatives  Movement of people between firms  Focused on building local client with global needs rather than waiting for inbound referrals - an attitudinal issue  Inbound referrals are a consequence of active participation There are a some significant issues to address if ‘Nexia’ wishes to compete in the second tier

19. © Copyright 2009 H4 Partners: All rights reserved. 18 Quotes Source:Accountancy Age; The Independent; H4 Partners Analysis  - “I believe that we are uniquely placed to exploit the opportunities in the market and build the critical mass to exploit the gap between us and the Big Four.” [Simon Michaels, Managing Partner of BDO Stoy Hayward]  - “We are now gearing ourselves to stimulate competition and offer stakeholders greater choice in this space... we have considerably added to our firepower to consistently challenge the Big Four.” [Michael Cleary, Chief Executive of Grant Thornton]

20. © Copyright 2009 H4 Partners: All rights reserved. Alan Hodgart Tel: +44 (0)20 7152 6125 Email: enquiries@h4partners.co.uk Reproduction of all or individual slides of the presentation are permitted, provided proper attribution to H4 Partners is made. Reproduction of individual charts or displays is not permitted. H4 Partners Limited 29 Farm Street London W1J 5RL United Kingdom www.h4partners.co.uk