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Culture will absorb management’s attention now the corporate business is rooted
Last month when RPC reported its first fall in net profit in five years, managing partner Jonathan Watmough insisted the culprit was his firm’s long-term investments.
The profit dip in the all-equity partnership also meant a fall in average profit per equity partner (PEP), down by 11.5 per cent from £373,000 to £330,000.
Although you might expect PEP to be the key metric at an all-equity firm, a look at RPC’s financials for the past five years reveals that in fact it focuses most on avoiding fluctuations of its profit margin rather than the average partner take home pay.
Between 2008/09 and the last full financial year, the firm’s profit margin has barely deviated from the 33 per cent mark. However, in 2013/14, the margin shrank by two percentage points from 33 per cent to 31 per cent. It is now the lowest it has been over the past five years.
But is a stable profit margin enough to counter a drop-off in net profit at this stage in the firm’s development? Earlier this year Watmough described the firm as, “transitioning from a learning phase to a growth phase”. He added that the investments RPC had made up to this point, much of which centred on the firm’s ambition to target a higher proportion of high-end work, had been preparatory and that much of 2013 had “been about consolidating”.
In other words, although the cost of the investment phase that kicked off in 2011 hit the bottom line last year and is visible in the reduced net, the fact that total revenue increased suggests that in the long-term it should pay off.
But it’s not a straightforward case of the numbers telling the story. While RPC demonstrates prudent financial control, there is a price to be paid for changing direction.
This could be attributed to the firm’s determination to build up the corporate side of the business. The cultural issues involved in growth, rather than financial issues, will preoccupy the firm’s management over the next year or two.