Clarke Willmott’s cash call represents rescue attempt to buoy leaky financials

With Clarke Willmott’s LLP results revealing that it made a £1.89m cash call in 2009-10, the firm has vowed to put the past few years behind it and start again on a stronger footing.

Prior to the global financial crisis the firm was in good health, with turnover rising by 18 per cent, from £45.1m to £53.2m in the 2007-08 financial year, and average profit per equity partner (PEP) rising by 22 per cent, from £260,000 to £317,000.

Fast-forward two years and the picture is less rosy. The LLP accounts for 2009-10 show that operating ­profit, which includes remuneration for non-equity partners, fell by 78 per cent, from £13.3m to £2.9m, while turnover dropped by 34.4 per cent, from £50.6m to £33.2m.

Although the drops are drastic, Clarke Willmott chief executive Stephen Rosser says there are good reasons for them.

“The year before takes into account an exceptional agreement on a conditional fee agreement,” he says. “We’re also comparing a 13-month period with an 11-month period.”

It is true that Clarke Willmott adjusted its year-end from April to May during 2009-10, meaning its 2008-09 financial year included 13 months, while 2009-10 was made up of 11.

That said, taking an ­average monthly income for the 2008-09 year of £3.89m, the 12-month figure would be £46.7m. Taking a ­monthly average for 2009-10 of £3.01m and annualising it gives a figure of £36.21m. This would still equate to a year-on-year turnover drop of 22.5 per cent.

Recognising that steps needed to be taken to reverse the downward trend, in May last year the firm installed then chairman Rosser as chief executive, charging him with the job of turning things around. As he had served as chair, Rosser was familiar enough with the firm to quickly enact a ­turnaround plan.

Timing was clearly of the essence. As a source close to the firm says of the firm’s 2009-10 results: “It was all about timing and they got it all so wrong. Perhaps it wasn’t their fault entirely, but the rescue mission has to work.”

Part of the problem for the firm was that, under ­former chief executive David Sedgwick, its headquarters moved from Bristol to Birmingham, with huge resources ploughed into the relocation.

Birmingham, however, was saturated with lawyers and work was thin on the ground. A slow trickle of departures turned into a steady stream, and last year the firm saw the exit of five Birmingham partners, including office head Kathy Toon.

“We grew very quickly and we shrank back quickly,” admits one insider.

Current changes are being led from the top down, although the firm has shown some uncertainty over how the changes should be effected.

In June last year Clarke Willmott set up two management boards - a strategy board and a management board - to work in tandem. This has now been scrapped in favour of a broader ­management board, which includes coopted members from Clarke Willmott’s Southampton and Birmingham bases.

The board will meet around the firm’s offices on a rotational basis, with Rosser reluctant to refocus on ­Bristol for the time being. Rather than concentrating on individual offices, the board will focus on building up the core firmwide ­practices of retail, property, IP, planning and litigation.

There has been an ­injection of cash to sustain the recruitment that is ­necessary to ensure the practices are spread evenly. The firm’s 34 equity ­partners were called on to put £1.89m into the pot at the beginning of the last financial year.

At the same time Clarke Willmott ended its borrower ­relationship with RBS and negotiated a new deal with HSBC. The deal kicked in on 11 January, and ­according to the LLP accounts the new banking facilities include a £2m overdraft, a £2m loan over four years and a £1.8m loan over two years.

According to one ­partnership expert: “The general rule of thumb is that loans should not exceed 15 per cent of the firm’s asset base. In this case the deal’s about right for the firm and it’s not likely they’ll be ­making use of it all.”

Rosser admits that the deal is about long-term investment to sustain future growth.

In Taunton, for example, the firm has a strong employment practice that has recently been supplemented with the bolt-on of HR agency Turner HR.

“It means we can provide a complete employment ­service for corporates and private clients who face an HR issue and then may require follow-up expert legal advice,” Rosser explains. “Not many law firms are actively pursuing acquisitions in this ­economic climate, and ­certainly not ones that take them away from a ­traditional legal offering.”

There have also been ­partner hires and promotions, although the firm’s training scheme has been placed on hold.

Over the first half of the 2010-11 financial year the firm turned over £18m, a rise of 5 per cent on the same ­period in the previous year. Distributable profit was up from £919,000 to £2.6m.
It is still early days, but Clarke Willmott will be ­hoping that the worst is behind it.

Clarke Willmott’s Hires and promotions 2010-11

July 2010
John Murphy joins as employment senior ­associate from Cheltenham-based BPE Solicitors; David Kitchen joins as ­property ­litigation senior associate from Wallace ­Robinson & Morgan Solicitors.
November 2010
The firm launches in ­Manchester with the hire of IP partner Roy Crozier and associate Andrew Stone from JMW.
January 2011
Lindsey Bell, former head of employment at JMW in ­Manchester, is appointed to head the Manchester employment offering.
April 2011
Devonshires Solicitors ­partners Jonathan Hulley and Chimi Shakohoxha join.
Partner promotions 2011
Stephanie Slinn, insolvency, Birmingham; Owen Williams, commercial and private client litigation, Birmingham; James Earl, corporate, Bristol; Alex Jakubowski, commercial and private client litigation, ­Bristol; Daniel Eames, ­family, Taunton.