Lovell's financial woes were confirmed after average PEP at the top 10 City firm plunged 21 per cent. PEP for 2004-05 plummeted from £541,000 to £427,000, while turnover for the same period dropped by 3 per cent to £366m. Lovells attributed the disappointing results to the cost of restructuring and a more competitive London market. The firm's mainstream corporate practice had a particularly disappointing year.

UK revenues fell by more than 10 per cent, while in Germany turnover dropped by 5 per cent. As a result, the UK's contribution to firmwide turnover fell to 56 per cent of the total. Lovells' Asian and US practices, which each count for 5 per cent of turnover, had a good year, with Asia (notably mainland China) improving significantly.

Last Christmas the firm, under the leadership of new managing partner David Harris, pushed through one of the biggest one-off redundancy programmes ever witnessed at a City law firm.

The move resulted in the firm axing 25 partners in a bid to improve its flagging profitability. Lovells absorbed two-thirds of the restructuring costs in the last financial year.

The cull was designed not just to boost profitability in the short term, but also as part of a longer-term strategic plan. The firm does not envisage a dramatic upswing in M&A activity and therefore considers many parts of its corporate practice to be overpartnered.

Harris is continuing to tackle the profit decline head-on. At the start of 2005 Lovells launched a review of its lockstep. It is understood that Lovells' equity partners currently start on 24 points and gather three points every 12 months over a 12-year period.

Initial findings from the review, which was still in progress at the time The Lawyer UK 100 Annual Report went to press, showed that there was very little support for adopting a system that encompasses a bonus pool or a global superpoints system to reward outstanding revenue generators.

Meanwhile, in July this year, Lovells unveiled further plans to bolster profits. One of the initiatives includes the introduction of a new financial system to measure the profitability of matters and clients or client portfolios. The move marked a major shift in the way the firm reports financial information internally to partners; historically, Lovells has focused entirely on turnover and utilisation rates.

The firm has also placed an emphasis on a more focused pursuit of business and has asked partners to produce personal business plans to supplement those of their practice area.

Lovells' plans to win panel appointments such as Abbey, Amex, Barclays and Serco are a bright spot in a difficult year.