This time last year, many international firms were predicting that 2003 would be the year when they turned the corner. After a subdued 2002, a mood of cautious optimism permeated our international counterparts.

However, hopes of a return to blistering growth were soon to dissipate. While many international firms have increased gross over their financial year (which for the majority of the 30 firms surveyed runs to the calendar rather than the financial year ended 30 April), some saw turnover remain flat or even fall.

On the whole, the majority of international firms were moving in the right direction in 2003. Overall turnover for the 30 international practices this year totalled £899.3m – less than Clifford Chance’s entire gross for 2003-04, which reached £950m, although more than Freshfields Bruckhaus Deringer, which is in second place in The Lawyer UK 100 with turnover of £785m.

For the 30 firms, average revenue came out at £29.9m. A direct comparison with the survey for the financial year in 2002, which featured 25 international firms, shows that average turnover for 2003 is £34.3m compared with £29.8m in the previous 12 months.

Encouragingly, productivity has also increased, in what most would agree was still a pretty challenging market. Average revenue per lawyer for the 30 reached £424,000. But a direct comparison of the top 25 firms in 2003 shows an average of £448,000 compared to £414,000 in the previous year.

Remember that very few practices have increased their headcount substantially over the past 12 months so this is a decent result for the international firms.

While double-digit revenue increase this year was thin on the ground, a small number of firms still managed to achieve massive growth.

Baker & McKenzie continues to be a concern. While firmly ensconced at the top of the international rankings for the third year running with turnover at £84m, gross revenue at the London firm has nevertheless declined for the second year.

After turnover climbed 20.4 per cent to £93.8m in 2001, it has fallen and fallen, dropping by 5.1 per cent to £89m in 2002 and by 5.6 per cent to £84m this year.

This is apparently down to the war in Iraq and therefore security concerns have put people off flying. Et voilà! Cross-border work has fallen off and revenues have declined.

Total headcount for London has also dropped, from 301 lawyers in 2001 to 273 in 2002, when the firm implemented a redundancy programme to 248 lawyers in this most recent financial year.

While this looks dispiriting, there is a shard of light. Baker & McKenzie may claim Iraq as an excuse, but most lawyers in London have continued to increase productivity, albeit at a slower rate.

From a staggering 31.6 per cent uplift to £312,000 in 2001, revenue per lawyer grew by 4.4 per cent to £326,000, and this year by 3.9 per cent to £339,000.

While Baker & McKenzie may be cheered by this chink of positivity, others are gaining on its position as the highest-grossing international firm in London. Mayer Brown Rowe & Maw, in its second year as a merged firm, is nipping at Baker & McKenzie’s heels with a 10.6 per cent increase in turnover to £79m for 2003.

From a 24.4 per cent difference in revenue between the two firms in 2002, when Mayer Brown Rowe & Maw, again in second place in The Lawyer International ranking, reported £71.9m in billings, the gap in turnover closed to 6.3 per cent in the past 12 months.

The dubious honour of second-largest fall in terms of revenue this year goes to Dechert, where gross in 2003 dropped by 11.1 per cent to £42.5m on £47.8m in the previous 12 months.

Between 2001 (the firm’s first full financial year as one entity after the July 2000 merger between Titmuss Sainer Dechert and Dechert Price & Rhodes) and 2002, turnover did rise, by 5 per cent to £47.8m.

However, in a trend reminiscent of that at Baker & McKenzie, headcount has fallen from 151 lawyers in 2001 and 141 in 2002 to 120 fee-earners in the past 12 months. This is due to post-merger redundancies and a fair whack of departures.

And yet, as at Baker & McKenzie, revenue per lawyer has grown year on year over the three years, rising by 13 per cent from £300,000 in 2001 to £339,000 in 2002. In the last financial year it rose 4.4 per cent to £354,000.

While the rate of revenue per lawyer growth slowed in 2003, Dechert is still heading in the right direction.

Latham & Watkins stood out, after recording a blistering 32.3 per cent rise in revenue to £50m on £37.8m in the previous 12 months. The rise has been driven primarily by finance and private equity. Capital markets has been depressed, as for many other firms, but the firm says this is picking up, primarily in private placements.

In private equity deals, Latham & Watkins has won mandates for the likes of Charterhouse and the Carlyle Group. On finance, although the firm admits pricing has been very competitive, it has not run into any significant problems.

With the practice’s focus on high yield, project finance and senior debt, Latham has not been subject to pricing pressure in the more commoditised areas of finance, sewn up by UK stalwarts Clifford Chance, Allen & Overy and Linklaters, although Latham’s absence from commoditised products probably has more to do with resources than any inherent snobbery towards the vanilla side of finance.

The firm’s ratio of equity partners to fee-earners is tight at 1.2:9, and lower than the firm’s global rate of 1:3.1, which in itself is hardly over-leveraged.

While Latham has grown in headcount by 14.1 per cent to 89 fee-earners, compared with 78 lawyers in the previous year, it will not be leveraging up expeditiously.

With this beady eye on headcount, and booming turnover, profits per equity partner increased by 9.5 per cent to £761,000 on a healthy margin of around 35 per cent. In terms of contribution to Latham’s global operation, London is rising from 6 per cent in 2001 to 6.6 per cent in 2002, and this last year 7.9 per cent.

Of all the firms that did achieve double-digit turnover growth, and these include Mayer Brown Rowe & Maw at 10.6 per cent, Debevoise & Plimpton at 14.6 per cent and Covington & Burling at 15.9 per cent, one of the most pleasing results came from Sidley Austin Brown & Wood.

After sustaining the blow that was the departure of four corporate securities partners to set up in London for French independent Gide Loyrette Nouel in June 2003, Sidley’s London office still reported a very creditable 17.9 per cent rise in revenue for the year to £36.8m.

While in 2002 gross growth at Sidley was monumental, at 28.4 per cent to £31.2m, the last financial year’s figure was still a satisfying result, which is probably why so many other US firms in London are pushing like fury to get into the securitisation market.

Although Sidley’s London office has four main focuses – structured finance, M&A, capital markets and restructuring and insolvency – its expertise in securitisation has made it a market-leader. Both Shearman & Sterling and Latham would like to get into this area.

For its part, Sidley would like to grow its funds practice, specifically enhancing the cross-firm opportunities Sidley’s Chicago-based hedge fund group presents.

Real estate would also be a useful add-on, for REITs fund work. But Sidley has major competition here since a huge number of international firms are trying to bulk up in this area, again including Shearman & Sterling.

One firm that did successfully recruit in real estate in 2003 is White & Case, which recorded the largest increase in turnover for international firms in 2003 – a staggering 41.8 per cent rise to £51.9m.

But is this purely top-line growth? Profit per equity (PEP) partner has increased during 2003, rising by 32.4 per cent to £535,000.

Yet looking back over the past three years, headcount at White & Case has exploded. From 2001, when the firm housed 82 lawyers, it rose to 137 fee-earners in 2002 and 173 in the last financial year. So from 2001 to 2003, lawyer numbers have jumped by 111 per cent.

Curiously, at the smaller end of the timescale, back in 2001, fees per lawyer were £320,000, but for the latest financial year, after a dip to £267,000 in 2002, revenue per fee-earner was £300,000. This placed White & Case in 26th place out of the revenue per lawyer at the 30 international firms surveyed this year.

With the 32.4 per cent jump in profits per equity partner, of which there were 31 in 2003, clearly there has been bottom line growth here.

This is no bad result, but remember, White & Case globally has set itself ambitious targets for 2005 – $1bn in turnover and profits per equity partner of $1.3m – and it still has some 30 per cent growth to make up before it achieves that PEP.

London is proving itself to be a driver for the firm to reach its ambitions but only if it doesn’t fall prey to the global firm’s propensity for focusing on the top at the expense of the bottom line.

While increasing revenue and income is at the forefront for all firms, a particular focus in 2003, especially in the final quarter, was the dollar. Towards the end of the year it positively cratered and it remains weak at $1.84.

For the many international firms, this has been a major issue, which is why, this year, The Lawyer has surveyed firms on what currency they use to bill clients and how they pay their lawyers – dollars or sterling.

If it is dollars, do they pay at a set exchange rate so lawyers paid in dollars don’t feel the pinch so much, and exactly what cost of living allowance do they offer relocating lawyers to work in what many claim is the more expensive London market?

If all your bills are in dollars and all your costs are in sterling, that’s going to hurt. However, most firms have a natural hedge by billing in sterling, euro and dollars.

Astoundingly, at this stage in the year, some firms are still sitting back and waiting to see what everyone else is doing. Others, such as Dewey Ballantine, Simpson Thacher & Bartlett, Debevoise & Plimpton, Skadden Arps Slate Meagher & Flom and Shearman & Sterling have been brilliantly proactive on currency.

Dewey is far ahead on this, reviewing the conversion rate at the beginning of the year to $1.64 for its lawyers, who are all paid in dollars. It has also implemented three different billing rates for UK, European and US clients.

Why would a US client seeking advice from the London office expect to pay local UK and more expensive rates? Skadden Arps is also considering localising billing rates.

In terms of cost of living allowances, Simpson Thacher is now the highest-paying international firm in London, giving its US ex-pat associates around $70,000 (£42,700) over the year, outstripping the likes of Sullivan & Cromwell which pays a lump sum of $50,000 (£30,500).

Because the dollar began to drop at the end of 2003 and is still yet to recover, currency is likely to dominate for this current financial year. On the whole, international firms are reporting that 2004 is looking much better in terms of turnover, but if firms refuse to move fast enough, the weak position of the dollar could hamper those gains.