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1 October 2012 | By Margaret Taylor
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Although half of the Scottish top 20 firms saw revenues decrease in 2011-12, some have benefited from tough decisions made earlier in the recession
Collective revenues at Scotland’s top 20 firms remained largely unchanged in 2011-12 as firms north of the border faced up to an increasingly difficult trading environment.
In the 2010-11 financial year the group generated total revenues of £506.6m. This figure rises to £517.2m in 2011-12 with the addition of new entrant Digby Brown. The personal injury firm recorded revenues of £17.9m in 2011-12.
Exactly half the firms in the group saw their revenues go down over the period while one - Turcan Connell - posted no movement and the remainder saw a rise.
2011-12 was particularly tough for Dundas, which will regain its position as the largest Scotland-headquartered firm by turnover in the current financial year thanks only to its rival McGrigors being taken out of the table thanks to its acquisition by UK firm Pinsent Masons.
Having started the 2011-12 year in merger talks with London firm Bircham Dyson Bell, Dundas was forced to walk away from the proposed tie-up after failing to secure partner backing for the deal. In the aftermath managing partner Donald Shaw stood down part-way through his term, leaving the firm in the hands of caretaker bosses Caryn Penley and Allan Wernham, who were both later handed the roles on a permanent basis. The firm was also rocked by comments made in The Herald newspaper by chairman David Hardie regarding a redundancy consultation at the firm. Hardie was later replaced by IP partner Laurence Ward.
On the back of such upheaval, a decline in turnover from £62m to £54.5m will not have been pleasing for the firm, especially as net profit plummeted too, dropping 35.2 per cent from £25m to £16.2m, and average profit per equity partner fell by 35.4 per cent from £325,000 to £210,000.
It was a similar story at MacRoberts, which saw turnover fall by 14 per cent from £20.2m the previous year to £17.3m.
The firm, which has offices in Glasgow and Edinburgh, saw its partner headcount increase by four year-on-year thanks to the promotion of four partners in January 2012: disputes lawyer Gillian Craig, planning specialist Moray Thompson, pensions lawyer Martyn Shaw and employment lawyer Gina Wilson.
Due to the increase and the fall in turnover, the firm’s revenue per partner figure fell by 22 per cent, from £481,000 in 2010-11 to £376,000 in 2011-12.
In June 2010 MacRoberts moved into new premises in Glasgow, taking 33,500 sq ft in the city’s Atlantic Quay Capella building, one of a few buildings in Glasgow to offer Grade A office space. While the firm did not disclose how much it pays in annual property costs, the offices were being marketed for an average of £26 per sq ft in early 2010, meaning its annual rent would be around £871,000. The firm also has space in Excel House in Edinburgh.
With property costs being among firms’ largest overheads, keeping them to a minimum at a time when revenues remain constrained due to fee pressure is a key consideration. One firm that has done just that is Harper Macleod.
Despite controlling 30,000 sq ft of office space across premises in Edinburgh, Glasgow and Inverness, the firm pays just £421,000 in annual property costs, the equivalent of £14 per sq ft. This canny approach to financial management is reflected in the firm’s ambitious lockup target of 100 days, which it beat by six days in 2011-12. The firm reduced its target from 110 days, having beaten that in the previous financial year.
It is perhaps unsurprising, then, that the firm was one of the stand-out performers of the 2011-12 year, posting a revenue rise of 13 per cent to £19.3m and PEP rise of 41 per cent to £196,000.
Chief executive Martin Darroch says it had been a record year for the firm, adding that all practice areas had performed strongly.
“A lot of it reflects some of the investments we’ve made over the past few years - we’ve been pushing on insurance, energy and the public sector,” he says. “We know the sectors we want to be in and know how to service it and how to price for it.”
A return to form
Another firm that had a standout year is Brodies, whose double-digit turnover growth marked a return to form for the Edinburgh-headquartered firm.
In the eight years leading up to 2007-08 the firm consistently posted turnover growth of over 10 per cent, but this came to an end in 2008-09, when growth was just 5 per cent. The following year turnover slumped by 8 per cent before the firm returned to growth in 2010-11 with a rise of 3 per cent.
Having entered the UK 100 for the first time in 2002-03, the firm has steadily progressed up the leaderboard and, after posting turnover growth of 16 per cent in 2011-12, is now ranked at position 64. That is pretty impressive for a firm that focuses solely on the Scottish market.
With turnover of £42.8m Brodies has once again leapfrogged big four Scottish firm Shepherd & Wedderburn in the turnover stakes, though this time more definitively. In 2009-10 Brodies broke into the big four for the first time, with a revenue figure of £35.8m against Shepherd & Wedderburn’s £35.3m. The following year Shepherd & Wedderburn, which like fellow big four firms Dundas & Wilson, Maclay Murray & Spens and McGrigors is focused on the whole of the UK rather than just Scotland, regained its big four spot with a growth in revenue of 6 per cent to £37.3m, overtaking Brodies’ 3 per cent hike to £36.9m.
With Shepherd & Wedderburn posting a 1 per cent drop in turnover to £37m in 2011-12, Brodies now has a comfortable 16 per cent lead.
Like Darroch at Harper Macleod, Brodies managing partner Bill Drummond believes the firm’s 2011-12 performance can be put down to decisions made over the past several years.
“There’s been a recession and there still is,” says Drummond. “The point that’s worth making in relation to the 16 per cent [turnover rise] is that it comes back to some of the decisions we were making during the recession. We tried to keep our good staff where we could, and we’ve concentrated on trying to get the best lawyers in. We’ve made a lot of investment on the people side.”
Another firm in the top half of the table that generates all its revenues in the Scottish market is Burness. Although its growth in 2011-12 was not as stellar as Brodies’, the firm had a solid year, with turnover of £24.3m marking its third consecutive year of revenue growth.
The firm has strong ties to the City and has built a solid practice on referrals from London firms. The quality of the mandates being undertaken by the firm - during the year it lined up alongside Norton Rose to advise Lloyds Banking Group and RBS on a £94m funding package for the construction of a wind farm in Argyll - showed in its relatively high revenue per partner figure (RPP) of £715,000. This helped push the firm’s profit margin up from 40 per cent in 2010-11 to 42 per cent in 2011-12.
In RPP terms private equity boutique Dickson Minto and private client firm Turcan Connell were by far the standout performers, posting figures of £2.3m and £1.2m respectively.