Cold public sector winds buffet Trowers as profit plunges at Clarke Willmott.
Across the top 100 firms many saw turnover dip slightly during the 2010-11 financial year, but two – Trowers & Hamlins and Clarke Willmott – experienced double-digit drops.
Trowers was the weakest performer, with turnover dropping by 12 per cent from £89.4m to £78.6m between 2009-10 and 2010-11. The result pushed the firm out of the UK top 40 and into 42nd place.
Average profit per equity partner (PEP) was also down considerably, falling by 21 per cent from £553,000 in 2009-10 to £441,000 last year.
The firm has one of the tightest equities in the UK 100 – only 25 out of 118 partners are full equity. Accordingly, Trowers’ profit margin is slim at 14 per cent. Average arnings per partner are also lower than firms with comparable PEP figures, at £219,000.
The figures take Trowers back to the revenue level the firm saw in 2007-08, when it stood at £77.6m.
The firm had, however, managed to keep PEP above £500,000 since 2004-05, with a growth of 41 per cent in 2005-06 giving it a significant boost in this respect.
Managing partner Jonathan Adlington blames the difficult conditions in the public sector, and social housing in particular, for the firm’s reversal of fortunes this year.
Trowers’ Middle East offices also had a tough few months towards the end of the financial year due, in part, to the Arab Spring. The Cairo office was forced to close for a while just weeks after Trowers merged with its local alliance partner in Egypt.
Adlington says that the firm remains committed to public sector work, but is trying to diversify its business by seeking private sector clients that are working for or with the public sector, for example on joint ventures or outsourced projects. He is also confident that the Middle East will rebound.
Profits of doom
Clarke Willmott’s turnover decrease of 10 per cent, down to £36.6m, was marginally less severe than Trowers’, but the South West firm had a poor showing in profit terms. While the firm’s headline PEP figure of £172,000 was up by 5.5 per cent from 2010, the firm’s management elected to withhold a portion of the profit to reinvest in the firm.
The resulting equity spread of £35,000 to £163,000 means equity partners at the bottom of Clarke Willmott’s ladder were paid around the same as a trainee in the London office of a magic circle firm.
Non-equity partners, meanwhile, were paid an average of just £25,000. The firm’s profit margin of 15.6 per cent was a slight improvement on 2009-10’s 13 per cent. Chief executive Stephen Rosser says the firm is determined to improve net profit further.
Below Trowers and Clarke Willmott, six firms suffered revenue drops of 5 per cent or more. Although considering the tough market environments reported by many mid-sized firms – a sizeable number of the firms ranked from 50 to 80 reported turnover falls – the declines were surprisingly small.
Most of the firms that saw a drop in turnover were able to keep the reduction to a minimum, losing between 1 and 3 per cent of revenue. However, there were a few exceptions.
LG saw revenue dip below £60m for the first time since 2003-04. The turnover of £59m comes with PEP of £412,000. That represents a 10 per cent drop, but was a significant improvement from 2008-09, when PEP dropped to £281,000.
Managing partner Hugh Maule says LG budgeted cautiously for the year and remains cautious for the year ahead, predicting continuing difficulties in corporate work in particular, despite the firm’s strength in the AIM market.
At Bevan Brittan, where revenue fell by 8 per cent to £34.7m, there was some good news. PEP was up by 5 per cent to £303,000 but the firm’s profit margin dropped to 17.6 per cent – a significant drop. The firm also says its debt has reduced by £2.8m.
In a statement announcing the results earlier this year, Bevan Brittan chief executive Andrew Manning said the revenue drop resulted from a combination of the firm’s decision to focus on the public sector combined with the Government’s spending review and budget cuts.
However, the current financial year has already given the firm cause for hope, as it was appointed to all eight of the NHS Commercial Alliance legal panels in the organisation’s recent review.
Scottish firm Maclay Murray & Spens also had a difficult year. Its revenue went down by 7.4 per cent to £48.6m, while PEP dipped by 2.3 per cent to £259,000.
Maclay has now seen three consecutive years of falling turnover. CEO Chris Smylie has put the drop down to a lower headcount than at the firm’s 2007-08 high point of a £61.1m turnover. Since then, the firm has lost nine partners and six lawyers in total.
Many firms are forecasting another tough year ahead. Tight control of costs and a focus on diversification could protect firms against revenue and profit falls such as the five worst performers saw, although a return to recession could cause more to see double-digit drops in the year ahead.
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