Allen & Overy’s Canary Wharf exit cost firm £25m

Allen & Overy (A&O) incurred one-off costs of £29m in 2010-11, with the decision to abandon its Canary Wharf satellite office accounting for the bulk of the figure.

Canary Wharf
Canary Wharf

According to the firm’s LLP accounts, the decision to pull out of Canary Wharf mid-way through a lease contract cost the firm £24.6m. While this is an estimated figure that could vary depending on the firm subletting its Docklands space, the sum was accounted for during 2010-11 but will be written off over several years.

The firm decided in August 2010 to relocate its Canary Wharf-based banking team and support staff to its City headquarters. It retained one floor of its building in Canary Wharf for client meetings, but has been looking to sublet its additional three floors since (23 August 2010). 

The firm, which took the space at Canary Wharf in 2003, estimates that it could incur a further cost of £3.4m if the space remains vacant for another year.

A statement within the LLP filings said that the decision to vacate the building will reduce duplicated costs and eliminate the cost of providing a dedicated transport service between the firm’s One Bishop’s Square headquarters and the Docklands base.

“However, vacating the property while in the middle of the lease contract term has crystallised a one-off charge to the income statement of £24.6m,” the statement continued. “This charge represents the write-off of all assets within the office, the rent payable during an estimated period while the office is empty and an estimate of the loss on subletting the property for the remainder of the lease.

“Advice was obtained from surveyors to assist in the calculation of the charge, but ultimately a number of estimates had to be made. The most significant estimate was the number of years the property would remain empty. The cost of an additional year of vacancy would amount to £3.4m.”

The firm also incurred a one-off cost of £4m following its decision to relocate up to 180 support staff positions from London to Belfast (2 February 2011). Of the £4m, £3m was used for redundancy payments.

Elsewhere, the LLP accounts reveal that the firm’s running costs rose by 6 per cent to £675m in the 2010-11 financial year as the firm swelled its ranks.

The average number of staff, excluding partners, employed by A&O rose from 4,157 in 2009-10 to 4,289 in 2010-11.

Meanwhile, the average number of partners was up from 451 to 487 over the same period. The average number of full partners was up 12 per cent, from 355 to 398, a figure that included 34 lateral hires.

Offices in the Asia Pacific region experienced the biggest rise, going from 48 partners in 2009-10 to 70 in 2010-11. As a result, turnover was up 46 per cent in Asia Pacific. Turnover across the firm rose 7 per cent, from £1.05bn in 2009-10 to £1.12bn in 2010-11 (6 July 2011).

Profit before tax was up marginally, from £428.8m in 2009-10 to £431.2m in 2010-11, but the profit available for division among partners fell from £328.6m to £298m over the same period. This was as a result of the Canary Wharf costs being accounted for during the year.

Partner capital within A&O increased during the year to £139.7m, up £12.7m on 2009-10’s £127m.