Thomas Alan assesses the early financial results in a tougher year for the UK’s chasing pack
The latest financial results from the UK’s mid-table firms show a more challenging economic environment is producing a lag on growth in the domestic market, as firms look to Europe to continue Brexit-proofing their growth.
While 2017/18 saw some confident displays of growth, strong performers from last year, such as Simmons & Simmons, saw growth figures halve and even pacesetter Fieldfisher saw a relative slowdown despite another strong year.
Exceptions include Herbert Smith Freehills (HSF), which saw revenues rise a sluggish 4% to £966m after growing less than 1% in 2018, while profit per equity partner (PEP) increased 11% to £949,000. Stephenson Harwood also bucked the trend, moving up a gear to hike revenues 12% to £213m while PEP rose 9% to £727,000 compared to a 6% drop in 2017/18.
However, firms are increasingly looking to Europe to keep revenue growth ticking over, with the UK’s transactional market stalling with Brexit on the horizon. ‘There’s been a slowdown across the board in transactional practices,’ Fieldfisher managing partner Michael Chissick told Legal Business. ‘And with our capital markets practice there have been just two or three listings in the last six months.’
Despite the anxiety, Fieldfisher still turned in a strong performance. Revenues rose 17% at the firm to £242m, while PEP grew 7% to £805,000. Chissick suggests the results came as somewhat of a surprise given market conditions, but despite the strong showing, the figures are some way short of last year’s 24% revenue growth and 17% increase in PEP. Fieldfisher has looked to the continent to reduce its reliance on the UK for revenue growth, fuelling a period of European office launches in Frankfurt, Madrid, Luxembourg and, most recently, Dublin.
Simmons too is looking to Europe. The firm posted a 6% rise in revenues to £374m while PEP increased 4% to £710,000 and overall profits grew 9% to £119m. While steady, the numbers are also slower than last year when the firm saw a revenue growth of 12% while PEP received an 8% boost and profits grew 19%.
Managing partner Jeremy Hoyland said the second half of the financial year was considerably tougher and predominantly responsible for the more subdued performance, with safeguarding growth through a continental focus high on the agenda.
Despite the mild uptick at HSF – with revenue rising 4% to £966m – chief executive Mark Rigotti also cited the importance of Europe as uncertainty gnaws at the UK: ‘Europe was up in revenue and profit, and that was due to great clients; great work and more financial discipline, not just headcount expansion. We want to continue growing in Europe in a post-Brexit environment.’
Taylor Wessing produced a good year, seeing UK turnover up 8% to £157m while profits rose 10% to £63m, with corporate technology deals the primary contributor. PEP grew 13% to £655,230. Though strong, the figures are again more modest than last year when revenues rose 12% both in the UK and globally while PEP hiked an impressive 20%.
DAC Beachcroft (DACB) also saw a slight slowdown, despite a decent year overall. The firm grew revenue 6% to £243m, compared to an 11% growth in 2017/18, while profits grew 10% to £52m and PEP increased 7% to around £570,000. The firm also ended the year with £1.5m in net cash, compared to starting last year with £14m in net debt. However, the much-touted real estate slowdown in the City made its impact felt.
‘There are signs of a slowdown. The feeling across the market is neutral to pessimistic and that’s because of Brexit.’
Michael Chissick, Fieldfisher
‘We went backwards in terms of our revenues overall in real estate,’ said managing partner David Pollitt, speaking to Legal Business. The firm opened in France this year, with Pollitt describing the new office as ‘a promising little goldmine’ and with DACB joining the ranks of those who see acquisitions on the continent as a strategy to offset Brexit.
Other results saw Kennedys up its revenue 11% to £218m, while UK revenues increased 8% to £126m. The figures are again down on last year, when the firm grew global revenues a striking 31% while UK turnover was up 14%. Meanwhile, Eversheds Sutherland’s non-US business grew revenue 11% to £548m and PEP 9% to £886,000 compared to rates of 13% and 12% respectively last year. Elsewhere, CMS Cameron McKenna Nabarro Olswang saw its revenues rise 5% to £546m, while PEP increased 7% to £574,000.
Mayfair firm Forsters – for years an early bellwether for City firms in usually announcing its results first – announced an 8% rise in revenues to £57m while PEP increased 10% to £381,000. The results were a modest improvement, with revenue growth up one percentage point.
Overall the results make for steady reading, but are a reality check compared to last year’s string of double-digit growth figures. The concern for many will be whether the relative slowdown is a sign of imminent contraction in the UK economy.
‘We’ve not had a downturn for a long time, and if you follow economic cycles it’s not beyond possibility we could have one soon and it could last a while,’ said Chissick. ‘There are signs of a slowdown, certainly there are firms well-placed to deal with a downturn, and we’re one of them, but I think the feeling across the market is neutral to pessimistic and that’s because of Brexit.’