Herbert Smith shelled out more than £15m improving its offices last year, with the leading City law firm also paying out an extra £1m in interest on loans, it has emerged.
The expenses, revealed in the firm’s UK limited liability partnership (LLP) accounts for the 2006-07 tax year, show the firm invested £14.3m in improvements and additions to its UK offices, as well as £4.2m in new office equipment.
The firm is one of a group of City players - including LG, CMS Cameron McKenna and SJ Berwin - to file accounts with Companies House over recent months.
At Herbert Smith’s 31 March year-end, bank borrowings stood at £79.5m - a significant increase on the previous year’s tally of £59.4m. The additional borrowings meant loan interest payments for the year reached more than £2.3m.
Herbert Smith, which saw average profits per equity partner for the year fall by 2.3% to £820,000, also saw outstanding invoices increase by £21m to £98.7m.
Jeremy Black, associate partner in Deloitte’s professional practices group, said: “Different types of work will have different recovery times for payment. Property work, for example, is usually billed on completion. Litigation, however, tends to be billed at the end of the month. That explains some of the differences between firms.”
The highest-paid earners at the firm took home £1.047m, marginally down from £1.072m for the 2005-06 tax year. However, profits at the UK LLP prior to members’ drawings stood at £119.8m, up from £107.9m the year before.
Herbert Smith’s chief operating officer, Norman Green, told Legal Week: “We have been expanding office space in London. We have Citygate House, Exchange House and 10 Exchange Square and have just added new space. We have also acquired additional Moscow office space.”
LG’s accounts also reflect the high costs of office fit-outs, with the firm taking on £13.5m worth of loans over the year. It moved into premises in More London in May 2007. The relocation, combined with new fixtures and fittings, increase the value of LG’s fixed assets to £21m - a substantial increase on last year’s figure of £8.8m.
The profit of the LLP available for division was £27.8m, marginally down on the 2005-06 figure of £29.1m. LG’s UK base recorded a turnover of £65.29m, while its other European offices accounted for £1.1m over the year.
While LG and Herbert Smith saw property increasing their costs, SJ Berwin’s accounts show the firm is still benefiting from a deferred rent deal it signed when it moved into its Queen Street Place home in 2006. However, the firm did pay out an extra £2.4m on improvements to the building.
Of SJ Berwin’s firm-wide turnover of £189.9m, the firm’s foreign offices accounted for £43.9m. The partners at the top of the equity took home £1.18m, compared to the 2005-06 figure of £1.07m.
The LLP accounts also reveal that many firms saw their bottom lines hit by rising lawyer salaries and staff overheads. SJ Berwin saw staff costs rise by more than £11m over the 2006-07 tax year, while at Herbert Smith salaries cost the firm an extra £10m.
Much of SJ Berwin’s increased costs can be attributed to the significant growth in the number of employees over the year. The firm bolstered its ranks by around 20%, with total lawyer numbers (excluding partners) rising from 417 to 507, while support staff rose from 382 to 462.
Colin Ives, head of professional services tax at BDO Stoy Hayward, said: “SJ Berwin are obviously investing in their business. They have taken on a large number of new staff as well as increasing partner numbers - considering this, they are an impressive set of results.”
Herbert Smith also increased its staff numbers over the period with total number of fee earners rising from 881 to 915.
Meanwhile, Camerons saw a rise of nearly £4.5m in staff costs, with fee earner numbers growing by 36 to 766 and support staff by 39 to 738.
As well as the increasing staff numbers, the figures also reflect the growing wages paid out by City firms as they battle to attract and retain the best talent. Staff costs for the 2007-08 tax year are likely to be even higher given last year’s significant rise in associate salaries.
