Partners braced for falls in revenue and profits

Two-thirds of partners expect falls in revenue for 2008-09 at their own firms, but most are more bearish on rivals' performances; while many believe 2009-10 will be tougher. Jeremy Hodges reports

Nearly two-thirds of senior lawyers expect revenue at their own firm to be down on last year, according to Legal Week research.

Based on responses from more than 100 partners, The Big Question found that 59% are expecting a fall in revenue at their own firm in 2008-09 compared to last year, with 24% expecting increases and 17% expecting revenue to stay flat. More than a quarter of respondents thought revenues would be down annually by between 15% and 10%.

The poll uncovered that an even greater proportion are expecting falls in profitability at their own firms, with 82.5% expecting profits per equity partner (PEP) to fall against the previous year at their firm. At the gloomy end, 30% were expecting an annual fall in PEP of more than 20%.

Ten percent of respondents were expecting an increase in profits, with only two partners predicting a jump in profits of more than 5% at their firm and around 9% expecting them to stay flat.

However, it seems possible that the fragile state of confidence in the legal market is overstating the reality. As such, the survey found respondents were considerably more bearish about the wider market than their own firms, with nearly 90% predicting revenue to fall across the top 50. Of these, over three-quarters believe that turnover will drop by anything between 5% and 15% across the top 50.

A similar picture can be drawn in relation to profit expectations across the top 50, with more than 95% of respondents expecting a fall in PEP - including 35% expecting a fall between 15% and 20%. Less than 2% think that there will not be any rise in profits across the top 50 while just 3% predict they will stay roughly flat.

Nevertheless, no one is willing to predict that there will be growth pushing into double-digit territory, and just over 3% believe that there will not be any growth at all.

Michael Frawley (above right), Taylor Wessing managing partner, commented: "The turnover of most of the firms in the City will be down by at least 5% to 15%, especially if they are dependent on the real estate and finance industries. This in turn will lead to a significant reduction in profit.

"Firms like mine that have a strong presence in Europe will benefit, as the full impact of the economic decline was not felt in countries like Germany until the end of the financial year. They will also be able to take advantage of the increase in value of the euro."

Olswang managing partner David Stewart commented: "The success of the coming year will depend on the return of the transactions in corporate and real estate. The first six months are going to be very challenging, but the year will not be as difficult as has been forecast."

For those looking for glimmers of hope for the current 2009-10 financial year, the results of the poll make for downbeat reading, with the majority of respondents saying that they thought this year would be worse (43%) or about the same (29%) as the year previous. However, 20% of partners believe that the market has reached the bottom, saying this year will be a 'little better' than last, with an additional 8% saying it will be 'better'.

Claire Rowe (pictured above), Shoosmiths' newly-appointed CEO, commented: "It is a difficult market with many firms having missed their budget for 2008-09. Now it is time to focus on looking forward to have a budget that is deliverable for the next year."