UK law leaders see profits revival as revenues slide across the top 50

UK top 50 results 2010: tough costs drive kicks profits back into life but revenues slide £461m to £11.9bn

The UK's top law firms have managed a major rebound in profitability this year despite the aftermath of the global recession handing the group its first collective fall in revenues in recent memory.

Legal Week's 2009-10 results, the first comprehensive picture of the performance of the UK's top 50 law firms, shows revenues across the group fell by £461m, from £12.33bn in 2009 to £11.87bn.

However, the impact of an unprecedented round of pay freezes, job cuts and partnership restructurings in the previous financial year allowed the group to achieve an average rise in profits per equity partner (PEP) of 8.8%. The result took average PEP across the top 50 to £524,500.

Despite the fall in income, a stark contrast to the 10%-plus annual growth rates seen between 2006 and 2008, the performance will be seen as evidence of the UK legal market's resilience.

As expected, the magic circle were impacted by the sustained slump in deal activity and were below-trend performers. The group's turnover fell on average by 7.2% against the previous year with combined revenues of £4.97bn. However, profits at the five withstood tough market conditions after restructurings at three of the group helped PEP rise by 4.1% on average.

Allen & Overy (A&O) senior partner David Morley commented: "I doubt I could have predicted the results we recorded if I had been asked a year ago. All I can say about the upcoming year is that I think we are very well-positioned based on our mix of practice areas and global reach. The market is still uncertain."

A volatile market

Elsewhere, performance was defined by individual practices rather than peer groups. Among the chasing-pack firms, legacy Lovells was a stand-out performer while Simmons & Simmons and CMS Cameron McKenna came in well below trend. Bird & Bird, meanwhile, managed to repeat 2009's expansive performance with revenues up by 9.4%.

Bird & Bird chief executive David Kerr commented: "This year there has been a modest amount of growth, but the market remains tough. Most practice areas have been holding their own - dispute resolution has done particularly well."

The results season was also marked by huge divergences in firm performance with Travers Smith, LG and Shoosmiths all seeing PEP increase by more than 50%. The trio were among the worst hit firms in terms of falling profits in 2008-09.

Other large firms to see profits rebound included Eversheds, Pinsent Masons, Hammonds, Denton Wilde Sapte and Withers, though in many cases this was achieved with little or no revenue growth.

With many firms posting volatile annual results, a five-year breakdown shows how few firms have sustained strong underlying performances. By this yardstick, Freshfields Bruckhaus Deringer, A&O, Bird & Bird, Lovells and Clyde & Co emerge as robust performers.

International outlook

The performance overall will be viewed as having done enough to sustain the competitive position of UK law firms on the global stage after last year saw US rivals deliver far stronger relative performances for their comparable 2008 trading year.

The 2009-10 UK performance outpaced the latest results from the largest US firms, with The American Lawyer's research showing the top 100 saw revenues fall by 3.4% in the 2009 financial year while PEP across the group was up by 0.3%.

Law firm leaders' attention will now be keenly focused on the global economy at a time when fears regarding eurozone debt and looming public spending cuts in Western economies have drained confidence in the global recovery.

Clifford Chance managing partner David Childs said: "The world economy is still uncertain and it is difficult to see ahead more than three months at a time. However, I don't think we will see a double-dip recession; I am optimistic that this will be a better year than last and that the firm will continue to grow."

Click here for the full table of results.

For more analysis, see:

• Light in the tunnel or storm clouds ahead - senior lawyers reflect on a volatile market
• More with less - 2009-10 proves to be a year of ups and downs
• Bird & Bird leads the pack as fastest-growing firm as revenue jumps 150% over five years
• Nationals see varied results with big five static
• Asia takes centre stage as firms boost revenue in Eastern markets
• Insurance firms outpace top 50 once more as revenues climb 8%