Nicola Foulston: High margins
Giving staff equity participation is proving a better way to run a law firm than doling out standard bonuses, listed practice Rosenblatt said today as it announced its first results since going public.
Its approach to pay also allowed senior partners to retire with dividends providing a future income, investors were told.
The City firm, which has 47 fee-earners, listed on 8 May 2018, and in the eight months until the end of the year, its revenue was £12.5m, up 19% on 8/12 of the figure from 2017, with adjusted EBITDA of £4.3m, up 18%.
However, profit before tax dipped slightly from £3.2m to £3m.
The group has a strong balance sheet, with net assets of £35m, and cash and cash equivalents of £13.4m. The company is to pay a first interim dividend 2.8p per share, ahead of expectations set at the time of listing.
In her statement to shareholders, chief executive Nicola Foulston said Rosenblatt’s approach to remuneration was “critical in delivering our objective of creating a long-term profitable business”.
A significant change since the float, which she said differentiated Rosenblatt from other firms, was the close link between remuneration and the profitable performance of the business.
She explained: “Our fee-earners are now heavily incentivised through equity participation. Unlike in traditional law firms, fee-earners are rewarded through a combination of basic salary, with dividends on their shareholdings acting as a bonus.
“In traditional law firms, bonuses are often awarded on how much a fee-earner bills. In our view, this creates too much focus on top-line revenue growth, rather than a more commercially minded focus on ensuring that the work we take on is profitable.
“We believe, and our experience since the flotation supports this, that equity participation creates a culture of collaborative working and a commitment to controlling costs.
“Rather than relying on a sizeable and costly base of junior lawyers to do the work, our approach is to contract specialists to assist partners and fee earners working on cases as needed.
“Our approach to remuneration also means that senior partners can retire with dividends providing a future income.”
Ms Foulston said the model allowed junior team members to rise up through the business and realise their ambitions.
“Increasingly, new entrants to the legal profession want much more flexibility in how they work and are rewarded. They are increasingly rejecting the traditional partner track, which sees very few reach the top of the profession.
“We believe our culture of flexible working, and performance-based reward will ensure we can continue to attract and retain talent.”
Speaking more generally about the results, Ms Foulston said: “This has been an excellent start for Rosenblatt as a public company with annualised revenue and profit growing, as well as a strong balance sheet and no debt.
“As a business, we also focus on margin and productivity, which we believe differentiates us from our peers. We have delivered an adjusted EBITDA margin of 34% on the work we undertake, and our annualised revenue per fee earner is £400,000. We believe these metrics to be leading among our peers in the sector.”
Part of the money raised by floating was set aside for a standalone litigation funding business, which went live last November.
“We believe that our new litigation finance arm will help us maintain our high margins,” Ms Foulston said.
“By providing clients with the option to fund their cases through Rosenblatt, we can increase the number of cases we handle. Importantly, we can retain more of the margin, which would otherwise be paid to an external funder. Litigation funding is an area where we see considerable opportunity for growth.”
She predicted that the dispute resolution practice – which generated 73% of Rosenblatt’s revenue – would continue to drive “strong organic growth” at the firm “despite the challenging economic environment caused by Brexit uncertainty, which has seen the pipeline of routine corporate and commercial transactions reduced”.
She added: “In addition to organic growth, we continue to see many M&A opportunities in the sector. We are committed to pursuing the right opportunities, which meet our investment criteria and provide shareholders with an appropriate return on investment.”
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