The U.K.'s top law firms have improved their profit margin for the first time in years, as they continue to seek out efficiency gains amid a continued rise in staff costs.

An in-depth analysis of limited liability partnership (LLP) accounts for the 2017-18 financial year, carried out in conjunction with professional services firm Smith & Williamson, found the profit margin for the combined U.K. top 50 inched up 0.4% to reach 31%.

Although small, the overall increase is significant for the top firms, given the number had fallen every year since 2014-15.

Half of the top 50 improved their operating profit margin, compared with 14 where it declined. In the previous financial year, 16 firms had seen an improvement and 22 had seen a decline.

The biggest improvements were seen at Hill Dickinson (7%) and CMS (5%), while Clifford Chance, Ashurst, Shoosmiths and TLT all saw a 3% rise.

The firms with the highest profit margins were Fieldfisher (48%), Travers Smith (46%) and Osborne Clarke (44%). Those with the lowest were BLM (14%), Gateley (17%) and Withers (18%).

The combined profit margin rise came despite a 7% jump in staff costs. The costs rise, which continues a theme of recent years, reflected salary increases but was also due to the number of lawyers and support staff at firms increasing by an average of 4% after a fall the previous year.

The staff costs rise affected four out of five of the firms, and a third experienced hikes of 10% or more.

But strong revenue growth of 8% meant staff costs as a percentage of revenue remained flat and operating profit grew 8.1%. In the previous financial year, revenue had grown 2.2% and profits by 6.8%.

Firms got more out of their lawyers, especially at larger firms. On average, the firms managed a 5% improvement in turnover per fee earner. Only eight firms saw a decrease in this area and none of them was in the top 20.

Investment in technology is also likely to be a driver behind the efficiency improvement, according to Giles Murphy, head of professional practices at Smith & Williamson. "Maybe we are seeing the first signs of technology starting to have a significant impact on the efficiency of service delivery," he said. "However, the size of the impact that technology has had to date on the legal sector is relatively limited compared with other industries. So while there are some positive signs, there is much still to be done."

Despite the strong trading performance, law firms continue to operate with relatively low cash balances, the analysis found. Total cash and cash equivalents held by the top 50 rose 1% to £1.325 billion, while loans and overdrafts rose 7% to £875 million.

Taking the debt off the cash balance leaves the top 50 with £450 million, which is well below their combined monthly wage bill of £610 million.

All the Magic Circle firms – which the exception of Slaughter and May, which does not provide accounts because it is not an LLP – showed they have no debt. Those with the largest debt positions were Herbert Smith Freehills, which had £176.8 million of debt versus £42.5 million of cash; Clyde & Co, which had £107 million of debt against £37.2 million of cash; and Norton Rose Fulbright, which had £58.8 million of debt and £10.5 million of cash.

Download the full table here.