Lovells

UK 200 RESULTS 2010

In its final year as an unmerged entity, Lovells posted an impressive set of results, with fee income rising by 2 per cent to £542m and net profit increasing by 13.8 per cent to £160m. The firm also achieved its highest-ever average profit per equity partner (PEP), which rose from £586,000 to £663,000, narrowly beating the ­previous high of £661,000 in 2007-08 – some legacy as it morphs into Hogan Lovells.

The London office contributed 43.3 per cent of total income, while Asia and the Middle East accounted for 9.7 per cent, Europe 42.7 per cent and the US 4.3 per cent. The highest volume of income came from ­disputes, which made up £130m of the total revenue, representing a 1 percentage point increase on the ­previous year.

Finance accounted for 19 per cent of revenue, but that is a figure the merged firm will be ­looking to improve this year.

While the number of staff dropped year-on-year from 3,400 to 3,271, the number of partners grew from 349 to 359. Hogan Lovells, which went live on 1 May, is estimated to have a turnover of £1.2bn ($1.87bn). That could elevate it above Allen & Overy in terms of revenue by 2010-11.

Yet the merger has not been without its ­problems. Earlier this year it was announced that Lovells’ Chicago office would not be part of the merger and there have been a series of departures across the firm’s offices in New York, Warsaw, Berlin and Beijing.

However, if the merger is successful – and at present there is little to suggest it should not be – it could push Hogan Lovells into the premier league of global law firms.

Strengths
At £162.6m of total revenue, corporate was one of Lovells’ best performers in 2009-10. The firm landed roles on a string of

high-profile mandates, including advising Segro on its takeover of Brixton and Arcus Infrastructure Partners on its purchase of failed company Babcock & Brown’s £1.9bn European infrastructure fund – a much-needed corporate platform on which to build.

Weaknesses
Mergers are never easy, but combining two firms the size of Lovells and Hogan & Hartson has already raised numerous integration issues. The firm lacks the strength in finance, particularly in New York, to compete with behemoths such as Skadden or Linklaters. It is an area that the firm is desperate to grow in and until that happens it will struggle to be considered as among the world’s elite.

UK 200 RESULTS 2009

Lovells saw a significant portion of its revenue last year rise due to its large exposure to euro-denominated markets.

Turnover rose 11 per cent to £531m over the course of the year, although if the effect of currency movements was stripped out the growth rate would have been between 1per cent and 2 per cent.

While the currency effect enhanced revenues, it also meant that the firm’s expenses in dollar and euro countries were heightened, leading to an overall fall in profitability. At £140.6m, net profit was down 8 per cent on the previous year. Lovells’ profit margin also dropped, down from 32 per cent to 26 per cent.

At £586,000 average profit per equity partner (PEP) fell by 11 per cent, reaching levels last seen in 2005-06 (£572,000) and 2006-07 (£599,000).

Partners at the bottom of the firm's 10-year lockstep received a profit share of £368,000, while plateau partners received a share of £736,000. Partners enter the lockstep on 30 points and gain three points a year up to a maximum of 60, although lockstep positions can be stalled or reversed depending on performance.

During 2008-09 a lockstep point was worth £12,266, down from £13,767 the previous year.

This meant salaried partners also saw their pay packets reduced by the firm's overall performance. Although salaried partners do not have a share of the equity, they each receive the equivalent of three points on top of a fixed remuneration payment. That translates to a payment of £36,798 on top of their fixed share in 2008-09, down from £41,301 the previous year.

While Lovells did a round of redundancies during the year, the full cost of which was accounted for in the 2008-09 balance sheet, its overall staff headcount remained relatively static. In total the firm cut 79 jobs, with support staff taking the greatest hit.

The number of partners rose over the year, from 341 to 349, while the number of equity partners grew from 231 to 240.

In terms of practice areas, corporate remained the biggest biller, generating 30 per cent of total revenues, or £159m. Real estate and commerce accounted for 27 per cent, while litigation accounted for 23 per cent and finance 20 per cent.

Geographically, the contribution made by Asia and the Middle East grew from 6.5 per cent in 2007-08 to 10 per cent in 2008-09. Continental Europe contributed 43 per cent of revenue, up from 40 per cent, with Germany and Moscow performing particularly strongly.

London's share of revenue continued to fall, dropping from 49 per cent to 42 per cent, while the US remained relatively flat, rising from 4.5 per cent to 5 per cent.