Herbies’ global expansion push stifles profit growth

Herbert Smith had a muted year in 2006-07, with average profit per equity partner (PEP) dropping by 2 per cent on last year’s figure.

As reported by The Lawyer (21 May), the firm was predicting that this year’s PEP would be either equal to or lower than last year’s sum of £839,000, while revenue would be in the region of £333m.

The firm said heavy investment over the past 12 months had impacted on profitability, with Herbert Smith shelling out for new premises in Brussels, Paris, Russia and Tokyo, in addition to refurbishing its London headquarters, expanding in Beijing and Shanghai and launching in Dubai.

Revenue over the past year remained reasonably strong, rising by 12.8 per cent to £334m. The UK accounted for 79.3 per cent of gross fees, down marginally on the 80.4 per cent figure seen in the 2005-06 period. Asia also saw a slight drop in its percentage contribution, with the balance being made up in Europe.

Although overall net profit was up by 8.9 per cent, from £101m last year to £110m this year, PEP fell to £820,000.

Partners in London fared slightly better than their global counterparts, with the PEP figure coming in at £824,000. Over the 12-month period the firm saw its partner headcount rise from 206 to 217, while the number of equity partners increased from 120 to 134, with 119 of them based in London.

Partners at the bottom of the firm’s eight-year lockstep pocketed £408,000, down from £409,000 last year, while those at the top took home £950,000, the same level as last year.