Magic circle figures: Freshfields top on PEP as A&O closes turnover gap

Freshfields Bruckhaus Deringer and Linklaters have posted their financial results for the 2010-11 year, revealing that the top four UK firms are now neck-and-neck with each other in turnover terms.

At Linklaters, income rose 1 per cent from £1.18bn to £1.2bn, some £19m short of magic circle rival Clifford Chance, which announced turnover of £1.219bn earlier in the week (5 July 2011).

Freshfields, meanwhile, posted a total revenue of £1.14bn, almost identical to last year’s figure of £1.141bn.

This places the firm marginally ahead of Allen & Overy (A&O), which earlier in the week announce 2010-11 revenues of £1.12bn (6 July 2011).

Freshfields remains the leader on average profit per equity partner (PEP), having led the pack since 2007-08, while Clifford Chance has broken back into the £1m PEP club after a two-year hiatus.

At Freshfields, PEP was down slightly on the firm’s 2009-10 figure, dropping from £1.406m to £1.308m, while net profit dropped 8 per cent from £589m to £544m.

Linklaters’ PEP was up 1 per cent to £1.225m from £1.214m, while pre-tax profit increased 1.5 per cent to £514.8m.

At A&O and Clifford Chance, the PEP figures are £1.1m and £1.005m respectively.

Simon Davies
Simon Davies

Linklaters managing partner Simon Davies said his firm’s PEP was put under pressure by the increase in the proportion of equity partners in the overall partnership, with 94 per cent of all partners now sharing in the equity. That equates to 442 out of 471 partners as an average over the year.

Davies said: “This is an encouraging performance which reflects the tremendous commitment and teamwork of everyone across the firm, working closely in support of our clients.

“It’s clear we remain in a challenging environment. However, encouragingly, we enjoyed a stronger second half of the year. We also saw healthy growth across emerging markets around the world. In the year ahead we’ll continue to forge deeper relationships with our clients and support them as they pursue opportunities and manage risk globally.”

At Freshfields, global managing partner Ted Burke said: “We’re pleased that we’ve been successful the last few years and have been able to maintain strong performance while making significant long-term investments in our clients and people.

“Obviously we care about financial success, but we don’t manage the firm to maximise short term PEP.  We care much more about sustainable success so year-to-year variations don’t bother us so much.”

At Linklaters, revenue in the second half of the financial year was up 9 per cent on first-half revenue, while second-half income was 5 per cent up on the same period in the previous financial year.

Davies said the firm had prepared for the downturn in distressed transactional work, a sweetspot for the firm, and had improved performance in other areas such as corporate, financial regulatory and capital markets.

The firm saw an increase in Asian revenue of slightly over 10 per cent, with the figure now standing at £137.6m. Revenue out of New York increased marginally, while the firm’s Dubai office enjoyed a 13 percent turnover hike.

Davies said the firm had ambitions to capitalise on growth opportunities in the Middle East and expand its Dubai team. This week it launched an office in Abu Dhabi, giving the firm its second base in the region (7 July 2011).

Globally, the corporate practice contributed 40 per cent of total revenues, slightly more than finance on 39 per cent. Elsewhere, 21 per cent of income came from the commercial practice, which covers areas including litigation, real estate and IP. These figures are broadly in line with the previous year’s.

Davies highlighted emerging markets as areas for growth, singling out the African energy market as a particular target.

He said the firm was “subscale” in Europe and had ambitions for organic expansion on the Continent, especially in Germany and Italy, but said none of the firms that had approached Linklaters seeking a US merger would be up for consideration.

At Freshfields, while turnover has remained static, Burke said sources of revenue had changed over the past year, shifting away from restructuring work.

Ted Burke
Ted Burke

“Our capital markets and litigation practices were very busy last year,” he said. “Our restructuring practice is still busy but that work’s not quite as frantic as it had been.”

About a third of the Freshfields’ turnover – the equivalent of £392m – came from its London office and Burke said China had also been a strong growth region for the firm, particularly in capital markets and M&A.

Across the firm’s practice areas, corporate accounted for about a third of global revenues, disputes resolution and finance about 20 per cent each, and tax and antitrust making up about 10 per cent each.

In the past year Freshfields’ corporate practice, led by newly appointed London managing partner Mark Rawlinson, usurped Linklaters to clinch the highest number of FTSE100 clients for the first time in 20 years, winning the likes of BG Group, BP, Essar Energy and Petrofac as clients.

But Burke said it might take another year or longer for the client wins to translate into a boost in turnover.

“Some work has already been billed and we have been acting for some of them right away, but it’s more of a long-term move,” he said.