Freshfields Bruckhaus Deringer posted double-digit growth in both turnover and profit last year. Turnover jumped by 13.1 per cent to £882m, while average PEP shot up by a whopping 19 per cent, from £700,000 to £830,000. Partners at the bottom and top of equity pocketed £390,000-£980,000 respectively.

The 2005-06 results are a big improvement on the magic circle firm's financial performance in the two previous financial years, when revenue sank to £785m in 2004 and £780m in 2005. But despite the increases Freshfields' PEP is significantly lower than that of magic circle rival Linklaters, which saw PEP breach the £1m barrier for the first time. Nevertheless, Freshfields has a very healthy profit margin - it jumped from 45 per cent to 49.1 per cent during the past financial year.

Freshfields' London office accounts for 36.8 per cent (£325m) of firmwide revenue, while the German practice contributed 25.2 per cent (£223m). The firm's corporate practice was unstoppable during the past financial year. Consequently billings in the group shot up from £258m to £302m. Meanwhile, revenue for the London corporate team, which has remained static at around £100m for the past four years, jumped to £118m. Highlights for the corporate team included advising P&O on its takeover by Dubai-based DP World and Spanish construction group Ferrovial on its £9bn takeover of UK airports operator BAA. Meanwhile, the equity capital markets team benefited from the boom in gaming IPOs, scooping mandates to advise PartyGaming and 888.com on their stockmarket debuts last year.

Freshfields' global finance, litigation and real estate practices turned over £164m, £131m and £51m respectively. Litigation was up by £1m in monetary terms, but actually dropped slightly as a percentage of global turnover, to 15 per cent from last year's 16.6 per cent. The fall came despite the firm's stupendous success in the long-running BCCI case for the Bank of England. Next year will be the first time for several years that Freshfields has not had the case to fight, meaning its litigators will have to turn their hands to other matters to keep revenue up.

Freshfields welcomed a new co-senior partner and chief executive at the start of the year. Financial regulatory services specialist Guy Morton won the three-way senior partner race, beating Philip Richards and Graham Nicholson to the job last December. The elections initially attracted six candidates. In addition to Morton, Richard and Nicholson, fellow co-senior partner Konstantin Mettenheimer, former Paris managing partner Jean-Luc Michaud and corporate partner Barry O'Brien also vied for the position. Meanwhile, Ted Burke was confirmed as the magic circle firm's new chief executive.

Morton's appointment at the start of the year saw a sea change at Freshfields. Notably, Morton has put a transatlantic merger firmly back at the top of the firm's agenda. In his first interview since taking the helm, Morton told The Lawyer it was his ambition to achieve a tie-up with a US firm by the end of his five-year term (The Lawyer, 30 January 2006).

The closest Freshfields has come to securing a link-up with a US firm was more than five years ago. The magic circle firm held exploratory talks with New York heavyweight Debevoise & Plimpton in 2000 with a view to certain practice areas - particularly securities - working in a joint venture-style arrangement.

Although Freshfields is now firmly in play, not even Morton could have predicted the shock merger approach it received from Allen & Overy (A&O) only months later. As exclusively revealed by The Lawyer in the summer (31 July), the informal approach, made over lunch in April and rebuffed by Freshfields, came after a year of merger scenario planning at A&O.

If Freshfields is serious about a US merger then it needs to address its profitability. Freshfields is currently the only magic circle firm that operates an all-equity partnership model. But as first reported on www.thelawyer.com (28 June), partners voted in favour of giving the firm the option to introduce fixed-share partners. Freshfields has not ruled out the possibility of de-equitising partners in a bid to boost profitability. However, it does not plan to create a salaried partner level as a holding bay for equity partners, meaning associates will still be able to be promoted directly into the equity.

In a separate move, Freshfields also radically overhauled its partners' pension scheme in March. Under the new scheme partners will receive an index-linked amount per point over a period of at least 10 years, after which payments will be reduced to zero. Freshfields previously operated an unfunded pension scheme, whereby contributions were made into the funds out of annual profit, subject to a 10 per cent cap on profit.

One of the transitional arrangements of the new system was that partners over the age of 50 had the option of retiring from the partnership to lock in their entitlement under the old system. As a result, on 31 July around 30 partners gave notice that they would be retiring from the partnership at the end of October 2006. To ensure a smooth transitionary period and minimum disruption to clients, the vast majority of these partners will be staying with the firm in the role of consultant for between six months to two years. Consultants will receive a salary, but will not get pension payments until their employment ceases with the firm.