Linklaters’ financial results herald new world order

Magic circle redrawn; Clifford Chance relegated to third place while its PEP plummets to half of rivals’

David Childs

David Childs

The battle for supremacy between Freshfields Bruckhaus Deringer and Linklaters has gained ­significant momentum after Clifford Chance lost its crown as the UK’s largest firm in turnover terms.

A new pecking order is emerging for the UK’s top 20 firms, with Clifford Chance, which posted an average profit per equity partner (PEP) figure of
just half Freshfields’ or ­Linklaters’, sliding to third place in the revenue table and Lovells looking set to overtake Slaughter and May.

Linklaters has taken the top spot in the rankings for the first time with a revenue of £1.3bn. Freshfields is just £11m behind with a total revenue of £1.29bn.
As revealed by The Lawyer (26 January), Linklaters ­initiated a wide-ranging restructuring dubbed ­’Project New World’ earlier this year with the explicit aim of improving profitability.

Freshfields and Linklaters have been competing on PEP for years. Both firms posted figures of around £675,000 in 2004, but by 2006 Linklaters had steamed ahead. Last year Freshfields overtook Linklaters and has maintained its lead, while Linklaters took the financial hit of laying off 200 lawyers and 200 support staff in the past financial year, paying £50m to departing partners alone.

Linklaters managing partner Simon Davies would not be drawn on the firm’s leading position in the table, saying only that the firm’s results are “sound”.
He added: “Obviously, when you look at the profit line, that was impacted by the exceptional costs that we needed to take last year as far as headcount reductions are concerned.”

Clifford Chance, which saw revenue drop by 5 per cent to £1.26bn, has posted a PEP that is half of ­Linklaters’ or Freshfields’ and is closer to Herbert Smith’s or DLA Piper’s.

Allen & Overy has yet to announce its figures, but it would have to grow revenue by at least 24 per cent to beat Clifford Chance.

Clifford Chance managing partner David Childs said he was optimistic about the year ahead, adding: “We made good progress against our strategy and I’m getting quite optimistic that the legal market is showing good signs of recovery. Given the action we’ve taken I think this year will be very different to last year.”

Firms with a large ­exposure to dollar or euro economies have seen their revenues uplifted ­significantly thanks to the weakness of the pound.

Freshfields chief executive Ted Burke said revenue would have dropped by 2 per cent if the currency effect was stripped out, while Lovells managing partner David Harris said revenue would have grown by only 1-2 per cent rather than the 11 per cent recorded.

Harris added: “We do our business reporting in ­sterling, so our results are translated into sterling, but the majority of our revenues are now non-sterling. The effect that has had is to ­distort the results.”

Last year Lovells was vying with Slaughters for fifth place in the table, with Slaughters just beating it with a revenue of £479.6m against Lovells’ £479m.

Although Slaughters had a strong year on the back of its work for the Treasury, billing the Government £4m in a single month at the height of the financial crisis, the firm’s minimal international exposure means it will not benefit from the currency uplift.

Lovells is therefore likely to overtake Slaughters, but will remain in sixth place. DLA Piper, which has been included in the table after failing to integrate its US operations, is fifth.

Additional reporting by Kit Chellel