Herbert Smith Freehills’ (HSF) global turnover rose by 10.6 per cent to reach £920.5m in its fourth financial year as a fully-merged firm. However, its profit saw a 1 per cent dip while profit per equity partner fell by 2.5 per cent.
HSF adjusted its reporting method this year, by using current exchange rates instead of basing its results on constant currency, which is the way the firm reported its financial results in previous years.
Based on the new method, its profit was £256.1m, down 1 per cent from £258.5m in 2015/16.
Average profit per equity partner (PEP) fell at a faster rate, down 2.5 per cent from £779,000 to £760,000.
In 2015/16, the firm’s revenue was reported on a constant currency basis – at £870m, while profit and PEP stood at £278m and £840,000 respectively.
When taking exchange rate fluctuations into consideration, the firm’s like-for-like revenue growth would be slower than 10.6 per cent. When approached, the firm declined to provide the figures, but said: “In terms of HSF’s results for 2016/17, currency fluctuations account for some of the revenue increase, but a constant currency basis would still show a rise in revenue, albeit more modest.”
HSF CEO Mark Rigotti acknowledged that part of the firm’s revenue growth was driven by currency fluctuations, but there was still rise in revenue year-on-year, which marked it the fifth consecutive year in which the firm achieved top-line increase.
“It is very encouraging to announce another year of growth, especially against a backdrop of a demanding and volatile global economy,” said Rigotti. “While we have seen a marginal reduction in profit, this partly reflects continuing investment in our network, our people and our technology.”
Major investments made by the firm over the past year include opening of the Kuala Lumpur office, the firm’s ninth location in Asia and fourth in South East Asia, expanding its global Alternative Legal Services (ALT) business to Johannesburg, Melbourne and Shanghai, making strategic lateral hires, and investing in an integrated global finance and practice management system provided by Aderant as well as innovation technologies such as artificial intelligence and document automation.
In terms of practice areas, Rigotti highlighted the firm’s dispute resolution practice performed strongly last year, both in revenue and profit growth, thanks to many complex and landmark cases the firm has acted on. The firm’s role in advising on the global insolvency surrounding the collapse of the Nortel Networks group is one of the highlights.
By regions, the firm saw strong revenue growth in EMEA, partly due to the contributions from the new offices in Germany, Johannesburg and Riyadh, as well as solid performances in established offices such as Paris, Moscow and Madrid.
Rigotti revealed that the firm’s Germany offices experienced 70 per cent revenue growth last year, while Madrid, Paris and Moscow offices all posted double-digit growth. However, in London, the firm’s biggest fee-generating office, revenue growth is flat. The firm’s Australian offices shared a similar flat story.
China, Japan and New York have also performed well according to Rigotti. The firm expanded in the US with the addition of a Latin American capability and significant revenue growth generated by its New York office.
HSF’s 400-strong ALT business also saw positive revenue growth, rising by 7 per cent year-on-year.
“ALT is part of our strategy in responding to client needs and becoming more efficient,” said Rigotti.
Rigotti expected the firm’s profitability to improve as it nears the end of the investment phase and aims for better connectivity, collaboration and productivity among its global network.
“We will work around improving productivity and connectivity across offices, and continue to expand our capabilities in Europe, such as strengthening our Germany practice. We will also start experimenting new technologies in the next 18 months,” said Rigotti.
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