Freshfields slips behind Linklaters by revenue and PEP following 'challenging' 2016-17


Freshfields Bruckhaus Deringer has been outpaced by magic circle rival Linklaters in both revenue and profitability, announcing stagnant turnover and shrinking net profit for 2016-17.

The firm posted revenue of £1.33bn for 2016-17, a marginal increase of just 0.3% on the previous year, while net profit fell by just under 1% to £612m.

Despite the fall in net profit, average profit per equity partner (PEP) grew by 5% to £1.547m. The firm had approximately 395.6 equity partners in 2016-17, compared with 419 in 2015-16, a fall of 5.9%.

Freshfields’ performance means Linklaters has edged ahead of it by both revenue and PEP, after Linklaters posted strong financial results for 2016-17, with turnover climbing by almost 10% to £1.44bn and PEP climbing by 7.8% to £1.568m.

Freshfields is largely an all-equity partnership, whereas Linklaters reports a PEP figure and a profit per partner figure. Linklaters’ profit per partner number this year stood at £1.476m, up 7.9% from £1.368m last year.

Last year, Freshfields reported a 6.6% increase in revenue to £1.327bn against a 7.5% increase in profit to £617m, with PEP growing by a similar amount to £1.473m.

Freshfields joint managing partner Stephan Eilers said: “We had a challenging year, especially on the revenue line, but we are broadly satisfied with the outcome.”

Eilers said the lack of revenue growth was down to a variety of reasons.

“On the revenue line, we cannot track in detail how these things develop in our size of business – this year we lost quite a number of partners in the upper age bracket, both through normal retirement and others leaving such as [corporate rainmaker] Mark Rawlinson joining Morgan Stanley,” he said.

Eilers also attributed some of the lack of revenue growth to conflicts issues and the proposed merger of Deutsche Boerse and Freshfields’ client the London Stock Exchange falling through.

He added that the firm had also invested in certain areas including its Manchester legal and business services centre, which is now close to a headcount of 600, and its US offices.

The fall in profit was down to the lack of revenue growth, according to Eilers.

“If we had revenue growth the profit number would look different. If the revenue had been higher the profit number would be different, as the cost structure would be the same,” he said.

Many firms have reported significant increases in revenue and PEP, with those with large international presences benefiting from an uplift due to the falling value of the pound.

While it may not have seen the same percentage gains in its performance, Freshfields did benefit from currency fluctuations.

If its 2015-16 results were re-calculated using exchange rates for this year rather than last, the firm’s revenue would have shrunk by 5.4% from a revised figure of £1.406bn, with PEP falling by more than 1% from a revised figure of £1.571m.

Freshfields’ results come as the firm has taken a number of steps to boost profitability across the firm, with a number of partners and staff leaving as a consequence.

The firm has restructured its finance practice, seen partner numbers in Germany reduce by 20% since 2015, with a further 20% decline in partner count expected by 2020, and closed an office in Cologne.

It has also offered redundancy to all 180 of its London secretarial staff, offering the choice of voluntary redundancy, application for an executive assistant role or staying in their current roles, and moved a number of jobs from London to Manchester where it is building a large support centre.

Eilers commented: “We have had a solid year in spite of challenging market conditions. Our trajectory continues to be positive as we support our clients in delivering some of the most significant work in the market.”