Legal Business Blogs

CC reveals first Magic Circle 2018/19 results as PEP grows just 1% and revenue nears £1.7bn

Clifford Chance (CC)’s managing partner Matthew Layton spoke of ‘times of investment’ and pointed to his firm’s four-year performance after it followed up on last year’s strong financials with a muted 1% rise in profit per equity partner (PEP) to £1.62m.

Kicking off Magic Circle law firms’ financial reporting season for the second year in a row, CC announced today (2 July) a 4% revenue increase to £1.693bn in 2018/19, meaning it added £70m to its top line, but profit failed to keep pace rising by just 2% to £637m.

This year’s results follow a 2017/18 that saw CC post arguably the best performance in its peer group, hiking PEP 16% to £1.6m amid a 5% revenue growth to £1.623bn.

‘You have to look at the four-year picture,’ Layton told Legal Business. ‘PEP growth will compare very favourably with the market if you look at the four-year results.’ CC has grown revenue 25%, PEP 45% and profit 42% since the introduction of Layton’s global strategy in 2015, built around three key pillars – bringing CC together around key clients relationship, creating an inclusive culture, focusing on tech and best delivery strategies.

Layton described 2018/19 as a ‘very strong year’ for the firm despite some volatility from December onwards amid the China-US trade wars, a slowdown in Chinese and Eurozone growth, the US government’s shutdown and continued uncertainty over Brexit.

He pointed to some ‘important investments’ as part of the firm’s innovation and best delivery programme. They included establishing a separate business entity, Applied Solutions, to develop and market tech tools for clients; launching a legal tech innovation hub in Singapore, Create+65; and injecting money into legaltech services automation platform Reynen Court. The firm also grew the headcount of its nearshoring centre in Newcastle to around 80 from 60 at the time of its acquisition in February last year.

Asked whether he expected a faster profit increase in future as these investments pay off, Layton said he was primarily looking at continued revenue growth: ‘The objective of being the global law firm of choice is about investing to meet client expectations. We look at opportunities to invest as and when they arise.’ However he added: ‘I am confident we will see continued profit and PEP growth going forward.’

He also pointed to the successes in his goal of reducing the firm’s reliance on banks, with revenue coming from alternative financial investors rising by 20% to about £525m in 2018/19 – 31% of the firm’s turnover. Revenue from banks increased by 6% and they now account for 32% of billings compared to about 50% ten years ago, with corporates bringing in the remaining 37%. ‘We have worked hard to see that balance shift,’ said Layton. ‘I would expect financial investors to continue to move up. A third each is the right balance.’

The firm’s 878-lawyer London office grew revenue at a slower pace than the firm globally, its top line rising by 3% to £556m. Its 528-strong Asia Pacific business was the standout performer with a 10% growth in revenue to £307m thanks to a strong showing of its Chinese offices, a busy Hong Kong IPO market and financial investors’ activity in the area.

Another focus of Layton’s strategy, the firm’s American offices turned over £226m, up 5% on the previous financial year and 45% on 2015. The firm now has 77 partners and around 300 lawyers in the region, with 200-lawyer New York as its second largest office globally after London.

Layton singled out the firm’s transactional practice as one of the strongest performers of the year. Mandates included advising Network Rail on the £1.46bn sale of its commercial real estate portfolio and pharma company Pfizer on its joint venture with GlaxoSmithKline. The firm’s antitrust practice also scored a notable victory representing company consortium FairSearch in a case that saw Google fined €4.34bn by the European Commission for breaching competition rules.

Headcount remained stable in 2018/19, with the number of lawyers rising by 18 to 2,923, while the partner ranks grew by four to 562 and equity partners by two to 394.

While adding 13 laterals over the financial year, CC also had to deal with the growing pressure for talent from US firms in the City. Its private equity capabilities were hit by two significant departures: deal star Amy Mahon quit for Simpson Thacher & Bartlett in November and infrastructure specialist Brendan Moylan left for Latham & Watkins in August.

Layton said the mood in the partnership was the best he had seen since starting in his role five years ago and concluded: ‘We have seen a pretty strong start to the financial year, but talking to clients there is a certain nervousness driven by the uncertainties and that brings cautiousness in their investment decisions.’