Legal Business Blogs

In flux: Herbert Smith Freehills cites forex impact as accounts slice £38m off the top line

With complex structures and global operations, it has become increasingly difficult to benchmark financial performance of major law firms… which is why it is often revealing to compare public accounts to initial disclosures. 

The latest case in point is Anglo-Australian giant Herbert Smith Freehills (HSF), which has just confirmed 2015/16 revenues nearly £40m lower than its initial disclosure, citing the dramatic impact of fluctuating currencies over the year.

The firm’s limited liability partnership (LLP) accounts for 2015/16 show global revenue increased by 4%, from £802m to £832m, compared to an increase of £55m reported by the firm last July for the same period on a constant currency basis. At the time HSF put its global revenues at £870m.

The LLP accounts show net profit increased annually by 6.5% to £238.1m, which helped fund the firm’s globalisation efforts, with openings in Dusseldorf and Riyadh in November coming a month after the launch of its first African arm in Johannesburg. Full-year headcount was up 5% to 4,073, including a 7.5% increase in fee earners from 2,154 to 2,317.

A HSF spokeswoman said: ‘The figures we provided in July 2016 compared the performance of our business on a currency neutral basis, we translated non-sterling revenue and expenses to sterling at the same foreign exchange rates for 2016 and 2015. Otherwise, we would have significantly undervalued the economic contribution of non-UK offices, which account for around 55%+ of revenues.’

The latest LLP accounts also show the highest-paid partner took home £1.6m last year, a drop of 12% from 2015, when this was £1.8m.

The members’ report highlights the disputes practice as having had ‘an exceptional year’, and notes that the corporate practice ‘advised on over 100 cross-border deals totalling $100bn’. The firm last year saw a number of major panel appointments including National Grid, Bank of Queensland, British Land and Royal Bank of Scotland.

HSF is relatively unusual in reporting its finances on a constant currency basis, though the firm’s results are hard to benchmark given the sharp swings in recent years in the relative values of sterling, the euro and the Australian dollar.

Accounts from Freshfields Bruckhaus Deringer last week showed a similar gap between initial results and revenues under LLP accounting, with exchange rate differences taking £40m off its top line for 2015/16.

With HSF’s former co-CEO Sonya Leydecker standing down from the position last week, the partnership is now solely led by Mark Rigotti after the firm announced last year that it would phase out the joint leadership model it inherited from the 2012 union of Herbert Smith and Australian leader Freehills.

For more analysis on the firm, see Taking over – one leader at HSF but is the culture clash over? (£)