Legal Business Blogs

Linklaters fails to keep pace up with profit growth as revenue breaks £1.5bn

Linklaters has posted a mixed bag of financial results as revenue grew by a solid 6% to pass the £1.5bn mark but profits have failed to keep pace, increasing by just 2%.

As the last of London’s big four to announce its 2017/18 results, the revenue increase to £1.52bn means the Silk Street firm is the fastest-growing of the pack in sterling terms this time around, adding £85m to its top line. But profits per equity partner (PEP) rose to just £1.54m as the firm failed to translate the revenue growth into a comparable increase in net income.

Pre-tax profits stood at £676.2m, up 2% in sterling terms on last year’s £664.4m. Financial performance is less flattering on a constant currency basis, with revenues and profits up by 5% and 1% respectively.

However, managing partner Gideon Moore told Legal Business the mood within the firm is upbeat: ‘I was very pleased with the financial performance. The increase in revenue was good and it’s an indication that the clients are supporting what we are trying to do.’

He added he was particularly happy about being able to post a solid revenue growth in the first year since the firm’s strategic overhaul, which increased the focus on team performance over individual metrics. He also said the performance was consistent across the firm’s global network.

The good news for the firm was that revenue has grown faster than last year, when it was up just 2% like-for-like to £1.44bn but PEP growth was much stronger, up 8% to £1.51m.

On the weakened profitability this year, Moore pointed to significant investments made by the firm in a number of areas, including the joint operations agreement with Shanghai firm Zhao Sheng .

On the work front, Linklaters can certainly list a number of achievements in the past year. The firm acted on several big mandates, including the £6bn sale of Unilever’s spreads business to KKR , the £3bn Sainsbury’s-Asda merger  and Bain Capital’s $18bn acquisition of Toshiba Memory .

It also pulled off some significant European lateral hires, including Latham & Watkins’ co-head of investment funds Tom Alabaster in London , Allen & Overy’s veteran Neil George Weiand in Frankfurt  and Italian rainmaker Roberto Casati in Milan.

Overall, the firm did not see significant change to its headcount in the past financial year, with the total number of lawyers up by 14 to 2,720 and the number of equity partners flat at 440 compared to last year’s 441. Total partner number was up by five to 460.

Yet what makes the results less pleasing for the firm is the fact that its PEP growth compares unfavourably to City rivals Freshfields Bruckhaus Deringer and Clifford Chance, which following similar growth in revenues recorded a 12% rise to £1.734m and a 16% hike to £1.596m  respectively.

A&O’s growth was also less spectacular, with the firm hiking both revenue and PEP by 4%, but on a whole, this year’s results mean Linklaters’ PEP remains the lowest within the Magic Circle.

With leading US players continuing their advance and a number of mid-tier operators posting an impressive set of results, it looks increasingly clear that the booming transactional activity of late is if anything reducing the gap between the London elite and a number of fast-growing UK players.