Legal Business Blogs

Linklaters first magic circle firm to post financials with revenues and profits flat

The first Magic Circle firm to release its financial results, Linklaters posted a 1% rise in revenue to £1.27bn as it struggled to capitalise on the return to form of its heavyweight corporate team in London.

Despite a strong showing in London and a much-improved performance in Asia, where the firm advised on the $26bn merger between Chinese rolling-stock giants CSR and CNR, the firm added just £11.6m to its turnover in the 12 months to 30 April. Profits per equity partner (PEP) rose 2% from £1,340,000 to £1,368,000.

Growth at Linklaters has been more subdued than in the 2013/14 financial year, when the firm posted a 5% rise in revenue and PEP picked up by 6%.

As will inevitably be the case with most of the London-based global elite, the last financial year saw the firm hit by a weak euro affecting its significant European practice. It has continued to struggle to make significant headway with US clients after a prolonged pursuit of Fortune 500 corporates that included a launch in Washington, DC at the end of 2012.

Nonetheless, net profit rose to hit a record high, up 3% from £557.3m to £573m. The previous record was set in 2007/08, when Linklaters’ equity partners shared out £564m. Revenue remains some £27m behind the firm’s record-breaking 2007/08 financial year, with PEP also still below pre-financial crisis levels.

Simon Davies, Linklaters’ managing partner, told Legal Business: ‘[The partners] appear content. I take comfort in the fact we’re up in sterling terms. If exchange rates stay as they are, then we’re going to be looking to build off our growth this year so that we continue to rise in sterling. If we were sitting here looking at negative growth at a sterling level then you’d be more concerned. There isn’t a lot you can do about currency but if you look at the strength of the underlying business it’s 5% up in revenue and 5% up in profits. That’s what one should focus on in determining whether the firm is performing well or not.’

Davies added: ‘We’re supplying about 1% of the legal services market so the scope to grow is significant. I accept that growth will be at the cost of someone else but that was more true three years ago than it is today. Even though we’re not seeing growth of the same level as we experienced pre-financial crisis there is still growth in the market. We feel we’re doing well in client wins, which should result in market share growth, and we will enjoy that together with taking some of the growth in the legal sector at large. We enter this new year with good momentum.’

While the firm did grow its lawyer headcount to 2,601 people, the size of the partnership slipped slightly to 450. The firm also slowed down on lateral hiring in the last year, with just four lateral hires coming in compared to the 14 it brought in last year, and has been hit recently by a series of exits, including head of real estate M&A Matthew Elliott to Kirkland & Ellis and projects partners Matthew Hagopian and Manzer Ijaz to Milbank, Tweed, Hadley & McCloy .

The results follow blistering results released by a host of US firms for the 12 months to 31 December 2014, with Latham & Watkins adding a staggering $327m to its top line to $2.61bn, Kirkland & Ellis bringing in an extra $134m and Gibson, Dunn & Crutcher earning an additional $79m.