Legal Business Blogs

LLP accounts: Pension costs hurt CC profits as A&O leadership sees pay increases

Operating profit at Clifford Chance (CC) UK LLP fell 5% to £260m in the year to 30 April 2019 amid rising pension costs while management at City rival Allen & Overy (A&O) saw a 8% pay rise to £16m, the two firms’ recently published accounts have revealed.

The fall in profits at CC’s LLP – which includes its UK headquarters and eight of its overseas branches – came despite a 4% global revenue increase to £1.693bn as the firm added £70m to its top line.

Operating profit from all of the firm’s 32 offices rose by just £2m to £628m, with the accounts showing a £11m loss in relation to its global pension scheme. The firm’s pension deficit stood at £284m at the end of the financial year, slightly up on £283m the previous year. The firm aims to eliminate the deficit by the end of May 2026, with £17m to be paid into the scheme in the current financial year.

Overall staff costs rose 8% to £766m, while staff costs in the firm’s UK, Abu Dhabi, Amsterdam, Beijing, Brussels, Dubai, Moscow, Seoul and Shanghai branches (which are part of the LLP) rose 17% to £104m, as pension costs in those offices tripled to £6m.

Average staff headcount grew by 200 to 6,208 overall and by 94 to 957 in the LLP. CC’s highest-earning partner received £3m, while the remuneration of the 13 members of the firm’s executive leadership group was £22m; both figures were flat on the previous year.

CC’s accounts also provided a breakdown of the income from different groups of the firm’s clients, showing progress on managing partner Matthew Layton’s long-stated aim of reducing the firm’s reliance on banks. Billings from financial investors rose 8% to £519m, while banks provided £550m, up 4% on 2018, and corporates £624m, up 2%. It means banks accounted for 32% of the firm’s revenue, down from around 50% ten years ago.

Speaking to Legal Business last year, Layton (pictured) said: ‘We saw from December [2018] onwards some volatility resulting from the geopolitical environment: China-US trade wars, slowdown in China and Eurozone growth and the US shutdown and continued uncertainty [over Brexit]. Despite that we had a very strong year.’

Meanwhile, A&O benefited from a foreign exchange gain of £9m, which contributed to 5% revenue growth to £1.627m from £1.552m in 2018, as well as an 8% uptick in pre-tax profit to £708m from £653m the previous year. Profit per equity partner (PEP) was up 1% to £1.66m from last year’s £1.51m, excluding foreign exchange gains and last year’s £21m in exceptional property costs. The firm highlighted more than 20% revenue increase in its Advanced Delivery & Solutions businesses as well as strong performance from its banking, corporate and ICM practices.

After an arduous year involving failed transatlantic merger talks with O’Melveny & Myers, the firm’s management team, including senior partner Wim Dejonghe and managing partner Andrew Ballheimer took home £16m, an 8% increase on the £14.8m they earned the previous year.

The results were slightly marred by staff costs inflated by £49m to £610m from £561m in 2018 due to headcount and pay increases while other operating costs were down by £5m to £308m as the exchange gains kicked in.  Revenue rose across the board geographically as the UK generated £633.3m, up from £620.1m in 2018; continental Europe generated £512.5m, up from £491.9m last year; Asia Pacific’s income increased to £244.5m from £221.7m; the Americas generated £136.4m (£129.4m in 2018); and Middle East and Africa saw an uptick to £100.2m from £89m.

The partnership saw a slight decrease in headcount to 536 from 538 while the number of fee-earners increased to 2,517 from 2,434 in 2018.

The firm had unused committed bank facilities of £150m. Partners’ capital contributions totalled £138m compared with £134m last year and subordinated loans totalled £56m compared with £56m last year.

On the day election fever struck the UK generally, the firm announced on 12 December Dejonghe would be standing for a second term as senior partner, up against Philip Bowden, the City giant’s well-regarded banking co-head. The managing partner spot is more hotly-contested after Ballheimer said earlier that month he would retire from A&O at the end of his current term on 30 April 2020.

The London candidates are global head of projects Gareth Price and litigation head Karen Seward, two high-profile figures who will be considered serious propositions. Vicki Liu, the managing partner of Hong Kong and APAC and regional head of banking, has also thrown in, as has Dirk Meeus, the Belgium managing partner and co-head of global corporate in Brussels.

The board comprises Dejonghe, Ballheimer and six independent partner directors: Paris-based Laëtitia Bernard, Denise Gibson, David Lee and Daniel Shuman in London, Christian Saunders in Dubai, and Tim Stevens in Amsterdam. Pamela Chepiga in New York and Roger Lui in Hong Kong are the two co-opted board members.

The executive committee is made up of Dejonghe, Ballheimer, David Benton, Bowden, Ian Ingram-Johnson, Astrid Kruger, Liu, Meeus, Seward and Barbara Stettner.