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No personal best this year for Hogan Lovells as turnover and profits decline

As the financial reporting season kicks off once more, Hogan Lovells has today (22 February) reported a 7% drop in revenue to $2.43bn as PEP fell 8% to $2.28m.

This represents a $174m reduction to the firm’s top line and looks likely to set the mood for many Global 100 players as market forces continue to take their toll. The results mark a disruption to Hogan Lovells’ purple patch, following on from last year’s 13% revenue increase to $2.61bn and eye-catching 26% hike in PEP to $2.48m, as well as a solid showing on a three-year track.

UK revenue was $464m, down 13%, from $534m last year. Of this, $449m was generated out of London and $15m from Birmingham. The UK accounted for 19% of the firm’s total revenue compared to 21% last year.

The breakdown of revenues by region held steady, with the Americas accounting for 48% of income this year, compared with 49% in 2021/22, while EMEA’s share of turnover increased from 45% to 46%. Asia-Pacific, meanwhile, accounted for the remaining 6%, on a par with last year.

Despite widespread talk of an overall slowdown in transactions, the proportion of revenue generated by corporate and finance work dropped by only 2%, to 40%. The disputes practice was stable at 28%, while global regulatory and intellectual property, media and technology (IPMT) increased from 30% to 32%.

Speaking to Legal Business, chief executive Miguel Zaldivar (pictured) maintained that this performance was still strong: ‘This was actually our second-best year ever. Last year was a record year for us. Every star aligned, and we pushed forward and had great opportunities. This year is better than 2020 in terms of both revenue and profits.’

Deputy chief executive Michael Davison added: ‘It’s a bit like saying, sure, you hit your personal best last time, but on this race you missed it. Is that a problem? It’s still a very good result.’

Zaldivar noted that headwinds were particularly fierce in corporate work. ‘There was a slowdown in M&A and capital markets, that hit all firms in similar ways,’ he said.

Global financial instability also saw revenues when reported in Sterling increase from £1.9bn to nearly £2bn. ‘The main driver was currency’,’Zaldivar explained. ‘The British pound suffered a correction during the fiscal year.’

In the face of these external shocks, Zaldivar and Davison argued that the results show resilience, as well as stability in headcount. Said Zaldivar: ‘Some firms saw partner attrition. We didn’t.’ In fact, the firm announced the promotion of 38 new partners and 77 new counsel, which Zaldivar said was the largest class of partners ever promoted, up 40% from the 27 announced in 2022. These included the largest proportion of female partner promotions in the firm’s history, at 58%.

A list of standout mandates included advising Duke Realty Corporation on its combination with logistics real estate company Prologis, valued at $23bn. In UK M&A, the firm advised Shaftesbury in its all-share merger with Capital & Counties Properties, creating a combined portfolio valued at $5bn.

Davison said that the firm intends to continue with its sector-focused strategy: ‘When we’re looking to expand, we need to think about where our clients want us to be through the prism of our industry focus.’

‘Energy is going to really carry the day for us in 2023’, added Zaldivar, pointing to the increasing prominence of the sector in the context of both the ongoing energy transition and heightened concerns about energy security raised by Russia’s invasion of Ukraine.

Commenting on the US strategy, Zaldivar said: ‘We have what we call four engines. One is in Washington DC, and the others are in the EMEA market. But there are three markets where we’re working very hard to grow, and those are Texas, New York, and California. Our desire is to achieve greater scale, particularly in New York, where we aim to build a fifth engine. In New York, our main focus is financial institutions. In California it’s tech. And then in Texas it’s a combination of energy and life sciences.’

Neither Zaldivar nor Davison would be drawn on the rumours of an upcoming merger with Shearman & Sterling that persist in the market.