Herbert Smith Freehills (HSF) has become the latest international firm to post resilient turnover growth in the face of the Covid-19 crisis but increased operating costs and a drop in productivity saw profits tumble in 2019/20.
Revenues at the Anglo-Australian giant increased 2.5% to £989.9m, up from £966m last year when revenues grew 4%. However, profits saw a significant decline, falling almost 8% to £283.2m while profit per equity partner dropped almost 10% to £857,000 from £949,000 last year.
‘We’re very pleased with how resilient the firm has been,’ senior partner James Palmer told Legal Business. ‘Throughout Covid-19, the firm has performed ahead of expectations. Optimism is as high as it could be off the back of the robustness of the revenues.’
Recently installed CEO Justin D’Agostino (pictured) added: ‘There is a huge amount of optimism; there’s been significant growth in Asia, EMEA, and New York, all the jurisdictions where we wanted to grow. We have been pleasantly surprised at how well revenues have held up.’
The firmwide revenue growth came off the back of a 12% rise in the material output of EMEA while the firm’s deep Asia presence produced an 11% growth in turnover and bucked the global trend by growing profits 28%. The firm’s New York outpost also grew, with turnover up 27% while the firm’s New Law business lines were up 9%.
However, the growth in turnover were not enough to ensure a continued growth in profits, which grew a healthy 11% in 2018/19. Added Palmer: ‘Our revenue did not go up at the rate of our operating costs. If operating costs go up ahead of revenue, you have a dip. Our revenue performance was resilient but our cost base and productivity went slightly in the wrong direction.’
The firm has now fast-tracked existing measures to secure an increase in profitability, according to D’Agostino, who replaced the charismatic Mark Rigotti as CEO in the spring.
‘In some ways things are completely different and in other ways it reinforces the manifesto I came in on. What it has done is accelerate things we did not think we could get done in the first 12 months. Things like changing the culture so that people care for one another in a different way and other things like financial measures that Covid-19 has been a catalyst for.’
Look out for a full interview with HSF CEO Justin D’Agostino coming soon on The Legal 500 Podcast