A&O awash with cash as £48m forex boost offsets soaring staff costs

A&O awash with cash as £48m forex boost offsets soaring staff costs

With Allen & Overy (A&O) comfortably leading its peer group in the 2016/17 reporting season, the release of its full accounts was always going to look rosy. As it is, the City giant’s limited liability partnership (LLP) filing demonstrates just how good business has been for its c-suite, partners, staff and the tax man with forex movements further supporting robust underlying growth.

Key beneficiaries include A&O’s management team, which saw a collective remuneration hike of 16% to £15.8m, according to its LLP filings. The Magic Circle law firm’s senior partner, managing partner, global practice heads and support directors’ combined earnings for 2016/17 compare with £13.6m for the previous financial year.

A&O’s highest-paid partner earned £3.5m for the year ending 30 April 2017, a 25% increase on last year’s £2.8m figure (though such numbers are often skewed by one-off payments or retirement benefits).

The increase corresponded with a 16% revenue increase in profit-per-equity partner to £1.51m, while pre-tax profits surged to £716m, a 27.4% increase on the £562m recorded for 2016.

This record result was somewhat tempered by soaring staff costs, up a striking £66m to £523m, underlining the impact of associate pay hikes on leading law firms. Other operating expenses reduced by £11m.

Staff numbers, however, have remained relatively stable, with lawyer numbers increasing from 2,327 to 2,382, while support staff fell marginally from 2,265 to 2,199. Its partnership was likewise little changed with full equity partners rising from 434 to 441.

The accounts confirm the dramatic impact of currency markets during the 2016/17 period, with a £48.2m boost attributed to swings in the value of sterling, putting average profit per full partner at £1.51m, an increase of more than 25% on 2016’s PEP of £1.2m. Without the forex gains, PEP would have been £1.4m.

Unsurprisingly, A&O’s balance sheet has been further bolstered. Its cash and cash equivalents increased from £113.7m to £170.8m, while the firm has £150m in unused bank facilities in place.

The firm estimates that it will ultimately contribute a total of £553m in taxes globally on the back of its 2016/17 revenues of £1.52bn, compared with £461m for 2015/16. Of that, £346m is derived from profits attributable to partners.

Such numbers are a reminder that not only is the UK legal industry a lucrative business but, thanks to the simplicity of partnership structures and the full distribution model, it remains a strong contributor to public finances compared to many industries. The neutral observer may wonder how the profession has, nonetheless, achieved so little recognition in Whitehall.