In review 2019: Strong financial performance underpins year of growth and innovation
We made strong progress in the year to 30 April 2019. That performance results from long-term investments over many years on behalf of our clients – in our international network, talented people, inclusive culture and innovative ways of delivering legal services.
Despite geopolitical uncertainty and signs of slowdown in some markets, client revenue grew by GBP75 million (5%) to GBP1.627 billion (USD2.129bn; EUR1.844bn) and profit before tax by 8% to GBP708 million (USD926m; EUR802m). Profit per equity partner is up 1% to GBP1.66 million (USD2.17m; EUR1.88m). Revenue was higher in every region across A&O’s global network, especially in Asia and other emerging markets. Multinational work continues to be a significant growth driver, with the firm’s top 50 clients advised by an average of 23 A&O offices. To place 2018 in a longer-term context, client revenue has risen by GBP370 million in the period since 2014.
Our long-term strategic focus remains unchanged. Clients are at the heart of everything we do. To serve them better, we have built an integrated global network and world-class legal and commercial expertise across our four main practice areas – Corporate and M&A, Banking, International Capital Markets and Litigation. We continue to lead the legal industry in developing new and innovative ways to deliver legal services within our Advanced Delivery & Solutions offering. This combination of global coverage, comprehensive legal capabilities and leadership in service delivery innovation gives A&O a unique perspective on the opportunities and challenges that lie ahead for in-house legal departments and law firms alike.
We also remain confident about the future. It is an extraordinarily exciting, dynamic and challenging time for the legal profession. New technologies, evolving client expectations, new competitors and an increasingly complex political and regulatory environment all mean that law firms must evolve. A&O’s scale, collaborative culture and innovative approach allow us to embrace these changes as opportunities rather than face them as challenges.
Highlights of 2018-19
Above all else, the year’s growth arises from the breadth and depth of A&O’s office network. Few firms have more than 20 international offices, with equally strong capabilities across major practice areas and an aligned approach. Our network of more than 40 offices around the world helps us to achieve more for our multinational clients and acts as a natural hedge for our business.
From a geographical perspective, Asia Pacific stands out. Two years ago, we reorganised the Asian offices to take a more regional approach. That reorganisation has clearly come to maturity as Asia grows its revenues quickly and gains market share. While we have local teams in each country, they are supported by specialists in the regional centres of Hong Kong and Singapore, which helps us to weather volatility in individual markets.
Turning to the four major practices, in Corporate and M&A our pipeline of transactions remained steady even as the M&A market slowed at the beginning of 2019. Our sweet spot is complex, cross-border transactions where few other firms can compete with our network. In 2018, we advised on five of the 10 highest value cross-border deals.
Banking, similarly, performed well. Investment in the leveraged finance team was rewarded by A&O’s rise in the Debtwire league tables in the US. The regulatory practice continued to grow. In addition, the asset, real estate and project finance groups all delivered excellent results. A&O’s project finance team is a leading advisor to firms financing the increasing number of infrastructure projects worldwide. It performed well in the UK, Asia and the US.
International Capital Markets also had a very good year, with notable performance from the collaterised loan obligation (CLO) team.
Our fourth major practice, Litigation, has strengthened its investigations capability globally and is developing a business and human rights practice to advise clients on the growing number of risks arising from environmental, social and governance factors.
Turning to A&O’s pioneering Advanced Delivery & Solutions offering, revenue grew by 20%. It is satisfying that clients recognise the value of Advanced Delivery & Solutions and that the complexity of the challenges that they face requires more ambitious, broader solutions over and above incremental improvements to old ways of working.
What we have achieved for our clients
Many of the transactions that we worked on during the year show how our long-term investments have led to success for our clients. Below are just a few of those that stand out around the world.
In Asia, for example, we advised the development financial institutions, and banks mandated as lead arrangers, for the region’s first integrated LNG-to-power project. Located in Indonesia, the Jawa-1 project is likely to be an important precedent for other LNG-to-power projects elsewhere in South and Southeast Asia. We advised on all aspects of the project documents, the LNG supply agreements and floating storage and regasification unit (FSRU) time charter agreements for the lenders. Our team also helped to navigate the complexities of an integrated project, with layers of project-on-project risk. Lawyers from A&O’s Jakarta, Tokyo, Singapore, Hong Kong and Seoul offices took part.
Looking to China specifically, we advised BMW on its EUR 3 billion acquisition of a controlling stake in its passenger car joint venture with Brilliance China Automotive. This is the first time a foreign car company has taken control of an automotive manufacturing joint venture in China.
In Europe, our Litigation practice represented the European Union (EU) and European Investment Bank (EIB) in a major multi-jurisdictional litigation against Syria, which had not repaid a series of EIB loans made in the 1990s and 2000s to fund various commercial projects. The English Court granted the EU summary judgment against Syria in a landmark case that made the procedure for serving English proceedings on a foreign state easier.
Finally, our ability to innovate on behalf of our clients was shown by the development of BrexitMatrix, an online workflow platform. Using auto-drafting technology, BrexitMatrix helps financial institutions to repaper a range of contracts to reflect changes in corporate structure arising from Brexit. The innovation was awarded a 'standout' rating in the new products and services category at the 2018 FT Innovative Lawyers Awards.
New ways of working
Our ambition to become the most 'advanced' law firm in the world is best illustrated by our continuing investment in our Advanced Delivery & Solutions offering, which looks to use innovative technologies and agile resourcing models to help our clients solve their challenges. A&O has a culture of constantly innovating to deliver services better for our clients.
A high point of the year was the launch of A&O Consulting, the first regulatory focused consulting practice to be launched by an elite global law firm. With new rules, changing regulations and continuously emerging risks, A&O Consulting is a direct response to requests from financial institutions and corporations to help them address regulatory scrutiny as well as adapt to new environments and embed new behaviours to improve performance.
Sally Dewar, formerly Head of International Regulatory Affairs at JP Morgan in London, joined the firm to lead the practice with a team of experienced industry professionals, former regulators and senior consultants. In the first eight months of its existence, A&O Consulting worked with 12 financial institutions, two regulators and several corporations.
A&O Consulting is the latest example of our bold approach to developing new solutions. Another outstanding example is Fuse, the collaborative tech innovation space where start-ups, our lawyers and clients collaborate to explore and test new legal solutions. Since Fuse was established in September 2017, it has attracted more than 8,000 external visitors, many of them clients.
What we have done for our people
We continue to make significant investments in recruiting and training the brightest lawyers. Our priority is to provide the best environment for them to develop the skills and experience needed to build fulfilling careers. Those who join A&O will find themselves working alongside the most respected lawyers in the profession, advising the world's leading organisations on their most important legal and commercial challenges.
A&O looks after its 5,400 people in terms of physical and psychological health. We have fostered a culture where employees can speak openly about mental health. Several offices have appointed mental health champions and the firm is piloting tools to help people look after their mental health.
Diversity and inclusion are strategic priorities. Following the introduction of the firm’s refreshed gender strategy in early 2018, there was a greater proportion of women in the latest round of global partner promotions. A&O’s continued global momentum around LGBT+ was recognised by the firm’s inclusion in Stonewall’s Global Index 2018. Moreover, we seek to ensure equal opportunities regardless of race and ethnicity, as indicated by a range of affinity group activity and the publication of perspectives from A&O people across the world.
What we have done for our communities
Our people delivered more than 132 hours of pro bono and community investment work every day last year.
Our award-winning partnership with War Child, a non-governmental organisation that helps children in conflict zones, came to an end after raising more than GBP1.5 million over two years. We launched a global partnership with Hope and Homes for Children, which works to replace institutionalised care in orphanages with family life through foster homes or adoption. To date, the firm has raised GBP500,000 for the charity, with a target of GBP1 million in two years.
The year ahead
We remain focused on delivering our strategic goals. The likelihood of market volatility is rising in line with geopolitical friction and trade protectionism. Additionally, changing client expectations and the disruptive power of new technology are challenging the legal profession’s traditional ways of doing business.
A strategic priority for the year ahead will be to accelerate our investment in the United States so that we can continue to extend and strengthen our global platform.
Within the firm, we plan to move even faster on diversity. It is a top priority for A&O's leadership team. We remain steadfast in our commitment to building an even more diverse and inclusive culture. We have a clear strategy in place and we will continue to invest in initiatives that will advance our progress towards achieving this crucially important goal.
Recognising the need to adopt smart solutions, we are also seeking to make our people more comfortable with taking the risks that are needed to develop new approaches, some of which may fail, but without which we will be unable to remain at the forefront of innovation in the industry.
A&O’s long-term investments in having the best and brightest staff, a pre-eminent international network of offices and broad spread of practices, mean we are well positioned to weather turbulence. We will stay close to our clients and be sure to serve their needs.
Wim Dejonghe, Senior Partner
Andrew Ballheimer, Managing Partner