Herbert Smith Freehills saw its annual profit fall by almost 8% in the financial year ending 2020 despite recording a slight increase in revenue.

The firm posted profits of £283m, down from a record high £306m in the previous financial year. Profit per equity partner was down nearly 10% to £857,000, from £949,000 a year earlier. Revenue, however, was up 2.5% to £990m, and HSF’s new chief executive officer, Justin D’Agostino, was positive about the firm’s underlying strengths as a result.

D’Agostino called the revenue rise “encouraging”, which underlined the firm’s core strengths. And while profit was down, it was the firm’s second highest earnings on record. But for the pandemic, revenue would have been stronger, he added.

The regional side of the business had brighter news away from London, Melbourne and Sydney. Europe, Middle East and Africa—which has seen many lateral hires—saw revenue up 12%, although profit was undisclosed. The firm’s growing US arm, with renewed leadership, saw revenue up 27%. 

Asia—where the firm concluded a joint venture with Chinese firm Kewei—saw revenue up 11% and profit by 28%, with work ahead for new China managing partner, May Tai, and new regional leadership.  

D'Agostino noted that while the pandemic had caused “significant adjustments”, he praised the firm’s response to the crisis, as did James Palmer, the firm’s senior partner. They also commended client support for having developed pandemic-proof working practices, even though Covid-19 had posed “significant challenges”.

As global head of disputes, D’Agostino had always championed opportunity, diversity, flexibility and new ways of working. Those lessons have been taken up by the wider firm, which recorded its strongest partner round in eight years in April. 

Hence why, having succeeded Mark Rigotti in the role in May, he said: “We are fortunate that with high pre-existing take-up of agile working in many of our markets, we were able to transition smoothly to the current situation.”

While keen to praise both transactional and disputes practices equally, reflecting diplomacy in his new role, he noted that the expected progress in the second half of the year had been stalled by Covid-19, which had hit, and then froze, deal markets.

Perhaps more concerning, however, were increased operating costs and a fall in productivity. With no room for complacency, D’Agostino said the firm’s new leadership team would “take a fresh approach to driving change and stronger performance,” which included a sharper focus on productivity and profitability. 

That, he said, would include more digital transformation in the firm’s business and service lines, echoing one of Rigotti’s priorities as the outgoing CEO, something Palmer also praised the Australian for, saying Rigotti had “made key progress in professionalising our firm and providing bedrock for the period ahead.”

Central to that process will be lessons from the firm’s alternative legal services offering, which posted 9% growth, saw its second partner appointed, and now spans 11 centres and 350 staff, as well as harnessing digital technology in practice areas.

Palmer, like D’Agostino, stressed the need to develop the firm’s culture and engagement with staff. That last piece mirrors lessons learned elsewhere, as both Clifford Chance and Allen & Overy have recently stated the same, but the challenge for HSF will be to balance culture with “accelerating changes and outcomes for our firm,” Palmer said.

Engagement and inclusion will be fundamental if the firm is to exceed last year’s performance, but as D’Agostino acknowledged: “The year ahead remains unpredictable, but there are reasons to be cautiously optimistic,” saying further growth was encouraging. 

That, he said, gave him and the firm confidence to manage uncertainties ahead.