Cobbetts posts a profit despite prior reticence
22 February 2010 | By Matt Byrne
10 February 2010
30 January 2013
4 Feb 2013
23 January 2009
5 March 2007
When Cobbetts filed its long-awaited LLP accounts a few weeks into this year, it closed a mysterious chapter on the firm’s history.
Last September Cobbetts featured prominently in The Lawyer UK 200 Annual Report. In stark contrast with the industry norm, managing partner Michael Shaw refused to divulge the firm’s profit.
“You won’t be receiving a [profit] figure,” he barked. “Goodbye.”
Partly as a result of Shaw’s comment, but coupled with a turbulent period for the firm, rumours had plagued Cobbetts that it was on the point of going into administration and, critically, that it had made no profit during the 2008-09 financial year.
However, Cobbetts’ LLP accounts reveal a financial picture better than either Shaw’s reticence or the market rumours suggested.
As one City partner put it when the news first broke earlier this month: “These aren’t great results, but they’re not a basket case either.”
First off, Cobbetts made a profit. The firm posted an operating profit of £9.38m, down by 38 per cent on the previous year’s £15.1m. The profit before members’ remuneration and profit shares dropped further, by 44.5 per cent, from £16.4m to £9.1m.
With an average of 95 members during 2008-09, that works out at £96,000 each. In a year when most firms, including Cobbetts, have been going all-out to slash headcounts, the firm’s average number of members actually grew by 17 per cent, from 81. Cobbetts’ highest-paid partner took home £257,000 last year.
According to BDO Stoy Hayward head of professional tax services Colin Ives, the accounts reveal that Cobbetts’ borrowings increased last year partly as a result of paying out the balance of the prior year’s profit to its members.
Total members’ interests as at 1 May 2008 stood at £16.1m, but after paying drawings of £14.7m that dropped to £10.7m.
“It looks like a classic situation faced by firms last year,” said Ives. “Paying out partners the balance of undistributed prior year’s profit. The problem is if it hasn’t been replaced by current year profit, therefore reducing the funds available for the business, resulting in a need to increase funding from the bank.
“Fortunately for Cobbetts the bank’s been supportive and must understand their business case for additional funding.”
A spokesman for Cobbetts said partner drawings were funded by an improvement in working capital, including a reduction in debtors of £5m, and retained profit.
But while Cobbetts did manage to post a profit, the firm’s debt has been growing apace. During the 2008-09 financial year net debt was up by 60.3 per cent, from £7.17m to £11.49m, while total cash at bank and in hand decreased by 87 per cent, from £587,000 to £78,000.
Bank overdrafts due within one year fell from £4.8m to £2.6m, but bank loans due within one year went up from £1.6m to £8m.
Cobbetts’ borrowings included a post-balance sheet facility from RBS secured by a debenture for its wholly owned debt recovery subsidiary Incasso.
In the notes to Cobbetts’ accounts the firm highlighted the slowdown in the economy as having had “a severe impact […] with an obvious detrimental effect upon turnover and profit.” (Cobbetts’ turnover fell by 20.6 per cent, from £59.79m to £47.5m last year.)
The notes continued: “One half of identified cost savings was removed in the year with the balance becoming effective in 2009-10.”
One City partnership expert expressed surprise at the speed with which Cobbetts has managed to reduce its costs.
“The key question is, how has Cobbetts managed to take out so much cost that quickly?” said the partner.
One cost saving was apparent in the accounts. Cobbetts flogged off a company car for £8,000.