Kennedys' net debt doubled in 2011/12 as result of tax loan
Kennedys’ net debt at 30 April 2012 was almost double what it was at the same date in 2011, as the firm took out a tax loan for the first time to ease the pain of paying a lump sum in January.
Nick Thomas
Net debt at Kennedys at 30 April 2012 was £18.4m, according to the firm’s LLP accounts, up from £9.5m at the same point in 2011. Similarly, bank loans and overdrafts at the firm increased from £5.8m to £15.7m between 2010/11 and 2011/12.
Kennedys senior partner Nick Thomas said that the increase in debt was due to continuing IT expenditure and the firm’s decision to take out a tax loan to pay its January tax bill. Thomas added that tax loans were increasingly common practice among partnerships and protect firms from having to fund a lump sum payment, which would be somewhere around £6m for Kennedys.
At the same time, Thomas confirmed to The Lawyer that Kennedys was still in talks about a potential tie-up with PI and insurance focused Scottish firm Simpson & Marwick, news of which first broke in November 2012 (21 November 2012).
Kennedys’ highest-paid partner meanwhile received £518,520 in 2011/12, according to the LLP accounts. That figure is down from £541,739 in 2010/11.
Overall, Kennedys was in growth mode in 2011/12. Turnover broke through the £100m barrier for the first time, rising from £96.8m to £109m as average staff numbers rose from 709 to 835. Likewise, the number of equity partners at the firm, where average profit per equity partner is £390,000, was 53, up from 49 in 2010/11. The average number of non-equity partners at the firm in 2011/12 also grew, from 95 to 105.
In the firm’s LLP accounts, management stated: “New offices have been opened in Ireland and Portugal during the year and the members plan to continue to expand the group in the forthcoming period.”
Readers' comments (6)
Anonymous | 30-Jan-2013 2:35 pm
In this climate its good to be able to pay tax.
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Anonymous | 30-Jan-2013 5:43 pm
I agree with Anon 2:35 - as an EP of a large firm, news of Cobbetts sent a shudder down my spine. Thankfully, my firm is run on a prudent financial basis, but it does call into question the strategy of chasing turnover and L100 rankings at any cost. Average PEP of £390k is all well and good, but this firm really shouldn't need to pay it's tax bill through loans...
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Anonymous | 30-Jan-2013 11:00 pm
But is it good in this climate to borrow to pay tax.
What happens when the Lenders say "No"?
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Anonymous | 2-Feb-2013 12:23 pm
Is it good to be taking on so much debt to pay a tax bill? Looks to me that Kennedys are involved in a high risk strategy. Will it pay off? Let's hope they continue to maintain cash flow and have supportive banks and it could do.
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Anonymous | 8-Feb-2013 11:56 am
Oh dear! This doesn't look good. Borrowing to pay the tax man is the equivalent of borrowing to pay the partners - the cardinal sin of law firm management. £15.7m of debt against £18.8m of profit is an awful debt:profit ratio at 84% - second only to Beachcrofts at 150% and third to Clydes at 69%. What is it with these 'expansion at all costs' insurance firms. It's a race to the bottom ...
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Banker | 8-Feb-2013 5:27 pm
Their cash decreased by £9m over the previous year - that includes £3.7m less cash generated by the business and £6.5m more cash paid out to the partners. That's why a further £10m was borrowed. That's not a cashflow blip - it's rescue funding. Because if you don't pay the partners, they walk. A dangerous situation, to be watched very closely.
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