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DAC Beachcroft has the highest level of year-end borrowings among those that provided data in this year’s UK 200: Financial Management report, which was published yesterday.
The firm had total borrowings of £21.689m and £20.015m net debt at the end of the 2015/16 financial year. This is a reduction of 13 per cent from the £25m total debt DAC Beachcroft had at the end of the 2014/15 financial year and 50 per cent from three years ago, when total borrowings stood at £43.4m.
DAC Beachcroft managing partner David Pollitt said the primary reasons why the firm’s borrowings reduced last year was its ongoing improvement in working capital management, which has seen a reduction in lock-up of 25 days resulting in improved cash-flows. At the last year-end DAC Beachcroft’s lock-up was 141.6 days, down from 149 the previous year and 161 three years ago.
“Moving into this year, we’ve continued to reduce our net debt significantly,” said Pollitt. “In fact, over the last 12 calendar months, we have reduced our net debt by £13m.”
Pollitt said that in terms of how the firm’s use of debt fits with its overall strategy, one of its key strategic aims is to achieve operational excellence.
“Therefore our reduction in net debt is helping us to achieve this important objective,” said Pollitt. “It fits with our focus on performance improvement and our strategic drive to create long-term, sustainable value.”
Mishcon de Reya is second in this year’s table with total borrowings of £20.5m and net debt of £10.3m while Gowling WLG had total borrowings of £19.22m and net debt of just £5.4m.
At the other end of the scale both Addleshaw Goddard and Scottish firm Brodies had significant cash balances at the 2015/16year-end, respectively £26.8m and £15.9m.
As Bill Drummond, Brodies’ managing partner, put it: “Firms can borrow to invest, get other external capital or, as we have tended to do, use their own balance sheet if it carries sufficient cash. The key thing for us is a focus on getting a return on investment that will sustain profitable growth and, ideally, be cash as well as profit-generative in the medium as well as long term”.
Drummond said Brodies had always preferred to “live within its means rather than borrow”, adding that it finds that using its own money helps to ensure that it works at making investments that are relevant to its market and business strategy.
“Some obvious examples from the 2015/16 year would be the increased headcount across the business, our new office in Glasgow to provide great facilities for our clients and people, and our new hosted, online services supporting clients looking to streamline employment advice and contract data,” added Drummond.
Commenting on his firm’s positive cash balance, Addleshaws’ CFO Colin Brown highlighted the 12 per cent increase in total fee income the firm had delivered in 2014/15.
“On the back of another strong year in 2015/16 we managed to deliver a material improvement in profit and cash despite continuing to invest massively in IT, laterals, two new offices in Leeds and Manchester, as well as bonuses and pay rises in recognition of strong contributions across the business,” said Brown.
Overall this year’s sample of firms was split almost exactly down the middle in terms of whether their total year-end borrowings increased (47 per cent) or decreased (53 per cent).
The firm with the most significant reduction in total borrowings last year is Bond Dickinson, which last year reduced total borrowings by £4.7m, or 32 per cent.
In contrast, Watson Farley & Williams’ year-end borrowings rose by £13.4m or almost 300 per cent.
Watson Farley co-managing partner Chris Lowe said the primary reasons why the firm’s borrowings increased last year included the total refit of its London office and the move to larger new premises in New York.
“We fund these types of projects from borrowings and not out of cash flow, in order to spread the burden of this fairly between the partners over a period of several years,” added Lowe.
This is an extract from the UK 200: Financial Management report, which includes data on around 130 firms as well as a number of in-depth profiles.
To purchase the full report please contact Richard Edwards on 0207 970 4672 or at Richard.email@example.com
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