Office move dampens Rainy City’s profits

RAINY City Investments, the parent company behind Peter and Fred Done’s employment law advisory firm Peninsula Business Services, saw its pre-tax profits drop to £1.8m in the year to March 31, 2010 (2009: £4.7m).

The company incurred additional costs during the year as it effectively leased two buildings during the fit-out phase of its new Peninsula building headquarters at Manchester’s GreenQuarter – the £48m office complex which is also owned by the Done brothers.

The company signed the lease on the 147,000 sq ft building in September 2009 but did not complete its move into the building until July 2010 and in the intervening period paid rents on both buildings.

Rainy City Investments has leased the whole of the 12-storey building from the Done Brothers and occupies seven floors. The top three floors have since been sublet to Laterooms.com and property consultancy DTZ has been appointed to market the remaining three floors.

Operating profits at its main trading subsidiary, Leaguename, dropped to £10.8m from £13.6m in 2009 which finance director Peter Swift said was partly due to the fact that it had to write off debts from some SME clients which were no longer trading.

“A lot of clients hit financial difficulties and where possible we’d sit down and try to work something through with them,” he said.

Swift said that given the economic climate the firm was operating in, the fact that it managed to increase turnover by 1% to £76.5m was a credible achievement. He added that since the year end client retention rates had improved as the economy had stabilised and fewer companies had gone out of business.

He added that the company’s strategy moving forwards would be to continue its policy of developing different revenue streams so that it is not as reliant on employment law advice.

For instance, Swift said that its Taxwise offer – a fee protection insurance business insuring accountants and their clients against HMRC investigations – had “gone very well” as a relatively new business line and was now responsible for around £10m of the company’s total sales.

“It’s a very neat business,” he said.

Similarly, he added that the company would like to expand its health and safety offer to develop insurance policies and incentives to employers in the construction industry which could “improve employers’ relationship with staff.”

“We’re seen as one of the innovators in the industry and we want to keep that reputation up.”

Peninsula Business Services was started in 1983 following an employment law dispute that the brothers had with a former worker in one of the family’s betting shops.

Rainy City Investments was a new parent group created to buy the assets of Leaguename in April 2008 in a deal which valued the business at over £200m.

The deal allowed the brothers to take out £30m in cash ahead of changes to the capital gains tax system. A further £96m of payment was taken as shares in Rainy City Investments, while the remaining £74m is deferred consideration owed by the firm to the brothers.

The loans, which are interest-free, mean that the company currently has debts of £98.1m – an increase of £6m on the prior year.