26 Feb 2013 09:40am

RSM Tenon reduces losses as it issues covenant warning

RSM Tenon has hailed “huge progress” made in the last year, despite reporting an operating loss for the last six months this morning

Tenon said it is to continue its “focus on cost efficiency” as it reported an underlying operating loss of £0.6m and a £9.8m drop in revenues to £88.4m for the six months ended 31 December 2012.

Underlying EBITDA returned to a profit of £1.5m (compared with a loss of £8.2m in the same period last year), which the group says is a sign of the success its restructuring programme.

However, the group has warned there is a “significant risk” it will breach its banking covenants within the next year if it cannot renegotiate the facility with its lenders.

Tenon says it is in discussions with its sole lender, Lloyds, to reset the facility but warns that “to date Lloyds has not agreed to this reset” despite continuing to be “supportive of the continuation of the Group as a going concern.”

Although Tenon kept its net debt within the new facilities of £93.0m it negotiated in October last year, borrowing was £80.4m, up from £76.5m in 2011.

Although cautiously optimistic, overall the group hailed success, saying it has made “huge progress” in the calendar year of 2012, and has made “significant action to reduce costs, control cash and restructure the business.”

Tim Ingram, chairman, said, “The significant progress in turning RSM Tenon around is evidenced by these results. The business is now smaller, better organised and properly managed. In a challenging market, we still have much to do, but the direction has been clearly set."

Revenue was down across all service lines for the six month period, with a 9.2% drop (£5m) in revenue across ATA, which comprised 54% of the business. Despite this the service line made a profit of £6.9m for the period against a loss of £0.4m in the same period in 2011.

The group said this balance is because of the “market remaining tough for our services and as we continue to experience pricing pressure. Transactional services continue at historically low levels."

Earlier this week it was confirmed that Peter Musgrave, RSM Tenon’s head of audit and tax and London managing partner, had left the firm. Across ATA, the group said today, headcount cuts have led to “considerable efficiency gains.”

With effect from January, the group has restructured its ATA service line into two lines; Audit, Accounts and Outsourcing (AAO) and Tax.

The recovery arm saw a 21% drop in revenue, which the accountancy firm attributes to “recent trends in the industry.” Tenon said it had "taken action to reposition the cost base and the benefit of this should be seen in future periods.”

The financial management service line remained unprofitable with a loss of £0.6m (£0.9m in the same period in 2011).

Chris Merry, chief executive, said,"Markets for our services remain tough and I am grateful to our clients and staff for their continued loyalty. We are delighted that the business is returning to operating profitability and now seek a period of stability to move into a growth phase for RSM Tenon."

The group’s headcount has been reduced by 500 in the last year, which it says has mainly been achieved through attrition rather than redundancy. Tenon did sound a warning that the redundancy programme may not be over yet, saying “we approach any further reductions in staff with extreme care.”

However, the group said it has continued to recruit, with 247 new members of staff joining in the first six months of the financial year.

The group also said it is planning to further reduce costs through its property portfolio, but warned that this can only be implemented over the medium to long term.

The firm will be hoping this starts to turn the tide of negativity surrounding it, after an eventful few years, including a £100m loss in 2011/12, high turnover at the top end of the company, a severe reprimand and fine from ICAEW and a row with its auditor PwC which involved restating its 2010/2011 acounts, reducing revenues by £4m.

In its first quarter interim management statement issued in November, Tenon warned that turnover had been at the lower end of management's expectations. Today it said the same had been true of the second quarter, although it had been a period of higher activity.

Within the period the group has made a number of board changes; namely appointing David Jeffcoat as chairman of the audit committee in July and appointing Nicholas Page as chairman of the remuneration committee in October.

The statement concluded, “There is still a lot to do but significant improvements have been made, on which we intend to build.”

Helen Roxburgh


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