Net debt rises to £80.4 million as business cuts 500 staff in effort to reduce costs by £14m a year
Accountant RSM Tenon has reported a £10 million loss for the first six months of the financial year.
The firm said: “Against the background of a flat UK economy, the market for our services remains challenging and highly competitive,” with price pressures on core services and lower demand continuing to impact on revenues.
In unaudited first-half accounts, RSM Tenon reports its current net assets per the interim accounts stand at £40.4 million, though this includes intangible assets valued at £104 million, which are subject to annual review.
RSM Tenon's share price fell nearly five per cent in early trading today and the group's market capitalisation stands at £19.35 million.
In March 2012, RSM Tenon - which employs around 280 people in Scotland at offices in Glasgow, Edinburgh, Aberdeen and Inverness - booked £60.7 million in write downs and charges for its UK operation for the first half.
Total losses for the first half of 2011 ran to £71 million.
In response, the firm announced it would implement a cost reduction plan which would see it reduce its 3,000 strong workforce by 10 per cent in an effort to reduce costs by £14 million a year.
The interim results posted today show operating costs – excluding one-off costs and write downs – were reduced by 18 per cent to £86.9 million.
However, net debt rose to £80.4 million, up from £76.5 million on the same period a year earlier.
RSM Tenon also announced in March 2012 it was restating its 2010 annual accounts for the previous year - reducing profits by £12.1 million –due to "significant errors and changes in accounting policy" linked to how it books referral fees.
The issues relate to full-year accounts for the 2010 year when the firm posted a pre-tax profit of £27 million.
RSM Tenon's auditors of its first-half 2012 results, PwC, also issued a going concern warning against the firm.
In that same March 2012 market update, RSM Tenon said it had reached an agreement with its sole lender, Lloyds Banking Group – which also holds a 10 per cent stake in the firm - to continue with an £88 million lending facility agreed in 2011 until October 31, 2012.
Lloyds had also agreed to suspend covenant tests until the end of October 2012.
RSM Tenon stated in that March 2012 update: "The group currently does not have any committed lending facilities available beyond October 31, 2012.
"Should the group find either that the headroom under this facility is not sufficient or that it is not able to secure appropriate funding beyond October 31, 2012, then at that time the group may no longer be a going concern."
In latest first-half results posted today, RSM Tenon said its present net debt and subsidiary overdrafts are “adequately covered by current bank facilities of £93 million”.
The new term loan facility was agreed with Lloyds in October 2012, made up of a £50 million term loan to December 2014; £20 million term loan to December 2014; £13.5 million revolving credit facility; and £9.5 million overdraft.
RSM Tenon said its efforts to reduce costs “have resulted in a smaller business than six months ago” and adds the covenants on the new banking arrangement are “tightly drawn, with only a relatively small amount of headroom against potential reduction in revenue”.
“The covenants and other terms of the facility tighten over time, particularly in the second half of the 2014 financial year, and were set on the basis of a larger business than we have now.
“Accordingly, the group has entered into discussions with Lloyds to reset the terms of the facility: without such a facility reset, there is significant risk of a facility breach in the forthcoming 12-month period.
“Whilst to date Lloyds has not agreed to this reset, we remain in positive dialogue with the bank and Lloyds has confirmed that it continues to be supportive of the continuation of the group as a going concern and the directors of the group have prepared the interim accounts on this basis.”
Last October RSM Tenon sold its Individual Voluntary Arrangement (IVA) business to Grant Thornton in a deal worth £7.96 million.
RSM Tenon also sold off its 100 per cent owned subsidiary Optimus Fiduciaries Ltd for £1 to its management team as well as a 75 per cent stake in The Finance and Management Business School for £1 to ICCA Holdings Ltd.
Total asset disposals brought in a profit from sales totalling £3.32 million.
The discontinued operations are reported to have generated revenues of £19.8 million for the year to June 2012 and a loss before tax of £1.09 million.
Although the business has shrunk since full year results were issued, RSM Tenon has not booked further impairments in first-half results.
RSM Tenon estimates its audit, tax and advisory business will grow by between 0.5 per cent and one per cent per annum in the next five years; turnaround and corporate recovery will grow by between one and 1.5 per cent a year; risk management by two per cent a year; and financial management by between one and two per cent a year.
In its first-half results posted today, RSM Tenon reports only one of its divisions – risk management – saw revenues increase by £1 million on a like-for-like basis to £13.9 million.
However, its audit, tax and advisory (ATA) division reported an operating profit of £6.9 million compared with £0.4 million at the same point last year, despite revenues falling nine per cent to £47.6 million.
The recovery business also reports a 21 per cent drop in revenue year on year to £15.9 million and financial management revenues were down 16 per cent to £11 million.
RSM Tenon also recorded exceptional charges - including redundancy costs - for the months to December 2012 of £4.5 million (2011: £66.5 million).
A total of £9.76 million in bank loans is due within one year, and a further £68.7 million is reported due after one year.
RSM Tenon chairman Tim Ingram 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.”
RSM Tenon had struggled to reduce costs following its acquisitions of RSM Bentley Jennison and the financial advisory arm of accountancy firm Vantis Financial Management.
RSM Tenon bought the Vantis advisory arm in June 2010 in a near £7 million deal having previously acquired RSM Bentley Jennison in a £76 million deal in 2009.