AFTER ONLY two weeks into the role, the new chief executive of RSM Tenon is the bearer of bad, if not unexpected, news.
In half-year results for the six months to December 2011, the accountancy firm reported a loss on continuing operations of £71m after being stung by a goodwill charge of £60.7m.
The listed business also reported a 9% drop in revenue to £107.8m; the result of pricing pressures and transaction based services.
The firm restated previous accounts to reduce prior-year pre-tax profit by £12.1m, due to “significant errors and change in accounting policy”.
Speaking to Accountancy Age, RSM Tenon CEO Chris Merry, who was drafted into the company following the departure of Andy Raynor, said it was his intent to “tidy up” and correct the errors made by the previous management team.
The restatement, linked to its accounting policy regarding referral fees, saw 2010/2011 year revenues reduced to £245m from £249m. Its operating profit fell to £5m from £13.9m, while overall profit fell to £683,000 from £7.5m.
Other issues included an error in recording employee bonuses that resulted in a reduction in the 2010/2011 profits by £3.7m, and errors relating to the amount recoverable on contracts.
Merry described the list of accounting errors as ‘limited’ although conceded that revealing errors in its own accounts was not “the most comfortable position” for an accountancy firm to be in.
Stressing the errors, under previous management’s watch, had been corrected, Merry sought to distance the problems in RSM Tenon’s own accounts from its ability to audit the accounts of others.
“There is a clear difference from what happens in our own financial statements and the service that we offer to our clients,” he said.
“We are a new management team and we have moved very fast to correct those errors and cut costs.”
With too high a cost base following its acquisitions of RSM Bentley Jennison and a division of Vantis, a programme has been introduced to reduce headcount by 10%, and “rationalise” certain offices – such as its Wakefield practice which is being merged with Leeds.
Employment cost savings of £14m a year are predicted to come out of the headcount reduction. The upfront cost of the plans are estimated to be £6m.
The future of RSM Tenon appears to hinge on the successful renewal of its credit facilities with Lloyds Banking Group on a long-term basis. Auditors PwC have issued a going concern warning against the firm, which is waiting for documentation to go through for an £88m banking facility with Lloyds – with heads of terms agreed in principle.
Under the terms of the agreement, a £10m amortisation payment due on July 1 has been deferred to 31 October, while its £28m on demand overdraft facility has been converted to a committed facility.
“We have made huge progress from where we were a month ago. We don’t have to be worried about funding in the short term,” Merry said.
He added that the October deadline allowed the firm to make sure alternatives would be in place if necessary.
The problems at RSM Tenon make for grim reading but are not a result of the firm’s overall strategy, said Merry.
“Our position as a mid-market accountancy firm providing services to SMEs is exactly the place to be in.”
RSM Tenon’s share price rose by 0.75p in trading today.
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Richard White, Nicola Westbrooke and Richard Ross all join from KPMG, where they oversaw the real estate tax practice
Sheryl Davis joins the firm's High Wycombe office from Barnes Roffe
The appointments have been made across the VAT, audit and international tax teams