RSM Tenon has reported an improved half-year performance, the result of a drive to slash costs and reduce headcount, but warned there was a “significant risk” it would breach its banking covenants.
In its results for the six months ended 31 December 2012 Tenon said it would continue to focus on cost efficiency as it reported an underlying operating loss of £0.6m and a £9.8m drop in revenues to £88.4m. The firm said its revenue plummeted due to a Retail Distribution Review (RDR) and professional indemnity (PI) insurance costs.
News that Tenon has reduced losses comes as a major turnaround for the financial services firm, which this time last year reported Andy Raynor had quit the group along with chairman Bob Morton after it was forced to restate its accounts.
However, the group also warned in its half year results that it was in danger of breaching its banking covenants within the next year if it cannot renegotiate with its sole lender Lloyds Banking Group.
“The covenants in relation to our banking arrangements were tightly drawn, with only a relatively small amount of headroom against potential reduction in revenue,” the results reveal.
RSM Tenon is in discussion with the bank to increase the facility, but warned that “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.”
Tenon kept its net debt within the new facilities of £93m it negotiated in October last year, however borrowing was £80.4m - up from £76.5m in 2011.
Overall the group said it had made “huge progress” in 2012 with significant action to reduce costs, control cash and restructure the business. Underlying EBITDA returned to a profit of £1.5m, which Tenon says is a sign of the success of its restructuring programme.
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.”
“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,” chief executive Chris Merry added.
Earlier this week it was revealed by The Herald that a former specialist tax division of Tenon, Premier Strategies, is estimated to have sheltered up to £1bn for Scottish companies, avoiding £400m in tax.
In its most recent results, Tenon confirmed it had shut down Premier Strategies last year, and that the assets and liabilities were not held-for-sale.
Premier Strategies is now offering to represent clients over their employee benefit trusts (EBTs) and to settle with HMRC at a cost of 40% of their sheltered cash.
According to the Herald, Premier's letters tells clients they have “a 20% chance of winning outright at a tax tribunal, a 60% chance of a partial victory, and a 20% risk of HMRC winning outright.”
The letter also claims that in a partial victory the business might still have to pay £400,000 for every £1m sheltered, yet a negotiated settlement with HMRC would probably cost £412,000,.
The letters comes amid speculation that the tribunal decision in favour of Rangers Football Club, that its EBT was legal, could be overturned on appeal.
