Profits warning sees RSM’s chief and chairman depart

Shares in the business adviser plunged 29.1 per cent to 5.9p after it warned over weak demand, clients forcing down prices and debt worries.

That gives RSM, a major adviser to entrepreneurs and small to medium-sized enterprises (SMEs), a market value of about £19m.

The UK’s seventh-biggest accountancy firm, which has a national network of 46 branches, said everything is under review as it attempts to return to profitability amid a tough economic climate.

Yorkshire-raised chief executive Andy Raynor, pictured, and chairman Bob Morton both resigned, leaving deputy chairman Adrian Martin holding the reins as executive chairman while it searches for a new CEO.

“We’ve seen some pressure from clients on pricing,” said finance director Adrian Gardner. “We’ve seen some people being slow to buy services.

“Having a focus on the middle market and entrepreneurial space, typically these clients are not particularly shy when it comes to seeing how a market has changed and asking for reductions in prices when they are getting squeezed themselves.

“The broader economic situation, not surprisingly, has been reflected back in some of the pitches.”

In December, RSM told shareholders at its annual meeting that all areas of business were under pressure, while in November it warned trading was worse than expected.

Yesterday, RSM said it expects revenues in its first six months, to the end of December, to be 10 per cent lower than the same period a year earlier as the deals market remains stagnant. It will post pre-tax losses due to heavy fixed costs, it added.

RSM, which employs about 200 staff in Yorkshire, has offices in Harrogate, Hull, Leeds, Sheffield and Wakefield. It grew in the region by acquiring RSM Bentley Jennison in late 2009.

It operates four divisions: audit tax and recovery; financial management; recovery and risk management.

Mr Martin said: “The company’s performance is clearly disappointing and my immediate priority is to instigate and execute the necessary actions to improve profitability and cash generation.

“RSM Tenon has a strong market position and client base, as well as dedicated and loyal employees. The board remains confident of the future prospects for the company and that a successful turnaround can be delivered.” Mr Gardner said “necessary actions” will include introducing a more variable element to pay, as well as looking at its large spread of offices.

“There’s a degree of clients hunkering down, and therefore we have to hunker down,” said Mr Gardner, who joined in October. “We’re not forecasting large amounts of economic growth. We need to make sure that we have appropriate structures internally.

“We’re not saying it (branch numbers) will necessarily go up or down, but it’s clearly something that goes into a review of this type. Nothing is ruled out.”

RSM warned it is treading dangerously close to its debt limit of about £88m, held with Lloyds TSB. Its facilities are split between a £60m term facility and peak overdraft funding of £26m to £28m.

“This time of year is close to our maximum cash need,” said Mr Gardner. “Lloyds has been our only bank for the whole time this company has existed. It has been extremely flexible and supportive all the way through that time.”

He said RSM needed to talk to Lloyds anyway, as £38m of its debt expires or is due for refinancing in the summer.

“We can’t bear £38m of £88m going away,” he added.

The company did not elaborate on plans for its dividend, but analysts warned investors will have to take some pain. RSM more than halved its annual payout to shareholders to 0.55p per share in its previous financial year to “preserve resources in an unpredictable business environment”.

As part of its board overhaul, the former CEO of rival BDO, Jeremy Newman, is joining as a consultant. RSM will also begin searching internally and externally for a new CEO.

Mr Raynor is contractually entitled to his salary of £625,000, as part of his 12-month contract, said the firm. The former welding apprentice, who was raised in Barnsley, joined the firm in 2001, becoming CEO in 2003 and growing its revenues from £80m to £249m. Mr Gardner said he does not know what Mr Raynor will do, but added: “I would take a couple of months off and take a deep breath. It’s been a difficult time.”

Bank talks are crucial

Analysts said RSM Tenon’s talks with its lender Lloyds TSB are key to its future.

“The group continues to operate within its banking facilities but we believe only just,” said analysts at house brokers Numis Securities.

“With much of its funding needing to be renegotiated within a few months (June) shareholders must expect less favourable terms. Not for widows and orphans, but on balance we believe it does not serve Lloyds not to support RSM Tenon. “

Owen James, at Shore Capital, said: “Concerns about its debt facility still remain and the outlook is perhaps bleak at this point and predicated on being able to turn things around.”