RSM Tenon Share Discussion Threads

[masurenguy] 11/2/2012 08:36

Tenon accused by 'whistleblower' of breaking accounting rules

Britain's only publicly listed accountancy firm has been accused of breaching accounting rules by a former manager who claims that he was dismissed for blowing the whistle. RSM Tenon has been accused of overstating profits in its recovery business through a series of "bad practices", including prematurely recognising revenues on insolvency cases, in legal documents seen by The Times. Duncan Swift, the former head of Tenon's Southampton office, alleges that he was fired from his £230,000-a-year post in April last year after bringing the alleged bad practices to the attention of the company's board. Mr Swift, 49, has brought a claim at the Southampton Employment Tribunal in which he is seeking unspecified compensation and exemplary damages for unfair dismissal and breach of contract. Tenon denies the allegations of accounting breaches and is contesting his claim of unfair dismissal. The company asserts that Mr Swift was dismissed as part of a redundancy programme which resulted in around 100 job losses.

Jeremy Newman, a consultant to the company, said that there was no connection between Mr Swift's allegations and a shock profit warning issued by Tenon last month. Tenon's shares tumbled by nearly a third after it told investors that half-year revenues would be about 10% lower than last year and that it would report a first-half pre-tax loss. Andy Raynor, the chief executive, and Bob Morton, its chairman, stepped down. Tenon also said it may have to restate its last full-year accounts and incur a one-off charge in its latest half-year accounts. Mr Newman, a former managing partner of BDO who was brought in to advise Tenon's new leadership, said that Tenon could not give a reason for these adjustments until the company's half-year results on February 29, but said that they were not linked to Mr Swift's allegations.

Mr Swift joined Tenon from Grant Thornton in May 2010. He claims that soon after arriving he discovered numerous bad practices, which "had essentially led to the overstatement of profit in Tenon's recovery business through the false acceleration of the recognition of insolvency case revenues allied with the understatement of insolvency case costs". Mr Swift argues that he brought this to the attention of his line managers and began to try to "clean up" the division, but was fired when it became clear that the Southampton office missed its financial targets. He protested at his dismissal to Mr Raynor and Tenon's board, but his grievance was dismissed. In its defence, Tenon asserts: "The claimant was dismissed due to the poor performance of the ... businesses in Southampton combined with more general commercial pressures which required [Tenon] to make cost savings. In addition, there were concerns about the claimant's performance and his ability to lead the ... businesses in the difficult financial climate." Tenon said that it had conducted an internal investigation - reviewed by PwC, its auditors - into Mr Swift's allegations and found "that it had not acted in breach of its legal obligations as the Claimant claims".
The hearing is scheduled to finish on Tuesday.

[still waiting] 08/2/2012 14:51

pre-pack or very dilutive d4e are the only options imho..

accountants workload dries up now for 6 months..

[imastu pidgitaswell] 08/2/2012 14:35

Ah, but the prevailing wisdom is, and has been for a long time now, that it is better to own nothing and pay to rent it. PFIs, sale and leaseback, you name it, some firm of consultants has come up with it and flogged it to government and businesses as a way of 'releasing capital.'

Or, as some might say, leaving you with sod-all in the way of a safety net should business turn down, higher operating costs than you would otherwise have, and much greater risk of insolvency when a rainy day comes.

But it's all in the name of capital efficiency, I'm told, so it must be right. So a few businesses go to the wall and the national care system goes down the pan - just one of those things...

[imastu pidgitaswell] 08/2/2012 09:14

Of course I understand why it has no tangible assets - that's not my point. It's just one more reason why the business is not worth buying in its present form.

It is not easy to reduce a fixed cost base of expensive staff quickly, without it costing in the short term - when you are up against bank covenants already.

Regional specialisation - and the other accounting firms don't? And yes, accountants are ten a penny, or in fact ten a £200k more like.

I'm not advocating a youth-only policy - I'm suggesting that a management base of people solely from one strata of society may not be best placed to foresee changing economic and social trends and plan their business accordingly. In terms of the banking crisis, was it not senior management of the banks that allowed the mess to happen, through failure to understand the risks - and how to control them with modern systems - that were being taken by these 'young turks'? And was the dot-com boom not financed - until the money ran out - by funds and businesses that again did not understand the risks they were taking nor the nature of the business opportunity? It takes a combination of experience, commercial nous, risk management and sometimes a raw entrepenurial approach to manage a business properly. For all their experience, did the Board of TNO do anything about their clear overstretch and financial over-exposure? Would, for example, a female input to the process have reigned in the more aggressive aspects of the business approach, or identified earlier the inherent risks? Even an acknowledgement that they might be wrong and adopt a longer term, less aggressive approach?

Bob, I was just raising a point about how to my mind, TNO is more likely than most struggling businesses to knock it on the head, with too many challenges to overcome. Let's just say we disagree, no need for the personal smears.


Edit - a bit late for that last plea, given the previous post. Why do people resort to name-calling when having a disagreement?

[bobsidian] 08/2/2012 08:55

Asset backing ? For what purpose and to what end ?

Take a look at the media sector which is also centred on the quality of its people. Take a look at the balance sheet of WPP. Scarily bloated with goodwill and leveraged to the hilt to acquire that goodwill. It appears to be the expected modus operandi of service-based businesses. And any service based business with unleveraged tangible assets tends to be targeted for asset-stripping purposes.

[imastu pidgitaswell] 07/2/2012 21:53

Hmmmmmm, not sure that's your usual quality of comment, Bob - end of a working day, tired...

Public sector business - including local government, university work and others - is significant enough that the ongoing cuts make a significant difference. And there are are still no tangible assets...

The rate of churn point in the current circumstances is the point - the risk of staying with Tenon is significant, the risk of engaging them new is even greater -I can't see anyone putting it up to a CEO/Board as a sensible business decision. Not good.

Cost base is the cost base - not really talking about the income to cover it, as it clearly isn't really doing it, I'm talking about the issue of a small percentage drop in income -see above - resulting in a significant loss.

Certainly have no direct experience of TNO's specific offering, but come on, there's nothing they do that any accounting firm doesn't do. Take a look at their most recent annual report, and try to spot anyone in a management position who is not a white late middle aged man.

Unfortunately cash flow and profitability is not known - nobody can say what the ongoing situation is or will be, it's just not stable, for TNO-specific and general economic reasons.



It will be interesting to see, but my original reasons for interest, being its apparent revenue, aged debt and the impact on the corporate debt were it to be reduced significantly, and potential cash generation, have all turned to dust. Abject management, and I just think it has gone too far, the final straw being the most recent announcement.

Next update within the month, I believe. So never say never...

[bobsidian] 07/2/2012 17:24

"...no tangible assets to speak of, revenue streams declining in value (public sector cuts, general VFM needs at the moment) and in volume (clients walking, for their own governance reasons)..."

TNO do not derive their primary sources of income from the public sector. And like any other firm of accountants they are having to adjust their rate of charge to accommodate the current economic climate. The rate of churn or natural wastage of clients is likely to be no different to any other firm of accountants. Of course that may change if there is a perception that TNO is about to be dismantled.

"...when anyone can just try and poach the clients..."

Not so simple to do. Ethical considerations play their part. And as far as any former or soon to be former employees may be concerned, there are restrictive covenants to navigate.

"...fixed cost base (of expensive people)..."

You are describing the structure of the entire accountancy profession which ramped up charge out rates over the course of the last decade only to be resistant to adjusting these rates to reflect the current economic climate. And the rate of charge out of time by the company/firm bears no resemblance to the level of salary ultimately paid to the underlying employee(s) carrying out the work.

"They don't do anything that any other professional accountancy firm can't do (a lot better...)..."

Really ? Do you have direct experience of the level of skill, knowledge or experience deployed by TNO to make such a targeted judgement ?

"...there's no intellectual property here worth acquiring..."

True enough. TNO are a service provider. But what you are looking at is a ready made accountancy firm where cash flow and profitability issues are known. In a difficult economic climate diversification becomes more important than specialisation. Does TNO have such diversification ?

"...accumulated debt and banking covenant issues, more expensive financing..."

Rectified by any acquiror introducing funding on their own more favourable terms to bring indebtedness down to more manageable levels.

The main issue appears to have been the age old problem of an acquisitive CEO more interested in empire building at any price and less interested in the work involved in consolidating a growing business to ensure action is taken on previously identified synergies which should contribute to the generation of additional free cash flow sufficient to meet the schedule of payments linked to acquisitions. And just how often is it the case that a rapidly grown business finds that its new and evolving cash flow dictates a required revolving credit facility in excess of that in place ?

However, I do not disagree that short of the involvement of a "white knight" or a capital raising exercise seriously dilutive to long term shareholders then TNO may indeed go down the path of the very "pre-pack" insolvency arrangement oftentimes advocated by their own corporate recovery division.

[still waiting] 07/2/2012 15:12

anyone getting the lenders off the hook here will want their pound of flesh..

no value left for pi's imho..

write off that goodwill and with the debt this is finished..

[envirovision] 07/2/2012 15:00

Quite, or to condense into a simple to understand sentence....
Who in their right mind would want to pay good money for this kind or worthless indebted liability ?

(This is the sort of pile of poop someone like Bob Morton would have bought back in the days when money used to grow on trees)

[imastu pidgitaswell] 07/2/2012 14:15

Do you think so?

I would have thought it one of the more obvious candidates to just let go to the wall - no tangible assets to speak of, revenue streams declining in value (public sector cuts, general VFM needs at the moment) and in volume (clients walking, for their own governance reasons), fixed cost base (of expensive people), plus of course the accumulated debt and banking covenant issues, more expensive financing etc.

Why pay for all that, when anyone can just try and poach the clients and use their existing staffing, plus maybe whatever they feel necessary from TNO (anyone employed there would jump instantly at a way out, on a personal level)? They don't do anything that any other professional accountancy firm can't do (a lot better...) - there's no intellectual property here worth acquiring.

Could be wrong, but just think this is biased towards the insolvency/pre-pack adminstration route.

[bobsidian] 07/2/2012 13:54

To go from a company with a market valuation of around £190 million to just £19 million in the space of a year speaks volumes to the viciousness of stockmarkets. Add to that the prospect of a highly dilutive capital raising exercise to access the finance needed to just steady the ship and doubtless you have a board of directors in a state of shock.

Must be vulnerable to a speculative bid given how little would be required to both seize control and stabilise cash flow.

[dugganjoe] 06/2/2012 11:07

Why say it in words when a picture will do?

[still waiting] 06/2/2012 10:57

I can see a break up of this as each cost centre becomes disgruntled at being held back by other parts of the group.

no incentives from shares makes this more likely imho..

[dugganjoe] 06/2/2012 10:40

all a fundraising would be would get more money for expensive horses that work there

[still waiting] 06/2/2012 10:15

they were very active in the EBT promotion which is still under attack from HMRC so a lot of sme's that used these are not too pleased with enquiries into their affairs..

[envirovision] 06/2/2012 10:10

Surprised they have any clients left. Frankly any company that were using Tenon as their accountants has to be questioned.

A firm of accountants who cannot even manage their own affairs would need to be given a very very wide birth by just about anyone who has any credibility.

[still waiting] 06/2/2012 10:08

is that from this w/e?

[dugganjoe] 06/2/2012 10:04

surprised this hasnt dropped like a stone to 2p today

[masurenguy] 05/2/2012 10:54

Held just a few of these briefly last year but glad that I exited at 25p last July. If they refinance then there might just be a "phoenix" type opportunity going forward. Worth monitoring.

Tenon's £20m plea

RSM Tenon is under pressure to launch an emergency rights issue after the accountant shocked the stock market with a profit warning. Some of Tenon's biggest investors have told the company it needs to raise up to £20m quickly to repair its balance sheet. Tenon has £88m of borrowings due in June, and is in talks with Lloyds Banking Group to extend them.

Tenon, which employs 3,000 and has 50,000 clients, warned it may have to restate its June 2011 accounts after finding a black hole. It expected to make a loss for the 6 months to December. The announcement drove down Tenon's shares 29% in a day and triggered the resignations of Andy Raynor, chief executive, and Bob Morton, chairman. Adrian Martin, a non-executive director, was promoted to executive chairman, and Jeremy Newman, former boss of BDO Stoy Hayward, was parachuted in as an adviser.

One investor said: "The big question is how much they can raise [in a rights issue] and whether people are willing to subscribe to it. There are uncertainties about the business and a lot of debt, so the value of the new equity should be at the bottom end." He added that investors supporting any rights issue "should end up owning the majority of the business". The 5 biggest investors are Jupiter Asset Management, Odey Asset Management, Legal & General Investment Management, Bob Morton and Aviva Investors.

[nehpets81] 30/1/2012 14:18

The more I think about this, the more I find myself thinking there is something fishy here. How can an accountancy firm have to reiterate their year end results so long after publication? It really should be a bare minimum that they should be able to get this right! I would be very surprised if this is turned around but there are a few things that still give me hope.
End of last year:

New FD - it seems to be him that has prompted the re-iteration of the results
Finally rid of CEO
New analyst bought in to try and help salvage something - I like the look of his credentials...

Anyhoo, in my short time share investing this has been my most costly mistake. It has prompted me to reassess all my holdings and if anyone is interested I have put my musings online for all to ridicule here:

TNO Blog

Any constructive criticism gratefully received considering this is my first pop at some proper analysis.