Major loss adjuster Cerno’s auditor fears for the business as a going concern after it reported a loss of $4.23 million last financial year – but the company’s MD says its new partnership with Stream Group will bring huge benefits.

The deficit, outlined in a directors’ report leaked to insuranceNEWS.com.au, follows a loss of $7.17 million the previous year.

The independent auditor concludes there is “significant uncertainty” over the loss adjuster’s future. “In the absence of a material improvement in the operating results… the consolidated entity may not continue as a going concern.”

But MD Tony Button says Cerno is in the middle of a transformation project that requires significant investment in people, systems and technology.

The accounts do not recognise future benefits and “reflect only past results”, he told insuranceNEWS.com.au.

The results include the $1.23 million cost of restructuring, staff termination payments of more than $820,000 and the $700,000 cost of leaving Claim360.

Cerno left the joint venture with Claim Central Holdings in December, then set up a new partnership with claims solutions provider Stream Group.

“In a program of this nature, it’s necessary to maintain the ‘existing world’ while we build the ‘new world’ in parallel, which is both costly and inefficient but a necessary part of any transformation,” Mr Button said.

“Taking into account the abnormal items, the trading results represent a significant improvement in performance over a poor experience in 2011/12.

“We are currently working through the challenges of embedding the enhanced operating model but there is considerable upside thereafter for Cerno, Stream and our clients.”

He says the auditor’s report does not take account of the strategy to bring Cerno and Stream together “operationally and structurally”.

“Consequently, neither the strength of Stream and its associated international operations, nor its substantial backers, are considered in the assessment,” he told insuranceNEWS.com.au.

“It is only when the entities are considered as a whole that the true strength of the group can be demonstrated and this falls well outside the audit scope.”

There have also been changes to Cerno’s board, with Bob Buckley no longer chairman. Mr Buckley, a former MD of Wesfarmers Insurance, had been chairman since April 2011.

“The constitution requires that external directors, including the chairman, resign at each AGM,” Mr Button said.

“It was agreed that a smaller executive board consisting of senior Cerno and Stream directors was more appropriate considering the strategy of bringing the two organisations together.

“Christian Bernecker, a director with extensive experience in private equity and mergers and acquisitions, was accordingly appointed Chairman.”

Former Cerno CEO Greg Johnson left the company in August. He had been CEO since June 2011.