Slater & Gordon swings to half-year loss of $958.3m

Slater & Gordon turned down Andrew Grech’s offer to resign after the embattled law firm’s $958m first-half loss.

Slater & Gordon managing director Andrew Grech offered to resign, but the board said he was still the right person for the job.

Slater and Gordon’s board has turned down managing director Andrew Grech’s offer to resign in the wake of the embattled law firm’s $958.3 million first-half loss.

Chairman John Skippen says the company should apologise to shareholders for the steep dive in the value of their holdings, but that Mr Grech remained the right person for the job despite presiding over the massive loss.

“The board does not believe it is appropriate to change leadership and therefore we have unanimously rejected his resignation,” said Mr Skippen, who added he would not consider his own position while the company was negotiating with its creditor banks.

Slater & Gordon now has one month to present its bankers with a detailed restructuring proposal after its loss, which came as it slashed more than $876m in goodwill.

Slater & Gordon shares opened sharply lower following today’s results, dropping 35 per cent to 54 cents, but later recovered to be down 22 per cent to 64.5c. At this time last year they were at $7.53.

The Australian Securities & Investments Commission also said it has ended its review into the company’s financial reports, which had focused on revenue recognition and the law firm’s work in progress accounts.

Slater & Gordon (SGH) will now move to reduce debt levels over the short to medium term and embark in a major reorganisation of its struggling British business, which was the major factor behind the writedowns.

The company declined to pay an interim dividend and has suspended payouts for the foreseeable future.

Slater & Gordon’s cash flow was significantly worse than forecast by Mr Grech in November, when he suggested it was a “likelihood” that the firm would have a negative cash flow of up to $40m for the first half of the year.

Today’s accounts show negative cash flows of $62m in that period.

The loss of $958.3m for the six months to December 31 compares to earnings of $49.3m in the previous corresponding period.

Mr Grech said the results were “very disappointing”.

“In particular the decline in business performance in the UK is of serious concern to all at Slater & Gordon and equally will be of concern to our investors,” he said.

“We will therefore the taking a number of necessary and significant steps to improve the operational performance of both the UKL business and the broader … group.”

The law firm posted an underlying first-half loss of $58.3m, compared to a profit of $61.5m for the previous corresponding period, despite revenues rising from $267.7m to $487.5m.

The company said the performance of Britain’s Quindell’s professional services division, rebranded Slater Gordon Solutions, was “significantly below pre-acquisition expectations in the first full half-year following its purchase”.

“The primary cause of this was misalignment of case intake compared to case resolution rates and delays in achieving noise induced hearing loss settlements”.

Slater & Gordon wrote off $814.2m in goodwill associated with the acquisition of Quindell.

The firm raised $890m last year to fund the $1.23 billion purchase. Those shares are now worth just $141m.

Despite the loss, Mr Grech said he remained “convinced that the emerging market environment in the UK will make scale at least as important as it has been in Australia in generating sustainable returns”.

“We now have a brand recognised for legal services by nearly one in four Britons and an opportunity to lead the ongoing consolidation of the market,” he said.

Today’s results increase the chance of a class action being filed by rival law firm

Maurice Blackburn on behalf of shareholders who’ve seen the value of their shares tumble.

“Today’s announcement ... strengthens the themes our class action investigation is pursuing, and although we still have some work to do, it now seems almost certain that we will file a class action on behalf of the thousands of aggrieved shareholders,” said Maurice Blackburn’s national head of class actions Andrew Watson.

The release of Slater & Gordon’s half-year accounts, delayed to the last day of the February reporting season, is the first under new auditor Ernst & Young, which replaced Pitcher Partners in November.

It was the second time in a year the company had delayed the release of earnings, having earlier pushed back by four days the disclosure of its unaudited accounts in August.

With changes to its goodwill, scrutiny is set to fall on Pitcher Partners, which signed off on the firm’s full-year accounts released at the end of September.

Pitcher has been under pressure from ASIC in the past, having been the auditor of collapsed childcare operator ABC Learning from 2001 to 2007.

 

With AAP