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54.5¢ slater & gordon limited

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Grant62

4,941 Posts.

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29/02/16

14:35

Post #: 17143941
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Originally posted by accaeric ↑

Chanticleer

Feb 29 2016 at 11:02 AM

Updated 42 mins ago

Slater & Gordon at the mercy of its banks, chair and CEO should go

Global law firm Slater & Gordon is surviving at the mercy of its banks which have given the loss-making company two months to come up with a plan to repay its net debt of $741 million.
The hard reality is that if the plan is not agreed by the end of April, the banks will bring forward the payment of all debts to March 2017.
That 2017 deadline for total repayment of all debts is one that the company cannot possibly meet given its balance sheet and its earnings.
The bank negotiations will be led by chief executive Andrew Grech and chairman John Skippen. In normal circumstances they would today be leaving the company after blowing up about $1 billion in the United Kingdom.
http://www.copyright link/content/dam/images/g/n/6/2/k/o/image.imgtype.afrArticleInline.620x0.png/1456703538771.png
Slater & Gordon's shares fell 25 per cent at the opening of trade on Monday.
But Skippen says this is not the time for the company to be suffering the disruption caused by the loss of a CEO and a chairman.
Grech offered to resign but the board unanimously rejected that offer.
The two men are placing too much importance on their role in rescuing the company from the disaster largely created by them. They should leave as soon as possible and take responsibility for imperilling the future of the 81-year-old firm.
The negotiations with the banks can be ably led by the new director and new head of the audit committee, James Millar, the former CEO of Ernst & Young in the Oceania region who joined the board last December 1.

They will be dealing with the bank's investigating accountants, McGrathNicol.
Millar is in a tricky situation because the auditors of Slater & Gordon are his former firm, now known as EY. The further complication is that EY did the due diligence on the UK acquisition.
EY reviewed the half-year accounts. They are not audited accounts.
In the six months ended December 31, the company burned through about $20 million in cash each month. The banks, led by Westpac Banking Corp, showed their commitment to the company by funding that negative operating cash flow with about $118 million in additional borrowings over the half.

The company's operating performance is dire. The total loss before tax was $969 million. When you add back the $876 million in non-cash impairments, the depreciation of $11 million, interest payments of $15 million, bad and doubtful debts of $29 million and the underlying earnings are a loss of about $38 million.
But Slater & Gordon said in a market presentation that its "short-term cash flow forecasts provided demonstrating liquidity".
The banks are going into negotiations with the company about its future with some troubling questions hanging over the company.
The single biggest asset on the Slater & Gordon balance sheet is work in progress, which stood at $662 million at December 31.

Work in progress represents case files that should ultimately deliver revenue. But during its history as a listed company since 2006, Slater & Gordon has been unable to convert current work in progress into cash. Its entire profit since listing was $313 million.
The turning point in the relationship between Slater & Gordon and its banking syndicate happened in April last year when they agreed to fund the takeover of the professional services division of Quindell in the UK.
The banks provided the company with about $600 million in debt to get the deal over the line. The rest of the money came from an $870 million entitlement issue handled by Macquarie and Citi.
The adviser on the capital raising was Greenhill.
All the advisers to the company must now be asking what happened during the due-diligence process on the PSD acquisition.
Much of the focus on what happened will centre on Slater & Gordon's auditors, Pitcher Partners. It was Pitcher Partners which audited the accounts for the year to June 2015 which included a testing of the goodwill on the PSD business.
Slater & Gordon shares held up quite well in the wake of the announcement of the half-year loss. The stock was down about 25 per cent at 62¢.
That says the market thinks a deal will be done with the banks and that there is value in the company's equity.
But the fact is the company is being managed for the banks, which just want their money back.

Read more: http://www.copyright link/brand/chanticleer/slater--gordon-at-the-mercy-of-its-banks-chair-and-ceo-should-go-20160228-gn612x#ixzz41WTTIP8J

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So, the CEO offered to resign and the Board said "no". Did the Chairman offer to resign?

Very few people ever preside over billion dollar losses so very soon after they have done billion dollar plus acquisitions (F15 was known as the year of acquisition with upwards of $1.4B in acquisition activity for the year).

The near $billion half year loss is made up of real cash losses. In large part, the April CR has all but been zapped into history. What's left is a combination of historical capital (from past capital raising initiatives, from the initial float, and retained by the original vendors, etc) and debt.

With close to $800M in gross debt and the cash burn continuing (it certainly hasn't yet been arrested), Chanticleer is correct in that SGH is all but now under the effective control of its bankers.

Query then what happened to the Nowicki 2016 $10M deferred cash instalment that feel due yesterday, and whether it was paid out last Friday, or today. That will certainly be something for the analysts to consider given that the cash burn needs to be arrested very, very quickly as they have already delayed far too long tackling the required OPEX cuts (which now loom even larger and progressively more urgent, than they had even in December).
SGH Price at posting: 59.0¢ Sentiment: Hold Disclosure: Not Held
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