Smashed, page-121

Yes, it is because I believe that the required OPEX cuts will now swing fully into gear although at a higher required level of $130M+ compared to my previously mooted $100M+. if they do this quickly, then I think that they will secure breathing space from the lenders. But they need to do so very quickly indeed otherwise they will reach a tipping point beyond which any recovery is moot.

I still think that both Grech and Skippen will exit before the week's out although Grech might be retained as a specific purpose adviser to assist in the debt negotiations. As for Skippen, his apology to shareholders today was as hollow as it was empty. The destruction in shareholder value, not to mention in capital value (the Apr15 CR is now solid proof of this) is beyond any comparable measure. But the changes will not stop there. They'll extend well throughout all levels and layers of management, staff and support.

Now, they have about 3 weeks in which to get an effective, meaningful OPEX reduction plan happening which demonstrates that they really intend turning the ship around. But as for any future listed law firms, SGH have certainly blasted a hole in that. There will not now be any new or future listed law firm happening in Australia beyond what's already listed. They've burnt it for everybody else. And for that, it's very likely that SGH have today bought themselves some counterpart enemies out there where the loyalties of the future will count for very little indeed.

So, why am I still a "hold" sentiment? Mainly because I believe that a sharp enough OPEX reduction program can work but not without also cutting the workforce now by a minimum of 15% (previously, 10-15%). They really lost control when they allowed the workforce to grow to 5500 by late last year, well beyond the numbers set at 5350 on Jun15.

Equally, they do need to swap out management and the Board quite heavily. Within the next few days, I can see the Board appointing Millar as Executive Chairman and Houghton to an enhanced CFO /COO role (effectively as finance and management all rolled in together). To do this, Skippen will (should) go (immediately) along with Grech (although tied to assisting Millar and Houghton in whatever is required now in order to deal with the banking syndicate.

So, I'm still a hold because of the OPEX plans that I have previously outlined at some length. But if Grech and Skippen remain (and seemingly stay in control) then likely that sentiment will re-rate to Sell simply because trust is totally blown and very likely new management are required to get the required OPEX cuts through.

I doubt very much that Grech's resignation offer and the Board's rejection of this found its way into Chanticleer because the Board and Grech wanted this to be known. Given that the board meeting was held yesterday (the accounts were signed off on last night following the audit report also being signed off on yesterday), it is very likely that not everyone knew of the resignation rejection until sometime today meaning that it was likely leaked and likely some (at board, management or syndicate level) were not happy with it.

That said, Grech might have some residual function to perform, but Skippen has no role whatsoever to do as clearly Chanticleer's article also pointed to. The following is quoted from that article:
.....
"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."
Read more: http://www.copyright link/brand/cha...d-ceo-should-go-20160228-gn612x#ixzz41XG2usoB

In contrast to this The Australian has reported the following:
....
"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.
http://www.theaustralian.com.au/bus...m/news-story/35f8dbc3ee48fbbff50638c71586cd5e

And there you have the direct reason why my views might change to Sell in the next few days. Even now, the Chair does not get it. Certainly, the Company should apologise to its shareholders (it hasn't), but so too should its MD (he hasn't) and its Chairman (he hasn't).

Now, unless they really do start making the OPEX and headcount reductions happen and fast, then they will not even be able to do a CR (if one were to be required) given the arrogance still being displayed, whilst the banking syndicate will never do a debt for equity swap whilst the trade creditor position remains so very high. Even if 100% of the secured debt was swapped for equity, trade creditors and the tax office would still be owed >$600M in currently due payables.

So, my sentiment is what it is because I believe that Millar and Houghton will hold sway over the old guard (which now includes Grech, Fowlie and Skippen) and very soon indeed. Then, they have a chance but it's only a slim one for the time being.