The chances that the release of Quindell’s accounts could quickly clear the air for embattled law firm Slater & Gordon, which acquired a significant part of the British company in March, have diminished after sources close to Quindell said the release of accounts shouldn’t be expected “any time soon”.
Quindell, which sold its professional services division to Slater & Gordon for $1.23 billion, was to have lodged its 2014 accounts and its restated accounts for the 2013 calendar year with the London Stock Exchange’s junior Alternative Investment Market by the end of June.
Quindell’s accounts, audited by KPMG, were reviewed by PricewaterhouseCoopers, which earlier confirmed revenue recognition and deferred acquisition costs were “at the aggressive end of acceptable practice”.
Quindell said that the restated accounts “adopt a more conservative and appropriate approach to the recognition of revenues and profits in the PSD”. Slater & Gordon expected those accounts to “present Quindell’s view of the PSD’s assets on disposal”, with lingering questions about whether the Melbourne-based law firm paid too much or too little for the assets.
At the time of the acquisition, some investors had queried whether the price paid for the PSD, which made up the bulk of Quindell, was too low, considering the company was valued at four times that amount a year earlier.
Slater & Gordon shares firmed yesterday, up 8c to $3.77. But its market capitalisation has fallen almost $1bn since last Wednesday morning, when reports first emerged that the Australian Securities and Investments Commission was querying its relationship with auditor Pitcher Partners.
Yesterday, The Australian revealed that Pitcher Partners had been dumped, with the law firm appointing Ernst & Young to take over after ASIC’s review.
Some fund managers have pointed the finger at hedge fund VGI Partners, which they said had orchestrated a campaign against Slater & Gordon’s share price, raising doubts about cash conversions from work in progress and aggressive goodwill accounting practices. However, the company admitted on Monday there was a historic error in its British accounts that overstated cash receipts and payments. A similar issue was identified by VGI in a presentation circulated to investors and parts of the media.
New analysis shows Slater & Gordon, which conducted its review of the PSD’s accounts and litigation activity, has already forecast 40 per cent lower revenues in the coming financial year than Quindell was expecting for the year ending June.
If Quindell’s first-half 2014 revenue figures were annualised, its PSD would have been expected to record revenues of £586.6 million for the financial year. This would include revenues of £359.2m for legal services, £147.4m for motor services and £80m for health services. Slater & Gordon’s revenue forecasts for those segments are 40.4 per cent, 32.8 per cent and 51.3 per cent lower respectively.
SGH Price at posting:
$3.85 Sentiment: Buy Disclosure: Held
