Nightmare continues

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by Jonathan Shapiro
Embattled law firm Slater & Gordon has posted a $425.1 million interim loss as managing director Andrew Grech told shareholders the turnaround in its troubled United Kingdom business was taking longer than anticipated.

The company, which is in talks with its lenders about a recapitalisation plan that will most likely result in a debt for equity swap, said the result was impacted by a further write-down of its United Kingdom assets of $350.3 million and the under-performance of its UK and Australian operations.

That adds to the $1 billion of write-downs in 2016 as the doomed Quindell acquisition it heralded as transformational is now deemed worthless.

The company conceded earlier this month that its current levels of debt exceed its enterprise value as it opened talks with lenders about a recapitalisation plan. The half-year accounts show that the value of its liabilities exceeds that of its assets by $126 million.

The law-firm's group revenue fell from to $322.7 million from $487.5 million at the December 2016 interim period.

Cash flows remained negative at $11.4 million, an improvement from the negative $20.9 million outflow in the second half of 2016.

Slater & Gordon said that cash flow was positive by $7.1 million if non-recurring restructuring and refinancing costs were added back.

The interim results also showed that the 82-year old Australian business was being impacted by what managing director Andrew Grech described as "negative publicity and sentiment".

Revenues in the Australian business fell by 17.5 per cent to $114.2 million with earnings, adjusted for changes in work in progress for the half year came in at 5.7 million, a 70 per cent decline from the corresponding half year period.

The company also reminded shareholders it was the subject of a fresh Australian Securities and Investment Commission investigation regarding its accounting.

Slater & Gordon said it was cooperating with the regulator, that has asked for documents relating to potential falsification of records, to ensure the investigation could be completed as soon as possible.

Adding to Slater & Gordon's woes were legislative developments in the UK as the government pushes ahead with changes to personal injury claim changes that will adversely impact the group.

The company advised that on 23 February legislation was tabled before parliament.

Slater & Gordon is also facing a $250 million shareholder class action led by rival class action Maurice Blackburn, which is one of the largest in Australian corporate history.

Mr Grech said the firm was in the midst of a major transition and while the firm had made progress the transition was taking longer than expected.

The fate of the company lies with its lenders who are owed around $760 million. Slater & Gordon must present a plan to its lenders by the end of May.

Slater & Gordon shares closed on Friday at 16¢, valuing the company's equity at $56 million. The company's shares peaked at above $8.00 in April 2015.