Slater and Gordon reported a $958.3 million loss for the six months to December as the law firm marks down the value of its troubled UK business.
The results include a $876.4 million non-cash impairment charge against goodwill and $21.3 million of additional provisioning for debtors and disbursements.
A short time ago, Salter and Gordon shares were down 27% to $0.61, a long way from the 2015 high of $8.07, after coming out of a trading halt.
Revenue was up 82.1% to $487.5 million compared to the same six months a year earlier but the company would still have posted a net loss of $42.1 million even after stripping out the impairments.
The writedowns included $814.2 million against the UK business due to a poorer than expected financial performance and potential impact of foreshadowed British Government changes to road traffic accident compensation laws.
And there’s a $52.7 million impairment charge on the Australian business, including $13.9 million related to general law and $38.8 million in the personal injury unit.
The company has agreed to deliver an operating plan and restructure proposal to its banking syndicate and its financial advisers in March.
Net debt was $741.4 million at the end of December, up $118 million since June.
As of today, the market capitalisation — the value of the company as per its latest share price — is just $215 million.
Managing director Andrew Grech says the results are very disappointing.
“The decline in business performance in the UK is of serious concern to all at Slater and Gordon and equally will be of concern to our investors,” he says.
Slater and Gordon shares have been on a slide since the company abandoned its profit guidance in December after problems with its UK subsidiary.
The law firm lost $2 billion in market capitalisation in 2015 and hundreds of millions since the British’s government announcement in November that it planned to limit compensation for road accidents.
The move means the business Slater and Gordon bought for $1.3 billion in March, Quindell, is under threat. About 90% of cases are related to traffic accidents.
Just six months ago in August, Slater and Gordon announced a 7.7% rise in full year profit to $70.7 million. The full year guidance was for total fees of $1.15 billion and earnings of $205 million.
Bryce Houghton, the newly appointed CFO at Slater and Gordon, is reviewing the company’s financial forecasting.
Andrew Grech, the managing director, says tough have been made to clear pathway for the future.
“Our primary management focus now is on reinforcing the financial position of the group and improving the operational performance of the UK business,” he says.
Grech says the key priority for the 2016 financial year is reducing debt.
“We have a clear plan which we have begun to implement which will place our UK business on a sounder footing and which is responsive to the evolving market environment,” he says.
“The changes we are making, whilst difficult, will help to ensure that our UK business is sustainable and thrives over the long term.
“We remain 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.
Slater and Gordon has 1,400 staff across 72 offices.
Shares in the world’s first publicly traded law firm began to tank in November after the company admitted at its AGM that it made errors in its annual accounts over two years.