Slater & Gordon is looking to refinance to survive

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ASX-listed law firm Slater & Gordon, says it’s in talks with lenders to recapitalise, acknowledging the debt it currently carries exceeds the business value.

The firm, which said it would make a further writedown on the value of its UK business, finally acknowledged its Australian arm was starting to be impacted by negative sentiment surrounding the group.

The world’s first listed law firm is paying the price for a disastrous acquisition in UK in 2015. Last year it posted an annual loss of $AU1.017 billion thanks to a $879.5 million non-cash impairment against the value of goodwill, announced 12 months ago, after its UK business earnings were worse than expected. Its shares have crashed and it is also facing a $250 million class action, the largest by shareholders in Australian legal history.

Recent trading experience and the slower than expected recovery in the UK have caused the company to adjust expected trading results from the UK lower and that will likely reduce asset values, it said. In June 2016, $327.2m of goodwill remained on the balance sheet relating to the UK business.

In its announcement to the ASX today, Slater and Gordon said its half-year results were not finalised and had not been signed off by the Board and auditors.

While net operating cash flow would be better than the $20.9 million outflow over the second half of 2016, it would remain negative, it said.

“It is clear that based on performance expectations and liquidity the continued support of the company’s lenders is fundamental, as current levels of bank debt exceed total enterprise value,” the company’s statement said.

The firm expects to conclude recapitalisation plan in the “coming months”.

The 80-year old law firm said the Australian business was starting to show signs of being impacted by negative sentiment and increased competition in key segments.

Revenue from personal injury and general law operations are falling, although cost cutting will offset some of the pain.

The company is implementing a performance improvement program to ensure the Australian business “remains strong and continues to improve over time.”