CRASH: Slater & Gordon Limited reports $958 million loss and axes dividend

Credit: Patrick McKnight

Shares of Slater & Gordon Limited (ASX: SGH) will be in focus today after the law firm announced its half-year results to the market.

For the six-month period to 31 December 2015, Slater & Gordon revealed an 82% jump in revenue to $487.5 million, but a loss of $958 million, down 2,044% from the prior corresponding period.

The company said the result was impacted by an $876.4 million impairment of goodwill. Goodwill is the excess price paid for the future benefits from assets that are not readily assessed by accountants. The company said a majority of the goodwill impairment was incurred against its acquisition of Slater & Gordon Services (SGS) in the UK.

It also blamed additional provisions for debtors and disbursements related to its adoption of a change in accounting policy for reporting ‘Work in Progress’ assets. Finally, it said underperformance of the UK operations contributed to the poor result.

Clearly today’s results are very disappointing,” Slater & Gordon’s Managing Director, Andrew Grech, said.

He said the company is focused on resolving issues in the UK business. “In particular 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.”

“We will therefore be taking a number of necessary and significant steps to improve the operational performance of both the UK business and the broader Slater and Gordon Group.”

The company did not declare a dividend, but it confirmed that the Australian Securities and Investments Commission (ASIC) had discontinued its inquiries into its financial statements for the year between 2014 and 2015. “ASIC today confirmed that it has now discontinued its inquiries in relation to the Company’s financial reports for the years ended 30 June 2014 and 30 June 2015.”

The company said it will undertake a “substantial reorganisation” of its UK SGS business. It is expected to result in a decline in employee headcount. 

Looking ahead, Mr Grech said: “Clearly our key priority for the 2016 financial year is reducing debt and focusing on re-establishing a sustainable capital structure to support the transformation programme.” The company had $789 million of long-term debt and $52 million of cash at the reporting date. 

“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,” Mr Grech added. “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.”

Foolish takeaway

Arguably, following significant declines in the market price of Slater & Gordon’s shares (and rival Shine Corporate Ltd (ASX: SHJ)), investors had been expecting a poor financial result. However, while Slater & Gordon’s management team “firmly believe” they could produce sustainable shareholder returns, Foolish investors may be inclined to watch this one from the sideline, at least until the dust settles.

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Motley Fool Contributor Owen Raszkiewicz owns shares of Slater & Gordon. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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