Even though the size of the loss was not unexpected, the $1.02 billion full year loss revealed yesterday by Slater and Gordon was still shocking.
Shares in the legal group though plunged 18% at one stage after the loss was announced, even though investors had been waiting for the bad news.
The huge loss was after Slater and Gordon reported a net profit of $62.4 million in 2014-15 and was due to the previously announced $876.5 million impairment charge on its billion dollar plus move into the UK legal services market.
The impairment charge was announced in February for the six months to December.
Revenue was rose to $908.2 million from $598.2 million a year earlier.
The shares fell to a low of 46 cents before a slight rebound to end the day on 47.5 cents, off 15%.
‘The company said that a “disappointing” December half year in which it posted a $58.3 million ‘normalised loss (ignoring the impairment) was followed by an $8 million profit in the six months to June.
The company said that saw a full year normalised profit of $49.7 million as measured by its earnings before tax depreciation, amortisation and movements in work in progress (WIP), or” EBITDAW”. That is not an accepted profit measure.
Slater & Gordon said the result was affected by the goodwill write-down, a fall in work in progress as case settlements exceeded new files (new work) in Australia while fewer cases were taken on in the UK.
The company also cited underperformance of its UK operations and lower resolutions for noise induced hearing loss cases.
The Australian operation booked a $100 million loss due to $55.8 million write down in goodwill, a $27.8 million adverse movement in WIP and $22.1 million of restructuring costs and provisions. Andrew Grech, S&G’s managing director, and the man who did the UK purchase, said a restructuring of the UK business was on track.
Calling the financial performance “a story of two different halves”, Mr Grech said yesterday:
"The results for the first half were extremely disappointing and well below expectations. In the second half we have taken significant steps towards turning around the performance of the UK business. Whilst the UK performance improvement programme is still in its early stages, the second half results indicate that our efforts are beginning to bear fruit.”
He said the operating environment in Australia has been “challenging”, but added: “We are confident we have the strategy and people in place to stabilise financial performance during the 2017 financial year”.
Mr Grech said the company’s priority was to put the UK on a sounder footing, while in Australia the focus was on profitability and cash generation.
Earlier, Slater & Gordon announced that three board members would step down including long standing executive Ken Fowlie and two non-independent directors Erica Lane and Ian Court.
Mr Fowlie, is leaving the board “to devote his full attention to his role as CEO UK”, chairman John Skippen said in yesterday’s statement. A new board member, Tom Brown, was appointed. Mr Skippen said the company remained in compliance with its corporate governance obligations.
Last year the shares hit a high of $8.07, valuing the company at $2.8 billion, but then fell sharply as the problems in the UK worsened, culminating in the huge write down – and then the news that the British government plans to limit compensation for road accidents.
At yesterday’s close the company was valued at less than $170 million.
