SLATER AND GORDON SLUMPS ANOTHER 24% ON ASX ON DEBT FEARS AND DISAPPOINTING PERFORMANCE
Written on the 16 February 2017 by Business News Australia
SLATER and Gordon (ASX:SGH) is at the mercy of its bankers as it seeks to recapitalise its debt, which is worth more than the entire company.
In a trading update released today, Slater and Gordon says its troubled UK business is recovering more slowly than expected and may be subject to a further write down.
Meanwhile, revenue at its Australian business is expected to be down due to the negative sentiment surrounding the company.
Slater and Gordon finished the day's trading down 25.93 per cent at $0.20 per share today. This is a dramatic fall from grace for a company that was trading at almost $8 in April 2015.
The company, which is led by managing partner Andrew Grech (pictured), says negotiations with its bankers will take months to complete.
"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," says the company in a statement today.
The UK business, which essentially became worthless not long after it was purchased by Slater and Gordon, is set to lose more value through another impairment charge and is recovering more slowly than expected.
Progress is being made in realigning the cost base of the business to its future needs, but billed revenue performance in segments of the business is lower than expected.
Nevertheless, the company expects its H1 FY17 UK normalised earnings before interest, tax, depreciation and changes in work in progress (EBITDAW) and cash from operations to be an improvement on the prior corresponding period.
"The company is projecting stronger billed revenue results in H2 FY17 as it continues its UK performance transformation programme."
Slater and Gordon will test its UK goodwill values for impairment as part of the half year results process.
"Recent trading experience and the slower than expected recovery in the UK have caused the Company to adjust expected trading results from the UK downwards, and this is likely to have an adverse impact on assessed asset values."
As at 30 June 2016, there was $327.2m of goodwill on the balance sheet relating to the UK business.
Meanwhile, in Australia, the Slater and Gordon business has been impacted by the negative press surrounding the UK purchase and the subsequent class actions that have been announced against the company for allegedly breaching continuous disclosure requirements.
The Personal Injury Law (PIL) and General Law (GL) businesses are expected to produce lower-than-expected revenues in the half year results.
"This is due to a number of factors, including lower worker's compensation settlement rates and a relatively lower number of project litigation matters being concluded in H1," says the company.
Both the PIL and GL businesses are projecting stronger fee results in H2 FY17.
Slater and Gordon expects that the first half revenue declines will be partly offset by a reduction in operating expenditure.
Business News Australia
Author: Business News Australia