SLATER and Gordon (ASX:SGH) has capped off a tempestuous year after recording a first-half loss of close to $1 billion, largely due to a writedown of its embattled UK business.
However, the law firm has been given the all-clear by the corporate watchdog after it launched an investigation into the company's books, focusing on the value of goodwill in both Slater and Gordon's Australian and British businesses.
The firm recorded a $958.3 million loss for the six months ending December, which includes the $876.4 million impairment charge against goodwill and a $52.7 million impairment charge in the Australian business.
The result is in stark contrast to a profit of $49.3 million a year earlier, with the group plagued by financial woes since acquiring the UK-based Quindell for $1.3 billion last March.
The renamed Slater and Gordon Solutions division, combined with weak performance in its general UK offering, has been hit by proposed amendments to UK laws relating to personal injury claims below $10,000. Initiatives in response to the changes have contributed to 27 per cent of the impairment.
Investors this morning took the first opportunity to offload Slater and Gordon shares after being locked in a trading halt since last Wednesday pending the results. The share price tanked 25 per cent to 62c after trading resumed.
The group's total revenue was up 82 per cent to $487.5 million, compared to $267.7 million in the previous corresponding period, as a result of the UK acquisition.
Revenue in Australia improved 22.7 per cent to $139.3 million, driven by strong performance in Victoria. The personal injury law division remains on track.
Meanwhile, The Australian Securities and Investments Commission investigation into Slater and Gordon, triggered after reporting errors in its annual accounts over two years, has drawn to a close.
The corporate watchdog confirmed today that it has ceased its inquiry into the financial reports for FY14 and FY15, after the firm adopted a new accounting policy based on revenue from contracts with customers.
Slater and Gordon managing director Andrew Grech says a number of initiatives have been introduced to ensure the firm returns to profitability.
"Clearly today's results are very disappointing," Grech says.
"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 firm is completing a strategic review of its UK operations, as well as business process changes to improve its case management system.
There has also been a reshuffle in its senior management team, including the appointment of a new CFO, non-executive director, chair of the audit and compliance and risk management committee.
Despite uncertainty in the legal landscape and weaker than expected returns, Slater and Gordon will continue to persist in the UK.
Grech says the firm will be well positioned to be a leading provider of services relating to car hire, car repair and rehabilitation services assistance for road traffic accidents in the region.
"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.
"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 will continue to work with its banking syndicate to amend its debt facilities, with an operating plan and restructure proposal to be delivered next month. Net debt was $741.4 million in the first half.
No dividend has been declared, with a full-year payout also unlikely.
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