Got your beer and popcorn ready for Slater & Gordon? I have!

Comments

1. ---

   Tom Winnifrith

   28 February 2016, 14:09

   surely ouzo & popcorn?

   T

2. ---

   Juicin Drumroll

   28 February 2016, 15:34

   ASX Announcement
   Slater and Gordon Group FY16 Half Year Financial Results
   Results Summary
   H1 FY16
   A$m
   H1 FY15
   A$m
   Total Revenue 487.5 267.7
   EBITDAW (58.3) 61.5
   EBITDAW – Normalised (17.8) 32.6
   Goodwill Impairment (876.4) -
   Net (Loss)/Profit After Tax – Reported (958.3) 49.3
   Net (Loss)/Profit After Tax(2) – Normalised (42.1) 19.8
   Gross Operating Cash Flow(3) (62.5) 31.1
   (1) EBITDAW is defined as Earnings before interest, tax, depreciation, amortisation and movement in work in progress and is presented prior to
   goodwill impairment.
   (2) Normalised for AASB3 adjustments, goodwill impairment and additional debtor/disbursement provisioning.
   (3) Represents net cash (utilised)/provided by operating activities before interest received, borrowing costs paid and income tax paid.
   Financial Results
   Slater and Gordon Limited (“the Company”) today reported a A$958.3 million loss for the six
   months ended 31 December 2015. The result was impacted by:
   • a A$876.4 million non-cash impairment charge against the carrying value of goodwill;
   • A$21.3 million of additional provisioning for debtors and disbursements across the Group;
   • the application of revised accounting policies for acquisition consideration (AASB 3 Business
   Combinations) and valuation of work in progress (WIP) due to the early adoption of new
   accounting standard AASB 15 (Revenue from Contracts with Customers); and
   • underperformance in the UK operations, in relation to both intake and resolution of personal
   injuries claims in Slater and Gordon Lawyers (SGL) UK and Slater Gordon Solutions (SGS)
   including lower resolutions in respect of Noise Induced Hearing Loss (NIHL) claims.
   As at 31 December 2015 the Group remained in compliance with its financial covenants and
   continues to work co-operatively with its banking syndicate to amend the facilities. The Company
   has agreed to deliver an operating plan and restructure proposal to the banking syndicate and its
   financial advisers in March 2016. Agreement will be reached as to amendments, if any, which may
   be required to the facility by 30 April 2016. Facility maturity may be shortened to no earlier than 31
   March 2017 if no agreement is reached.
   Performance improvement programmes have been initiated in the UK and Australia with the goal of
   improving both the profitability and operating cash flow of the business and reducing the level of
   debt.
   In light of these activities, the Directors have declared not to pay an interim dividend and the
   Company is unlikely to pay a dividend for the full financial year.

   Page 2
   ASIC Queries
   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.
   Group Managing Director’s Commentary
   Slater and Gordon Group Managing Director Andrew Grech said: “Clearly today’s results are very
   disappointing. 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. Recent developments and initiatives include:
   • Completion of a strategic review of our UK operations and implementation of a performance
   improvement programme including a major reorganisation which is intended to improve the
   productivity of the UK business;
   • Business process changes to improve the performance of the case management system in SGL
   UK;
   • Actively engaging with insurers as both business partners in the SGS Motor services business,
   and as counterparties, with the shared goal of reducing frictional costs and delay in claims
   management and resolution;
   • Changes to screening policy and reductions in client to staff member ratios in SGS to drive
   improvements in case progression and resolution;
   • Reviewing all opportunities to reduce debt levels over the short to medium term;
   • Appointment of a new non-executive Director and Chair of the Audit, Compliance & Risk
   Management Committee and a new Group CFO;
   • A strengthening of the finance function at both Group level and within the UK; and
   • Driving operational effectiveness initiatives in Australia.
   “We have made some tough but necessary decisions to establish a clear pathway for the future.
   We are continuing to daily serve thousands of clients in the UK and Australia and this underpins our
   confidence in the prospects for the Group. Our primary management focus now is on reinforcing
   the financial position of the Group and improving the operational performance of the UK business.
   “It is important that we also continue to support the strong performance and growth of our
   Australian business, which continues to thrive. Our 1,400 people across 72 offices are handling
   around 40,000 clients and continuing to deliver for them. We’re dealing with more than 10,000 new
   client enquiries every month. We continue to see opportunities for growth in Personal Injury Law
   and General Law in Australia both organically and from a renewed focus on operating effectiveness
   initiatives.”

   Page 3
   Slater and Gordon Limited. ABN 93 097 297 400
   Revenue & EBITDAW by Segment
   Revenue(1)(A$m)
   H1 FY16
   A$m
   H1 FY15
   A$m
   Variance
   %
   SGL Australia 139.3 113.5 22.7
   SGL UK 117.5 109.1 7.7
   SGS 239.3 – -
   Group Revenue(1) 496.1 222.6 122.9
   WIP movement (8.6) 6.3 (235.8)
   Gain from bargain purchase – 38.8 -
   Total Revenue 487.5 267.7 82.1
   EBITDAW – Normalised (2)(A$m)
   H1 FY16
   A$m
   H1 FY15
   A$m
   Variance
   %
   SGL Australia 16.4 14.2 15.4
   SGL UK (10.2) 18.4 (155.3)
   SGS (24.0) – -
   Group (17.8) 32.6 (154.4)
   (1) Excluding movement in WIP and prior year gain from bargain purchase.
   (2) EBITDAW is defined as Earnings before interest, tax, depreciation, amortisation and movement in work in progress and is presented prior to
   goodwill impairment. Normalised for AASB3 adjustments and additional debtor/disbursement provisioning.
   SGL Australia
   • SGL (Australia) is trading well with strong growth in net fees underpinned by performance in
   Victoria. Overall the Personal Injury Law division remains on track.
   • Key practices within the General Law division are growing in line with expectations. The Family
   Law practice maintained its growth trajectory, particularly in Queensland and Victoria. The
   Business & Specialised Litigation Services practice continued to build momentum across its
   practice areas. Conveyancing volumes did not meet expectations for growth and performance
   improvement initiatives will be implemented.
   • Management continues to closely monitor staff and client satisfaction levels and to date there is
   no evidence of any material change to either in the Australian business. Speculation about the
   Company’s financial performance does not appear to be causing damage to its long standing
   reputation as Australia’s leading consumer law firm.
   • WIP was impacted by a decline in active files since 30 June 2015 with strong billings more than
   offsetting case openings.
   • This segment includes Group costs and A$3 million of one-off costs which were incurred on the
   AASB15 implementation project and in responding to ASIC.
   SGL UK
   • Whilst SGL (UK) General Law revenue was in line with expectations, SGL (UK) Personal Injury
   Law revenue was materially weaker than expected.
   • Factors negatively impacting the performance of SGL (UK) Personal Injury Law included lower
   than anticipated case resolutions and the deployment of a new practice and case management
   system which caused a loss of productivity in the first half.

   Page 4
   Slater and Gordon Limited. ABN 93 097 297 400
   • Notwithstanding that work will be required to stabilise and improve the performance of SGL UK
   Personal Injury Law, including an operational reorganisation, our objective is for it to emerge
   from these changes as a strong business, generating margins broadly in line with those of SGL
   Australia Personal Injury Law.
   SGS
   • Performance in SGS was significantly below pre-acquisition expectations in the first full half year
   following its purchase. The primary cause of this was a misalignment of case intake compared
   to case resolution rates and delays in achieving Noise Induced Hearing Loss settlements.
   • While the SGS business is now making good progress in improving resolution performance this
   remains below targeted levels and accordingly the Company has reduced case intake to support
   improved resolution performance and to improve cash flow from operations.
   Goodwill Impairment
   The Company has recognised a non-cash impairment charge of A$876.4 million against the
   carrying value of its goodwill. The majority of this is accounted for by the A$814.2 million
   impairment in goodwill from the SGS acquisition. This arises from a downward revision in the
   expectation for future performance of SGS having regard for the poorer than anticipated financial
   performance since acquisition and the assessment of its prospects going forward. In addition, the
   proposed changes to UK laws in relation to personal injury claims lower than £5,000 and the
   associated uncertainty of the future earnings trajectory of the UK business have been assessed
   and the assumptions addressing these issues have contributed to 27% of the impairment.
   There was also a A$52.7 million impairment charge in the Australian business. A$13.9 million of
   this related to the General Law cash generating unit and A$38.8 million arises in the Personal Injury
   Law cash generating unit as a result of moving to a methodology based on the performance of
   State based cash generating units for assessing goodwill impairment.
   Accounting Changes
   In August 2015, Slater and Gordon announced several accounting changes to enhance financial
   reporting including the early adoption of AASB 15 at 31 December 2015, the new accounting
   standard for revenue recognition.
   The new standard requires that revenue under “no win – no fee” arrangements only be recognised
   when it is “highly probable that a significant reversal of revenue recognised will not occur”. Prior to
   31 December 2015, Slater and Gordon has applied AASB 118 which requires that revenue only be
   recognised when it is “probable” that the economic benefits associated with a transaction will flow
   to a company.
   To reflect the requirements of the new standard, the Company in consultation with accounting and
   actuarial advisors has refined its methodology for measuring work in progress (WIP). The new
   methodology is underpinned by a more data driven approach to valuing WIP, and specifically, the
   determination of average fees per file and probability of success.
   Consistent with the previous standard, revenue continues to be recognised over time, or the life of
   a case, using a basis which relates to specific claim-related milestones for each client matter.
   The Company has adopted the new accounting standard on a fully retrospective basis. This
   necessitated derivation of WIP balances under the new standard as at 1 July 2014, 31 December
   2014, 30 June 2015 and 31 December 2015. WIP balances under AASB 15 are lower than the
   previously existing AASB 118 balances by approximately 15% to 20% throughout that date range.
   This outcome provides comfort that the previous methodology, which had an inherent requirement

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   Slater and Gordon Limited. ABN 93 097 297 400
   for higher levels of management judgement, provided intuitively sound outcomes given the lower
   probability thresholds which previously applied.
   Application of AASB 15 will provide greater consistency and a more systematic approach to
   generating reported values of revenue and WIP.
   UK Performance Improvement Programme1
   Following the SGS acquisition, the Company initiated a review and assessment of its service
   offering, and as a result has established a comprehensive performance improvement programme in
   the UK.
   As a part of this program, the Company will accelerate a reorganisation and operate through three
   specialised legal services’ divisions across the UK. It intends to continue to offer motor, health and
   other services adjacent to the delivery of services by its legal services’ divisions.
   The Company proposes to operate centres of excellence assisting clients with:
   • Fast track personal injury claims;
   • Serious and specialist personal injury claims; and
   • General Law services.
   This approach will secure further synergies and reduce overlap in the delivery of legal services to
   clients in the UK.
   Fast track personal injury services increasingly lend themselves to larger operations, which benefit
   from economies of scale. The UK business will consolidate its fast track Personal Injury Law
   services within a more limited number of regional centres. The Company plans to deliver its fast
   track personal injury services predominantly through the specialist operating platform established
   within SGS.
   Serious and specialist personal injury and general law services benefit from specialisation and
   locality to markets. These services will therefore be consolidated into specialised units at selected,
   strategically important locations and delivered through SGL UK.
   While this substantial reorganisation will not impact on the Company’s service to its existing clients
   nor its ability to service future clients throughout the UK, it is anticipated to result in the closure of a
   number of current sites. The Company will undertake a consultation process with its potentially
   impacted employees. Reorganisation costs associated with these plans are likely to be recorded in
   H2 FY16 and beyond. No costs were incurred as at 31 December 2015. The Company anticipates
   that the proposed reorganisation will result in a reduction in the total number of UK employees over
   the course of the next 12 months. This is anticipated to occur through a combination of natural
   attrition and redundancy.
   The Group expects these changes, together with an accompanying reorganisation of supporting
   functions, to enhance its UK operation’s ability to deliver world class legal services to clients with
   greater efficiency, agility and profitability.
   Potential UK Legislative Changes
   The Company expects the consultation process foreshadowed by the Ministry of Justice to
   commence shortly and has made its best effort to factor potential changes into its assessment of
   1 All proposals set out in this announcement are subject to consultation with relevant UK employees

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   Slater and Gordon Limited. ABN 93 097 297 400
   the carrying value of goodwill and the resultant impairment losses recorded at 31 December 2015,
   even though results are not yet certain. Slater and Gordon maintains its view that SGS will be well
   positioned to be a leading provider of services to people who require legal, car hire, car repair and
   rehabilitation services assistance as a result of road traffic accidents and legal services for other
   fast track claims in the UK.
   FY16 Priorities
   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. 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. The changes we are making,
   whilst difficult, will help to ensure that our UK business is sustainable and thrives over the long
   term.
   “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.
   “In addition, we are the clear market leader in consumer law in Australia with a strong platform for
   future growth. Our people are 100% committed to serving the interests of our clients and our clients
   are showing great loyalty to us. We are very appreciative of that support. As a Board and
   Management team we firmly believe that if we continue to focus on the service we provide to our
   clients in Australia and the UK, we will produce sustainable shareholder returns.”
   ENDS
   Contacts:
   • Investor Relations – Melinda George +613 9602 6947
   • Media – Angela Bell / Simone Gandur +613 9602 6977
   About Slater and Gordon
   Slater and Gordon Limited (“Slater and Gordon Group”, ASX:SGH) includes Slater and Gordon Lawyers in the United
   Kingdom and Australia, as well as Slater Gordon Solutions in the UK. Slater Gordon Solutions includes Claims, Health
   and Motor services.