Legal proceedings in the Federal Court:Slater & Gordon Limited (ASX: SGH) has been under pressure as Maurice Blackburn, who is among the group’s major competitors filed a $250 million class action suit in support of about 3000 investors (who invested during period from March 30, 2015 and February 24, 2016). This comes at the back of allegations that the group failed to disclose material information to its shareholders. The group defended that they would closely analyze the claim and has involved Arnold Bloch Leibler to assist them for defense. The group also reported that it usually takes two to three years for a final hearing on the Shareholder class actions. Meanwhile, the group reassured their clients that the group would continue to offer world class legal services and is on track to enhance their performance to boost their profitability and cash flow while decreasing debt, in line with previous announcements made by Slater and Gordon.

 

FY16 Segment performance (Source: Company Reports)
 
Weak stock performance: The shares of SGH lost over 86.4% in the last one year (as of October 18, 2016) and delivered a negative year to date returns of over 54.2%. The stock has been under pressure since its UK based Quindell acquisition (currently under Watchstone group). The group has flagged its intention to sue Watchstone Group over the troublesome acquisition. SGH otherwise generated lower than estimated fiscal year of 2016 performance impacted by the write-down of goodwill in Slater Gordon Solutions (SGS), underperformance in the UK operations and an adverse movement in work in progress (WIP). The group’s balance sheet is also facing challenges, which reported a negative net operating cash outflow of $104.2 million during the period on the back of pressure from UK coupled with payments to external advisers in relation to the ASIC review, AASB–15 implementation and restructuring costs incurred for UK operations and finance facilities. SGH generated a revenue of $908.2 million in fiscal year of 2016 but delivered a net loss after tax of $1,017.6 million. The group’s net assets fell by $1,045.1 million to $305.1 million, as compared to the 30 June 2015 impacted by the goodwill impairment charges. Moreover, the group has a gross debt of $764.8 million as of June 2016 while the net debt reached $682.3 million as of June 2016. Despite the stock recovery of over 48.1% in the last six months (as of October 19, 2016), the recent class action against the group seems to create more pressure, given the rising debt and limited availability of cash.
We will have to wait and watch for the next move by the group in the above regard.

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