![Slater & Gordon managing director Andrew Grech has his work cut getting cash flowing.](/content/dam/images/g/l/2/u/w/p/image.related.afrArticleLead.620x350.gr4k1b.png/1472544466736.jpg)
Slater & Gordon managing director Andrew Grech says "restoring cash flows" to the embattled law firm will be crucial to its survival after it posted one of the worst full-year results in Australian corporate history.
On Tuesday, the ASX-listed personal injury law firm announced a $1 billion full-year loss in what Grech described as "a tough, challenging and disappointing" period for the once high flying law firm.
The year was marred by accounting errors, regulatory probes and a disastrous $1.3 billion British acquisition cost investors millions and left its international ambitions in tatters. The $1 billion loss was 16 times greater than the revised $60 million 2015 full-year profit in a stunning reversal of fortunes.
Mr Grech was keen to point out that a "disappointing and unacceptable" half year in which it posted a $58.3 million normalised loss was followed by a better second half in which its posted an $8 million profit.
Bleeding money
That resulted in full-year normalised profit of $49.7 million as measured by its earnings before tax depreciation, amortisation and movements in work in progress, or "EBITDAW". But worryingly, Slater & Gordon is bleeding money with cash flow generation described as "very poor" due to issues experienced in Britain.
Slater & Gordon revealed negative net operating cash flow of $104.2 million and a negative gross operating cash flow of $57.6 million.
The cash flows highlight the challenge that Mr Grech, who offered to resign after the shocking first-half result, faces in restoring the company to financial health by May 2018 when $460 million of debt is due to be repaid after banks granted the company an extension earlier this year.
"[The extension] gives us the headway we feel we need to do the work that needs to be done and of course that includes restoring cash flows to the business which is really what will determine the outcome over that year or so," Mr Grech said.
That agreement granted Mr Grech two years to cut costs, increase profits and generate the cash required to keep the banks at bay following a devastating financial year in which it was forced to book a $876 million impairment on goodwill less than a year after it paid $1.3 billion to buy the professional services division of Quindell in Br.
Turnaround plan
Mr Grech said that as part of a turnaround plan, it had reduced its staff numbers in Britain by 14 per cent and closed four locations there.
Shares in Slater & Gordon traded more than 13 per cent lower following the release at 49.5ยข per share, reversing the previous week's gains.
The company said the full result was impacted by the goodwill write-down, a fall in work in progress was case settlements exceeded new files in Australia while fewer cases were taken on in Britain.
Slater & Gordon also cited underperformance of its British operations and lower resolutions for noise-induced hearing loss cases.
The Australian operation was able to grow revenues by 8 per cent, however total revenue declined due to adverse movements in the value of work in progress. Mr Grech described the performance of the Australian business as "strong and overall pleasing but a number of areas have underperformed".
One of the areas that has caused Slater & Gordon the most pain are the noise-induced hearing loss claims in Britain. Around 60,000 cases were inherited as part of the $1.3 billion acquisition of Quindell but Slater & Gordon has thus far settled only a small fraction of these.
'Unfortunately slow' progress on hearing cases
Mr Grech, who relocated to Britain to deal with the hearing loss cases and other issues, described "progress as unfortunately slow"
."We haven't achieved the resolution rates in those cases that we wanted to and there are a variety of reasons," he said, citing co-operation of insurers, staff changes and other factors.
"Of course the longer the cases take to resolve the more expensive it makes it for us and it is something we are addressing, in trying to accelerate the process," said Mr Grech.
Ahead of the billion-dollar loss Slater & Gordon chairman John Skippen revealed a board shake up. After the departure of two non-executive directors and UK chief executive Ken Fowlie's decision to step down from the board, Chairman John Skippen must now recruit new board members.
Earlier this year general secretary Moana Weir departed after only a few weeks in the position. Last year long-serving chief financial officer Wayne Brown left the firm.
Read Jonathan Shapiro's award-winning description of Slater & Gordon's annus horribilus