Slater & Gordon UK Recovers in Opening Year as Separate Business

In edition 276 of BC Disease News (here), we reported that Slater and Gordon’s (S&G) £637 million claim against Watchstone (formerly Quindell) had been listed for trial in 2-months’ time (October 2019).

The debacle of S&G (UK) Limited’s acquisition of Quindell’s Professional Services Division ended with corporate restructure, which we announced here.

In 2017, the UK arm of the business was bought out by US hedge fund, Anchorage Capital, and in the months that followed, S&G (UK) Limited split from the Australian Stock Exchange-listed parent company.

In recognition of this, on 15 December 2017, Slater and Gordon UK Holdings Limited incorporated the UK subsidiary.

On Friday of last week, the holding company (collectively referred to as ‘the Group’, with all S&G UK companies) published its 1st Financial Statement (for the period ending 31 December 2018).[i]

In its opening year as a ‘standalone’ corporate entity, Chief Executive, David Whitmore, claims that ‘the Group’ has achieved ‘a huge amount’.

How ‘huge’?

Well, the latest accounts confirm that ‘the Group’ realised revenue of £222.7 million, an adjusted EBITDA (operating profit before interest, tax, depreciation and amortisation, and excluding non-recurring items) of £1.0 million and pre-tax profit of £112.2 million. At the close of 2018, ‘the Group’ had net assets of £135.0 million and cash of £11.4 million. ‘Current’ legal work-in-progress (WIP) stands at £83.6 million.

Considering that, in the year ending 31 July 2017, the UK legal outfit made a loss of £52 million (reported here, in edition 246), any move towards the black would have been welcomed by the business, at least from a solvency perspective.

Mr. Whitmore was therefore ‘pleased to report 2018 was a successful year of stabilisation and restructuring’.

Stabilisation has come at a human cost, however, as ‘the Group’ employed 2,199 members of staff in 2018, which is around 1,000 fewer than the previous reporting year (3,176) and almost 1,500 less than the year before that (3,664).

Forecasting risk in the year ahead, the Statement explicates the financial implications of impending court proceedings, namely S&G’s claim for fraudulent misrepresentation and breach of warranty:

‘Under the terms of the acquisition of Slater and Gordon UK by Slater and Gordon Holdings Limited, deferred consideration is payable up to the first AUS $40 million [£24 million] of the proceeds in respect of Slater and Gordon UK’s existing legal proceedings against Watchstone. Such consideration is linked to and entirely dependent on, the successful outcome of legal proceedings, which is deemed to be a contingent asset and is not recognised on the balance sheet. Accordingly, in the event deferred consideration becomes payable, there will be no net cost to the company as it would be funded by proceeds from a successful outcome’.

 

[i] Neil Rose, ‘Slater & Gordon returns to profit after years of turbulence’ (2 August 2019 Legal Futures) <https://www.legalfutures.co.uk/latest-news/slater-gordon-returns-to-profit-after-years-of-turbulence> accessed 8 August 2019.

Jemma Slingo, ‘Slater and Gordon figures show signs of recovery’ (2 August 2019 Law Gazette) <https://www.lawgazette.co.uk/news/slater-and-gordon-figures-show-signs-of-recovery/5071235.article> accessed 8 August 2019.