By Peter Frankl.

Both Shine Lawyers and Slater & Gordon reported a headline decline in revenue for the first half of 2018/19 compared to the equivalent period of last year.

Slater & Gordon 

ASX-listed Slater & Gordon now represents the Australian business without the UK division which was split off into a separate UK entity. 

Slater & Gordon (S&G) has been emerging out of survival mode over the past few years and its share price has been scraping along the bottom. For the first half of 2018/19 fee revenue (excluding WIP movement) declined by 8%. 

S&G made a loss in the first half of $8.175m before tax. This was an improvement on the previous equivalent period. The Chairman of S&G said that while the results reflected the continuation of the substantial work undertaken to stabilise and transform the Company, there was still a long way to go. 

Shine Lawyers share price lows

For the half year, fee revenue at Shine Lawyers was slightly up in personal injury compared to the previous comparable period. On a cash basis total receipts were up by 3.8%. However Shine’s share price has fallen 43% since June 2018 (see chart below). What could investors be worried about?

They could be worried about a lack of growth in Shine Lawyers’ personal injury revenue. They could be worried about an uncharacteristic decline in emerging practice areas revenue – by 9%. They could be worried about an increase in interest payments. Finance costs were $3.5m for the half year.

However, it is also possible that none of the above worries them as much as employee remuneration as a proportion of revenue. The cost of labour in a professional services business will make or break profit. 

For Shine Lawyers, in the half year, cash basis receipts from customers was $77.7m. Employee benefits was $46.3m or 60% of receipts. In earlier years, up to FY2016, this percentage was typically in the range of 51% to 54%. At 60%, plus with the higher finance charges, it makes it even harder for investor sentiment to get cheery again.