Shares in the firm, which trades as Shine Corporate, crashed on Friday following a 10-day trading halt, wiping more than A$250m from the firm's market capitalisation. Shine has adjusted down its midpoint earnings guidance for the coming financial year from $54m to $26m, following a reassessment of accounting surrounding the value of legal cases and projects not yet completed by the firm. The original guidance, issued in August 2015, was that Shine expected its full-year 2016 earnings before interest, tax, depreciation and amortisation to be between $52m and $56m, up from $44m in 2015 and $34m in 2014.
Work-in-progress accounting
According to Shine, a recent review of its balance sheet took 'a more conservative approach to (work-in-progress) and disbursement provisioning' than its original forecast and resulted in a one-off $17.5m provision for work-in-progress recovery rates, contributing towards the earnings downgrade. Work-in-progress assets, which reflect the value of not-yet-completed legal cases and projects, account for the majority of Shine's $316m asset pool.
Listed firm blues
Shine's share nosedive has caught the attention of the Australian business community, as it closely mirrors the plight of rival listed firm Slater & Gordon. Ongoing scrutiny of Slater & Gordon's accounting methods has seen an 80 per cent slump in the firm's share value over the last 12 months and a class action lawsuit brought by investors. Sources: The Australian; Law Society Gazette
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