RNS Number:3979T
Watermark Group PLC
30 April 2008
30 April 2008
Embargoed, 0700hrs
Watermark Group Plc
Preliminary Results
for the year ended 31 December 2007
Watermark Group plc ("Watermark" or the "Group"), a leading provider of
in-flight products, catering and cabin management services to the airline and
travel industry today announces its results for the year ended 31 December 2007.
Financial Highlights
* Group revenues up 13% to #105.8 million (2006:#93.4 million)
* Operating loss before exceptional items of #5.5 million (2006:profit #1.2
million)
* Goodwill write down of #20.6 million and other exceptional costs of #4.2
million
* Loss before taxation of #32.0 million (2006:#3.1 million)
* Refinancing agreement subject to shareholder consent (announced 31 March
2008)
o Underwriting of a #7.5 million issue of new ordinary shares
o Early conversion of existing #8 million convertible bonds into new
ordinary shares.
Operational Highlights
* Products Division
o Renewed focus on innovation, design and product development
o Initiatives taken to improve operating margins
* Services Division
o Strong focus on operating margins and cash flow
o Restructuring implemented in Q3 last year
o Considerably reduced labour costs
o Greater focus on customer service
o Major seven year contract win for Air Fayre with United Airlines
* Appointment of Carl Fry as interim Chief Financial Officer
Commenting on the outlook for the Group, Stephen Yapp, Chairman of Watermark
said, "Since the refinancing in June of last year the Group has undergone
considerable and necessary change, and although the 2007 results are
disappointing in that they reflect the difficulties the business has been
through, the foundations have been firmly laid for a much improved 2008.
"Trading in both divisions is in line with expectations for the first few months
of 2008, reflecting the benefits of both the operational restructuring and the
new management structure and with the Group targeting a return to profitability
in the existing business."
For further information please contact:
Stephen Yapp Jeremy Carey/Matt Ridsdale
Watermark Group Tavistock Communications
Tel: +44 (0) 20 8606 2000 Tel: +44 (0) 20 7920 3150
info@watermark.co.uk jcarey@tavistock.co.uk
Executive Chairman's Letter to Shareholders
Introduction
Dear Shareholder
Since receiving shareholder support to refinance the Company in June of last
year, the Group has undergone considerable and necessary change. The new
Management Team have been focused on the turnaround of three key areas, namely:
- Restoring underlying profitability;
- Focusing on cash flow and
- Resuming growth.
Significant improvements have been achieved and although the 2007 results are
disappointing in that they reflect the difficulties the business has been
through, the foundations have been firmly laid for a much improved 2008. As set
out below, the Company has announced proposals for a capital restructuring,
including a #7.5 million fundraising, in order to deal with the Group's cash
requirements.
As explained in our Interim Report 2007, the intention of the new Management
Team was to move to a "bottom up approach" to running the business units of the
Group thus allowing the two Divisions to focus on their own independent goals
and objectives and to create individual identities, whilst still generating
synergies for the benefit of the Group as a whole. The introduction of the new
Management Team has supported these objectives and the Group now has a clear and
focused direction and strategy. The final steps to implementing the new
Management Team and structure were taken in January 2008 and the year has begun
well under this new management style.
Results
Group revenues were #105.8 million (2006 #93.4 million) with the increase
largely attributable to sales to Air Canada of #17.3 million under the Encompass
supply chain management contract which commenced this year. The operating loss
before exceptional items was #5.5 million (2006 profit #1.2 million) principally
reflecting a poor performance in the Services Division.
The Group incurred exceptional costs of #4.2 million (2006 #3.6 million) during
the year and the Board has also taken the decision to write down goodwill in the
Services Division by #20.6 million resulting in an operating loss for the year
of #30.3 million (2006 #2.4 million). The write down of goodwill arose through
the annual impairment test. Interest and financing costs were #1.7 million (2006
#0.7 million) giving a loss before taxation of #32.0 million (2006 #3.1
million).
There was an increase in cash and cash equivalents of #7.7 million and net debt
at the end of December was #13.5 million (2006 #6.5 million). Net assets stood
at #6.1 million (2006 #37.5 million).
At the half year stage a number of items were identified that had been
inappropriately accounted for during 2006, which resulted in an increased loss
before tax and a reduction in net assets of #0.9 million for the year to
December 2006. A further review was carried out at the year end that concluded
that further adjustments to the 2006 results are required leading to a total
increase in loss before tax of #1.2 million and reduction in net assets of #1.3
million for the year to December 2006. Accordingly the comparative figures
contained in the final statements for 2006 have been restated by the above
amounts.
Products Division
Progress in the Products Division since the refinancing has been pleasing.
Accountability and visibility in the business have been improved and this has
helped restore gross margins and operating performance in the second half of the
year. As advised in the Interim Report 2007, David Young joined the Group in
January 2008 as Managing Director of the Products Division. Under David's
leadership, the Division is already focusing on a number of further initiatives
designed to improve margins, expand the current supplier base and reduce
overheads.
In support of the repositioning exercise there will be a number of key
appointments, including a Product Director, a role which the Management Team
believe is pivotal to the success of the Products Division and will help the
drive to return the Division as a leader in its market place.
The Products Division remains profitable and the team are concentrating on
improving innovation and design which, supported by a strong product development
ethos, will yield benefits in the medium term.
Going forward, the Division will be managed with a close eye on gross margins,
stock and working capital levels as well as the absolute level of overhead cost.
Services Division
Without doubt the Services Division has made progress in a number of key areas
since the reported poor performance of the first half of 2007. The Divisional
structure implemented in the third quarter is working well and the engagement of
specialist operational advisers has given the Division renewed clarity and focus
it requires to build a profitable business on a more stable platform. Labour
costs have been reduced considerably and the new structure, which has now been
in place for several months, is proving beneficial. We identified the need to
rebalance the customer focus in the Division, which was achieved in early 2008
with the appointment of a General Manager, Customer Services.
Many of the operational benchmarks in the Services Division are non-financial
and these form an important component of managing the business day to day. The
improved visibility, accountability and responsibility has helped improve
service and reporting. From a financial point of view, the Division will focus
on cashflow, particularly working capital and stock management, and operating
margin as the key indicators of performance.
People
In addition to the Board changes announced in our Interim Report 2007, Carl Fry
has joined the Group as Chief Financial Officer in an interim position. Carl has
significant experience of serving on the Boards of both publicly listed and
private companies. Until last year he was Group Finance Director of Telecity
Group plc. Carl joined Telecity following its merger with Redbus Interhouse plc
in January 2006, where he was previously Group Finance Director from 2000.
Our people are critical to the success of the business and during this difficult
period they have shown commitment and character. It is these strong attributes
that have allowed us to undertake the significant change which has been required
in the organisation during the second half of 2007. On behalf of the Board I
would like to thank our employees for their dedication and continued support.
Post balance sheet event
On 31 March the Company announced proposals for a capital restructuring under
which the holders of the Company's #8 million convertible bonds have agreed
conditional on shareholder approval to refinance the Group through the early
conversion of their bonds into ordinary shares at a conversion price of 7.5p per
share and to underwrite a #7.5 million issue of ordinary shares at a price of
7.5p per share. As part of these proposals the holders of the bonds will receive
6.2 million warrants with an exercise price of 15p and with an expiry term of
four years. The capital restructuring arose through the Company's requirement
for additional financial resources to meet the cash needs of the business and
also from the financing requirements relating to the contract with United
Airlines referred to below. A circular setting out details of the proposals and
seeking shareholder consent will be sent to shareholders in due course.
At the same time the Company also announced that it was considering moving the
trading in the Company's ordinary shares to the AIM market of the London Stock
Exchange, which the Directors believe would be a more appropriate market for the
Company.
Further, we were also pleased to announce that Air Fayre had been successful in
winning a seven year contract with United Airlines to serve all of United's
international and domestic in-flight catering needs out of its Los Angeles hub.
The contract is scheduled to be operational at the end of 2008.
These events mark a turning point for the Group, which we believe will lay the
foundations for growth in the near term.
Summary & outlook
Trading in both Divisions is in line with expectations for the first few months
of 2008, reflecting the benefits of both the operational restructuring and the
new management structure that was implemented during the final quarter of 2007.
Although significant progress has been made, 2008 will be a year of further
challenges with the Group targeting a return to profitability in the existing
business.
Stephen Yapp
30 April 2008
Unaudited summarised consolidated income statement for the 12 months to 31
December 2007
Before Total
exceptional Exceptional 12 months to
items items 31 December 2007
#'000 #'000 #'000
------------------------------------------------------------------------------
Revenue 105,849 - 105,849
Cost of sales (77,697) - (77,697)
------------------------------------------------------------------------------
Gross profit 28,152 - 28,152
Operating and administrative
costs (excluding exceptional
items) (33,390) - (33,390)
Movement in fair value of
derivative financial
instruments (311) - (311)
Exceptional items
Impairment of goodwill - (20,600) (20,600)
Asset retirement - (2,066) (2,066)
Costs of refinancing - (1,836) (1,836)
Re-organisation costs - (309) (309)
------------------------------------------------------------------------------
Total operating and
administrative expenses (33,701) (24,811) (58,512)
Operating loss (5,549) (24,811) (30,360)
Finance costs (1,706) - (1,706)
Finance income 23 - 23
------------------------------------------------------------------------------
(1,683) - (1,683)
Loss before tax attributable
to equity shareholders (7,232) (24,811) (32,043)
Income tax credit 53 - 53
------------------------------------------------------------------------------
Loss after tax attributable
to equity shareholders (7,179) (24,811) (31,990)
==============================================================================
Loss per share (pence)
Basic 69.5p
Diluted 69.5p
Restated summarised consolidated income statement for the 12 months to 31
December 2006
Before
exceptional Exceptional 12 months to
items items 31 December 2006
#'000 #'000 #'000
------------------------------------------------------------------------------
Revenue 93,362 - 93,362
Cost of sales (58,168) - (58,168)
------------------------------------------------------------------------------
Gross profit 35,194 - 35,194
Operating and administrative
costs (excluding exceptional
items) (35,206) - (35,206)
Credit in respect of negative
goodwill 102 - 102
Movement in fair value of
derivative financial
instruments 465 - 465
Write back of provision for
contract losses 619 - 619
Exceptional items
Write back of provision for
contract losses - 1,447 1,447
Re-organisation costs - (2,933) (2,933)
Bad debts - (1,261) (1,261)
Other costs - (797) (797)
------------------------------------------------------------------------------
Total operating and
administrative expenses (34,020) (3,544) (37,564)
Operating profit/(loss) 1,174 (3,544) (2,370)
Finance costs (673) - (673)
Finance income 4 - 4
Movement in fair value of
financial assets (19) - (19)
------------------------------------------------------------------------------
(688) - (688)
Profit/(loss) before tax
attributable to equity
shareholders 486 (3,544) (3,058)
Income tax expense (506) (434) (940)
------------------------------------------------------------------------------
Loss after tax attributable
to equity shareholders (20) (3,978) (3,998)
==============================================================================
Loss per share (pence)
Basic 9.1p
Diluted 9.1p
Unaudited summarised consolidated balance sheet as at 31 December 2007
31 December Restated
2007 31 December 2006
#'000 #'000
-------------------------------------------------------------------------
Assets
Non-current assets
Property, plant and equipment 9,358 9,838
Goodwill 10,010 30,610
Intangible assets 430 2,583
-------------------------------------------------------------------------
19,798 43,031
Current assets
Inventories 7,148 4,487
Trade and other receivables 15,896 18,801
Prepayments 646 887
Current income tax 98 165
Cash and short-term deposits 2,001 9,766
Fair value of derivative financial
instruments 13 324
-------------------------------------------------------------------------
25,802 34,430
-------------------------------------------------------------------------
Total assets 45,600 77,461
=========================================================================
Equity and liabilities
Equity attributable to equity shareholders
of the parent
Issued share capital 467 446
Share premium account 21,582 21,582
Shares to be issued - 2,125
Capital redemption reserve 24 24
Merger reserve 7,621 5,321
Equity element of convertible bonds 282 -
Foreign currency translation reserve (703) (542)
Retained earnings (23,166) 8,574
-------------------------------------------------------------------------
Total equity 6,107 37,530
Non-current liabilities
Interest bearing loans and borrowings 14,235 272
Deferred income tax liabilities - 196
-------------------------------------------------------------------------
14,235 468
Current liabilities
Trade and other payables 24,003 20,394
Interest bearing loans and borrowings 1,239 16,017
Deferred consideration due within one year - 2,518
Current income tax 16 534
-------------------------------------------------------------------------
25,258 39,463
-------------------------------------------------------------------------
Total liabilities 39,493 39,931
-------------------------------------------------------------------------
Total equity and liabilities 45,600 77,461
=========================================================================
Unaudited summarised consolidated cash flow statement for the 12 months to 31
December 2007
12 months to Restated
31 December 12 months to
2007 31 December 2006
#'000 #'000
-------------------------------------------------------------------------
Net cash flows from operating activities
Loss after tax (31,990) (3,998)
Tax (credit)/expense (53) 940
Depreciation and amortisation 1,660 1,574
Negative goodwill on acquisition of
subsidiary - (102)
Exceptional impairment of goodwill 20,600 -
Exceptional asset retirement 2,066 -
Exceptional bad debts - 1,261
Share based payment expense 250 198
Finance income (23) (4)
Finance cost 1,706 673
Movement in fair value of financial assets - 19
Movement in fair value of forward exchange
rate contracts 311 (465)
Movement in other non-cash items (93) -
Increase in inventories (2,690) (1,053)
Decrease in trade and other receivables 3,055 3,325
Increase in trade and other payables 3,904 4,338
-------------------------------------------------------------------------
Cash inflows (used in)/generated from
operations (1,297) 6,706
Interest received 23 4
Interest paid (1,162) (440)
Income taxes paid (594) (336)
-------------------------------------------------------------------------
Net cash inflows (used in)/generated from
operating activities (3,030) 5,934
-------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of property, plant and
equipment 110 7,618
Purchase of property, plant and equipment (1,059) (744)
Purchase of intangible assets (144) (1,672)
Acquisition of subsidiaries, net of cash
acquired (2,322) (2,678)
-------------------------------------------------------------------------
Net cash flows (used in)/generated from
investing activities (3,415) 2,524
-------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issue of convertible bonds 8,000 -
Proceeds from borrowings 6,500 -
Proceeds from issue of shares - 65
Repayment of borrowings owed to
acquisition vendors - (6,919)
Payment of hire purchase and finance lease
obligations (324) (558)
Dividends paid to equity shareholders - (994)
-------------------------------------------------------------------------
Net cash flows generated from/(used in)
financing activities 14,176 (8,406)
-------------------------------------------------------------------------
Net increase in cash and cash equivalents 7,731 52
Net foreign exchange difference (31) 284
Cash and cash equivalents at beginning of
year (5,699) (6,035)
-------------------------------------------------------------------------
Cash and cash equivalents at end of year 2,001 (5,699)
=========================================================================
Unaudited summarised consolidated statement of changes in equity for the 12
months to 31 December 2007
Equity Foreign
Issued Share Shares Capital based currency
share premium to be redemption Merger financial translation Retained Total
capital account issued reserve reserve instruments reserve earnings equity
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
------------------------------------------------------------------------------------------------------------------
At 1
January 2007 446 21,582 2,125 24 5,321 - (542) 8,574 37,530
Currency
translation
differences - - - - - - (161) - (161)
Loss for
the year - - - - - - - (31,990) (31,990)
Cost of
share based
payments - - - - - - - 250 250
Issue of
share
capital 21 - (2,125) - 2,300 - - - 196
Equity
element of
convertible
bonds - - - - - 282 - - 282
------------------------------------------------------------------------------------------------------------------
At 31
December
2007 467 21,582 - 24 7,621 282 (703) (23,166) 6,107
==================================================================================================================
Notes to the unaudited preliminary announcement for the year ended 31 December 2007
1. Publication of non-statutory accounts
The financial information set out in this unaudited preliminary announcement
does not constitute statutory accounts as defined in section 240 of the
Companies Act 1985. The unaudited summarised consolidated balance sheet as at 31
December 2007 and the unaudited summarised consolidated income statement,
unaudited summarised consolidated cash flow statement, unaudited summarised
consolidated statement of changes in equity and associated notes for the year
then ended have been extracted from the Group's draft 2007 financial statements.
The Company's auditors have not yet reported on these financial statements, but
have indicated that their audit report will contain an emphasis on the matter
paragraph drawing attention to the material uncertainty around going concern as
explained in Note 2 below.
The financial information for the year ended 31 December 2006 is derived from
the statutory accounts for that year which have been delivered to the Registrar
of Companies, amended as explained in Note 3 below. The auditors reported on
those accounts; their report was unqualified and did not contain a statement
under s.237(2) or (3) Companies Act 1985.
2. Basis of preparation and statement of compliance
Watermark Group Plc has prepared its consolidated financial statements in
accordance with International Financial Reporting Standards as adopted by the
European Union "IFRS". The Group has also complied with IFRSs as issued by the
ASB.
Going concern
The Group has incurred an operating loss before exceptional items of #5,549,000
and a loss after tax attributable to equity shareholders of #31,990,000 for the
year. During the year the Company issued #8,000,000 Secured Fixed Rate
Convertible Bonds due 2010 (the "Bonds") to provide additional working capital.
However, in the absence of additional cash resources for which the Board has
taken action as described below, the Group's forecasts show that during the next
12 months its existing borrowing facilities will not be sufficient to provide it
with the financial resources necessary to pursue its chosen strategy and hence
to enable it to continue in operational existence in its current form.
In addition to the existing business but as a core component of the strategy,
the Company requires further cash resources to enable it to finance the
expansion of its Air Fayre operations in Los Angeles, USA following the award in
March 2008 of a seven year contract by United Airlines (the "LA contract").
Under the LA contract, cash resources will be required to fund the acquisition
of fixed assets, to fund start-up costs and to meet working capital
requirements.
In order to meet the foregoing financing requirements the Company has entered
into proposals for a capital restructuring and also proposes to raise debt
finance in the USA to finance a proportion of the expenditure required on fixed
assets in relation to the LA contract. Under the capital restructuring proposals
certain of the holders of the Bonds (the "Bondholders") who between them also
hold approximately 21% of the existing ordinary equity, have agreed, conditional
on shareholder approval, to underwrite an issue of new ordinary shares at a
price of 7.5 pence per share (the "Underwriting") to raise approximately
#6,500,000 net of all expenses of the capital restructuring and to convert the
outstanding principal and accumulated interest on their Bonds into new ordinary
shares at a conversion price of 7.5 pence per new ordinary share. As part of
these arrangements the Bondholders have agreed to provide the Company with an
unsecured loan facility of #2,000,000 on normal commercial terms. This facility
is currently available to the Company and will be repaid upon the allotment of
new ordinary shares pursuant to the Underwriting.
The Company's existing borrowing facilities comprise a medium-term loan of
#6,500,000 and a multi-purpose facility of #1,500,000. The medium-term loan is
repayable as to #312,500 on 30 June 2008, #625,000 forthwith following
completion of the proposed fund-raising referred to below and in any event by 31
July 2008, #312,500 on 31 March 2009 and the balance of #5,250,000 in June 2009.
The multi-purpose facility is available, amongst other uses, as an overdraft
facility and as a guarantee facility. It is repayable on demand and reviewed
annually in June. The Directors have not received any indication from the bank
that it intends to withdraw this facility.
A circular setting out details of the proposed capital restructuring and seeking
shareholder consent will be sent to shareholders in due course. The availability
of the proceeds of the issue of new ordinary shares pursuant to the Underwriting
of approximately #6,500,000 net of all expenses will be subject to shareholder
approval at an extraordinary general meeting (the "EGM") of the Company expected
to be called in due course. Assuming approval by shareholders at the proposed
EGM, it is expected that the proceeds will be available during July 2008.
Under the proposals to raise debt finance in the USA to finance a proportion of
the expenditure required on fixed assets in relation to the LA contract, it is
intended to finance the acquisition of the truck fleet and certain other fixed
assets amounting in total to approximately #2,100,000 using asset-based
financing. Enquiries made by the Directors indicate that such finance should be
available, although no such facility has been entered into.
In assessing the financing requirements of the Group the Directors have prepared
forecasts incorporating the foregoing additional cash resources showing the
Group remains within its existing borrowing facility limits and continues to
comply with its banking covenants. As noted above the Company's borrowing
facilities expire in June 2009. The Directors intend to seek appropriate new
borrowing facilities and are confident that such facilities will be available.
In considering the going concern position of the Group the Directors have made
the following principal assumptions:
1) The proposed capital restructuring is approved by shareholders at the EGM
and, in particular, that (a) the proceeds of the issue of new ordinary shares
pursuant to the Underwriting to raise approximately #6,500,000 net of all
expenses is received by the Company in July 2008 and (b) that the unsecured
loan facility of #2,000,000 continues to be available until the net proceeds
of #6,500,000 are received.
2) Financing facilities amounting in total to approximately #2,100,000 are
available in the USA to finance the acquisition of the truck fleet and
certain other fixed assets required under the LA contract.
3) The forecasts prepared by the Directors for the purposes of assessing the
financing requirements of the Group as set out above are accurate in all
material respects and also that as a consequence the Group remains within its
borrowing facility limits and continues to comply with its banking covenants.
4) The Company's multi-purpose facility of #1,500,000 is not withdrawn prior to
June 2009.
5) Appropriate new borrowing facilities will be available following expiry of
the Company's existing borrowing facilities in June 2009.
On the basis of the foregoing assumptions the Directors consider that the Group
has adequate financial resources to continue in operational existence for the
foreseeable future and, therefore, that it is appropriate to adopt the
going concern basis. The unaudited preliminary announcement does not include any
of the adjustments that would result if the Group was unable to continue as a
going concern.
3. Restatement and reclassification of prior year's results
A review of the Group's operational and accounting systems, processes and
internal controls was carried out during the year. This review identified a
number of items which had not been accounted for appropriately during 2006. In
accordance with IAS8 Accounting Policies, Changes in Estimates and Errors, the
nature of the errors and the impact on each financial item affected is stated
below.
The effect of the prior year adjustments is to increase the loss before taxation
attributable to equity shareholders by #1,228,000. The prior year restatements
are as follows:
* The carrying value of inventory in the Services Division and Products
Division has been reduced by #323,000 and #133,000, respectively, with
corresponding charges to cost of sales. Within the Services Division the
closing stock position at 31 December 2006 was overstated due to valuation
errors. Within the Products Division, a provision should have been made
during 2006 against faulty products with a value of #68,000 returned by the
customer before the year end. Additionally, a provision of #65,000 should
have been made for obsolete stock relating to airline branded goods
remaining unsold after contracts had been fulfilled before the end of 2006.
* An adjustment has been made to reduce revenue by #311,000, to write off
all goodwill recorded upon acquisition of International Catering Limited
("ICL") by #209,000 and to credit the difference of #102,000 to the income
statement for the resultant negative goodwill arising upon acquisition. This
is the result of incorrectly recording in the post-acquisition period, a
waiver of certain debts owed by ICL to the vendor as income of the
Group.
* A charge of #188,000 has been made to operating and administrative costs
to correct foreign exchange gains which were incorrectly recorded in
revenue, but which were payable to the joint venture party of a subsidiary
company.
* An adjustment of #140,000 was made to reduce revenue for overbilling to
major customers.
* A charge of #100,000 has been made to operating and administrative costs
for a claim made over the termination of an agency agreement which was not
set up as a liability of the Group at the time the claim was lodged.
* An adjustment has been made to reduce revenue by #95,000 for
contributions made by the vendor of ICL for the purchase of certain assets.
This contribution had been incorrectly included as income rather than being
offset against the deposit paid for the assets.
* An adjustment has been made to reduce revenue by #50,000 for a
contribution made by a supplier towards the marketing of a new asset
purchase which should have been recorded as deferred income until delivery
of the asset was taken.
* Depreciation expense was reduced by #10,000 for the correction in the
value of certain trucks capitalised in prior years.
* Exceptional re-organisation costs have been restated to reclassify
labour costs of #269,000 and asset write offs of #102,000 to non-exceptional
operating and administrative costs and cost of sales, respectively.
The effect of the restatement on the unaudited preliminary announcement is
summarised in the table below:
Consolidated income statement Restated
12 months to
31 December 2006
#'000
----------------------------------------------------------------------------
Decrease in revenue 596
Increase in cost of sales 558
Increase in operating and administrative costs 447
Credit in respect of negative goodwill (102)
----------------------------------------------------------------------------
Reduction in operating profit before exceptional
items 1,499
Increase in exceptional other costs 100
Decrease in exceptional re-organisation costs (371)
----------------------------------------------------------------------------
Increase in loss before taxation attributable to
equity shareholders 1,228
============================================================================
Consolidated balance sheet Restated
31 December 2006
#'000
----------------------------------------------------------------------------
Decrease in property, plant and equipment 86
Decrease in goodwill 209
Decrease in inventories 456
Decrease in trade and other receivables 140
Decrease in prepayments 95
Increase in trade and other payables 338
----------------------------------------------------------------------------
Reduction in net assets 1,324
============================================================================
Decrease in retained earnings brought forward (96)
============================================================================
As a result of the above prior year adjustments and reclassifications, the basic
and diluted loss per share has increased by 2.8 pence from 6.3 pence to 9.1
pence.
4. Segmental reporting
The Watermark Group is organised on a worldwide basis into two primary business
segments, the Products and the Services Divisions. These reportable segments are
the two strategic divisions for which monthly financial information is provided
to the Board.
The Products Division provides a broad range of travel supplies predominately to
the international travel industry on a global basis. The Services Division is a
major supplier of catering and media services to the international travel
industry within the United Kingdom. Both divisions provide marketing, design and
consultancy services. The Services Division is also engaged in supply chain
management.
Whilst the Group's two divisions are managed on a worldwide basis, they operate
in three principal geographical areas of the world which are the United Kingdom,
Europe and the Middle East; Asia and the Americas. The main region where
significant Group revenues are earned is the United Kingdom, Europe and Middle
East and this business is conducted from the United Kingdom. Operations in Asia
are conducted through the Group's Hong Kong subsidiary and in the Americas
through the Group's United States subsidiary, whose offices are in Miami.
Information on primary reporting by business segment and secondary reporting by
geographical region is shown below.
Segment revenue, expenses and results include transfers and transactions between
business segments and between geographical segments. Such transactions are
accounted for at competitive market prices which would be charged to
unaffiliated clients for similar goods. All inter-segment transactions are
eliminated on consolidation.
Segment assets include all operating assets used by a segment and consist
principally of operating cash, receivables, inventories, goodwill and property,
plant and equipment, net of allowances and provisions. Whilst most assets can be
directly attributed to individual segments, the carrying value of certain assets
used jointly by two or more segments is allocated to the segments on a
reasonable basis. Where assets cannot be apportioned, they are classified as
unallocated corporate assets.
Segment liabilities include all operating liabilities and consist principally of
account payables, wages, and accrued liabilities. Where allocation is not
possible across more than one segment, such liabilities are classified as
unallocated corporate liabilities.
Segment assets and liabilities do not include receivable or payable balances in
respect of income taxes.
Exceptional items relate to significant non-recurring expenditure of an unusual
nature.
Segmental information by business segment for 12 months to 31 December 2007
Products Services
Division Division Eliminations Total
12 months to 12 months to 12 months to 12 months to
31 December 31 December 31 December 31 December
2007 2007 2007 2007
#'000 #'000 #'000 #'000
----------------------------------------------------------------------------------------
Revenue
Travel supplies, catering and
media services 32,581 56,014 - 88,595
Supply chain management - 17,254 - 17,254
Net sales to other segments 2,605 - (2,605) -
----------------------------------------------------------------------------------------
Total revenue 35,186 73,268 (2,605) 105,849
========================================================================================
Result
Segment result before exceptional
items 587 (6,200) (39) (5,652)
Exceptional costs
Impairment of goodwill - (20,600) - (20,600)
Re-organisation costs - (262) - (262)
----------------------------------------------------------------------------------------
Segment result 587 (27,062) (39) (26,514)
=========================================================================
Unallocated corporate items 103
Exceptional costs
Asset retirement (2,066)
Costs of refinancing (1,836)
Re-organisation costs (47)
--------
Operating loss (30,360)
Interest expense (1,706)
Interest income 23
Income tax credit 53
--------
Loss after tax (31,990)
========
Other information
Segment assets 11,067 29,479 (1,597) 38,949
Unallocated corporate assets 6,553
--------
45,502
Current income tax 98
--------
Consolidated assets 45,600
========
Segment liabilities (6,730) (18,825) 1,558 (23,997)
Unallocated corporate liabilities (15,480)
--------
(39,477)
Current income tax (16)
--------
Consolidated liabilities (39,493)
========
Products Services
Division Division Eliminations Total
12 months to 12 months to 12 months to 12 months to
31 December 31 December 31 December 31 December
2007 2007 2007 2007
#'000 #'000 #'000 #'000
----------------------------------------------------------------------------------------
Capital expenditure including
intangible assets 250 866 87 1,203
--------------------------------------------------------
Depreciation, impairment and
amortisation 395 15,695 170 16,260
--------------------------------------------------------
Other non-cash (income)/expenses
included within segment results (105) 78 184 157
--------------------------------------------------------
Segmental information by geographical region for 12 months to 31 December 2007
Capital
Turnover Segment assets expenditure
12 months to as at 12 months to
31 December 31 December 31 December
2007 2007 2007
#'000 #'000 #'000
------------------------------------------------------------------------------------
United Kingdom, Europe and Middle East 75,113 31,991 1,129
Asia 9,391 4,682 74
Americas 21,345 8,829 -
------------------------------------------------------------------------------------
105,849 45,502 1,203
====================================================================================
Restated segmental information by business segment for 12 months to 31 December
2006
Products Services
Division Division Eliminations Total
12 months to 12 months to 12 months to 12 months to
31 December 31 December 31 December 31 December
2006 2006 2006 2006
#'000 #'000 #'000 #'000
----------------------------------------------------------------------------------------
Revenue
Travel supplies, catering
and media services 33,872 59,240 - 93,112
Marketing, design,
consultancy and commission - 250 - 250
Net sales to other segments 130 152 (282) -
----------------------------------------------------------------------------------------
Total revenue 34,002 59,642 (282) 93,362
========================================================================================
Result
Segment result before
exceptional items (122) 1,925 - 1,803
Exceptional items
Write back of provision for
contract losses - 1,447 - 1,447
Re-organisation costs (872) (2,061) - (2,933)
Bad debts (1,178) (83) - (1,261)
Other costs (530) (267) - (797)
----------------------------------------------------------------------------------------
Segment result (2,702) 961 - (1,741)
=========================================================================
Unallocated corporate
expenses (629)
---------
Operating loss (2,370)
Interest expense (673)
Interest income 4
Movement in fair value of
financial assets (19)
Income tax (940)
---------
Loss after tax (3,998)
=========
Other information
Segment assets 22,293 52,444 - 74,737
Unallocated corporate assets 2,559
---------
77,296
Current income tax 165
---------
77,461
=========
Segment liabilities (17,128) (14,321) - (31,449)
Unallocated corporate
liabilities (7,752)
---------
(39,201)
Deferred and current income
tax liabilities (730)
---------
Consolidated liabilities (39,931)
=========
Capital expenditure
including
intangible assets 1,026 1,390 - 2,416
----------------------------------------------------------------------------------------
Depreciation, impairment and
amortisation 407 1,167 - 1,574
----------------------------------------------------------------------------------------
Other non-cash expenses
included within segment
results 138 60 - 198
----------------------------------------------------------------------------------------
Restated segmental information by geographical region for 12 months to 31
December 2006
Capital
Turnover Segment assets expenditure
12 months to as at 12 months to
31 December 31 December 31 December
2006 2006 2006
#'000 #'000 #'000
------------------------------------------------------------------------------------
United Kingdom, Europe and
Middle East 77,592 68,722 2,409
Asia 9,210 4,409 7
Americas 6,560 4,165 -
------------------------------------------------------------------------------------
93,362 77,296 2,416
====================================================================================
5. Exceptional items
Restated
12 months to 12 months to
31 December 31 December
2007 2006
#'000 #'000
------------------------------------------------------------------------------
Impairment of goodwill 20,600 -
Asset retirement 2,066 -
Costs of refinancing 1,836 -
Write back of provision for contract losses - (1,447)
Bad debts - 1,261
Other costs - 797
------------------------------------------------------------------------------
24,502 611
Re-organisation costs
- Redundancy and salary costs 262 2,237
- Property closures - 521
- Legal and professional 47 175
------------------------------------------------------------------------------
Total re-organisation costs 309 2,933
------------------------------------------------------------------------------
Total exceptional items 24,811 3,544
==============================================================================
Goodwill impairment
The Group tested the carrying value of its goodwill for impairment as at 31
December 2007 based on future cash flow projections for each of its
cash-generating units, and as a result, has made an impairment charge against
goodwill of #20,600,000. #18,900,000 of this charge relates to Air Fayre Limited
and IFRS (UK) Limited and #1,700,000 relates to Media On The Move Limited, which
are both cash-generating units within the Services Division.
Asset retirement
During 2007, the Group wrote down the value of its Axapta Enterprise Resource
and Planning ("ERP") software and certain associated hardware by #1,930,000 and
#136,000, respectively, for a total charge of #2,066,000. The ERP software had
been implemented in the Group in 2004 and due to the change in business
processes subsequent to the implementation, a number of the modules that had
been customised and developed during implementation were no longer relevant to
the needs of the business. These modules have been identified as generating no
future value to the Group and, accordingly, have been retired from use.
Costs of refinancing
During 2007, the Group expensed costs in the amount of #1,836,000 which relate
to the re-organisation of its financial structure and which culminated in the
issue of #8,000,000 secured fixed rate convertible bonds due in 2010 and the
conversion of the previous bank overdraft facility into a #6,500,000 term loan
and a new #1,500,000 bank overdraft facility.
Write back for provision for contract losses
During 2006, the Group provided for anticipated contract losses when conducting
its fair valuation exercise upon the purchase of International Catering Limited.
The Group fair valued the losses at #2,066,000 at the date of acquisition. The
provision was to be written back over the remaining life of the loss making
contracts. The main loss making contract was terminated early by the client
during 2006 and as a result the remaining provision was written back as an
exceptional credit to the income statement on the termination date. The
exceptional credit in 2006 amounted to #1,447,000.
Bad debts
During 2006, the Group provided for bad debts amounting to #1,261,000. The
majority of the provision amounting to #1,070,000 related to Russian and Middle
Eastern clients in the Products Division. Additionally, the Group had provided
#191,000 for the outstanding debts relating to its associate, AeroTV Limited,
which had ceased trading after the year end.
Re-organisation costs
In April 2006, the Group purchased International Catering Limited and commenced
a restructuring programme. International Catering Limited continues to provide
catering to the international airline industries, but has transitioned its
operations to an outsource model from a fully in-house caterer, although the
Company does retain a small in-house kitchen. During 2006, the Group incurred
significant costs to reorganise the business and in 2007, additional costs of
#262,000 for redundancy and salary costs and #47,000 for professional fees were
incurred, which were above the initial estimates made in 2006. The costs
incurred in 2006 include redundancy costs of #1,374,000 (as restated), property
closure costs of #346,000 and legal costs of #135,000.
During 2006, Air Fayre Limited also incurred redundancy costs amounting to
#206,000, relating predominately to the closure of its airside unit at Heathrow.
During 2006, the Products Division incurred exceptional re-organisation costs
amounting to #804,000 which related to additional costs incurred to fully close
the Hampshire office. Included within this figure were redundancies above
initial estimates amounting to #589,000 and further property closure and legal
costs amounting to #215,000. The Products Division also commenced a
re-organisation of its worldwide operations and as at 31 December 2006 had
incurred redundancy costs amounting to #68,000 which had been recognised in the
accounts in 2006.
The 2006 exceptional re-organisation costs have been restated to reclassify
labour costs of #269,000 and asset write offs of #102,000 to non-exceptional
operating and administrative costs and cost of sales, respectively.
6. Loss per share
Loss per share is calculated by dividing the net loss for the year attributable
to equity shareholders (numerator) of the parent by the weighted average number
of ordinary shares in issue during the year (denominator).
Diluted earnings per share is calculated using the same numerator with the
denominator adjusted for the dilutive effects of share options and shares to be
issued in respect of past acquisitions. As the Group has made a loss in the
current year and previous year, no adjustment is made to the denominator for the
impact of share options and shares to be issued because the potential shares are
anti-dilutive.
Adjusted loss per share, both basic and dilutive, use the denominator described
in the appropriate paragraphs above. For both adjusted basic loss per share and
adjusted diluted loss per share, the numerator is adjusted to remove the post
tax impact of exceptional items from the calculations.
The weighted average number of shares in issue during the year was 46,004,784
(2006: 44,023,354).
The following represents loss data used to calculate basic, diluted and adjusted
loss per share:
Restated
12 months to 12 months to
31 December 31 December
2007 2006
Loss table #'000 #'000
------------------------------------------------------------------------------
Loss after tax attributable to equity
shareholders (31,990) (3,998)
- Exceptional items (post tax) 24,811 3,978
- Movement in the fair value of financial
assets held at fair value through profit or
loss - 19
------------------------------------------------------------------------------
Adjusted net loss after tax attributable to
equity shareholders (7,179) (1)
==============================================================================
Loss per share table Loss per share 12 Restated Loss per
months to 31 share 12 months to
December 2007 31 December 2006
Pence Pence
Basic loss per share 69.5 9.1
Diluted loss per share 69.5 9.1
Adjusted basic loss per share 15.6 nil
Adjusted diluted loss per share 15.6 nil
7. Additional cash flow information
1 January Exchange Non-cash 31 December
2007 Cash flow differences movements 2007
#'000 #'000 #'000 #'000 #'000
---------------------------------------------------------------------------------------
Cash and cash equivalents 9,766 (7,734) (31) - 2,001
Bank loans maturing
within 3 months and
overdrafts (15,465) 15,465 - - -
---------------------------------------------------------------------------------------
(Decrease)/increase in
cash for the year (5,699) 7,731 (31) - 2,001
Finance lease and hire
purchase contracts (824) 324 - - (500)
Convertible bonds - (8,000) - (474) (8,474)
Bank loan - (6,500) - - (6,500)
---------------------------------------------------------------------------------------
Net debt (6,523) (6,445) (31) (474) (13,473)
=======================================================================================
1 January Exchange Non-cash 31 December
2006 Cash flow differences movements 2006
#'000 #'000 #'000 #'000 #'000
---------------------------------------------------------------------------------------
Cash and cash equivalents 6,373 3,490 (97) - 9,766
Bank loans maturing
within 3 months and
overdrafts (12,408) (3,438) 381 - (15,465)
---------------------------------------------------------------------------------------
Increase/(decrease) in
cash for the year (6,035) 52 284 - (5,699)
Finance lease and hire
purchase contracts (1,315) 558 - (67) (824)
---------------------------------------------------------------------------------------
Net debt (7,350) 610 284 (67) (6,523)
=======================================================================================
8. Annual accounts
The annual report and accounts will be posted to all shareholders in May 2008
and will available from the Company's registered office:
The Encompass Centre
International Avenue
Heston
Middlesex
TW5 9NJ
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKCKKNBKBFQB
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