TIDMWTG
RNS Number : 6988M
Watchstone Group PLC
13 May 2020
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Preliminary results for the year ended 31 December 2019
Watchstone (AIM:WTG.L) today announces its results for the year
ended 31 December 2019.
-- Revenues of GBP7.3m (2018: GBP7.8m).
-- Total profit after tax GBP30.9m (2018: Loss of GBP18.9m)
-- Underlying(2) EBITDA(3) loss of GBP5.5m (2018: GBP5.4m)
-- Group operating loss of GBP6.8m (2018: GBP19.0m)
-- Group net assets of GBP77.7m representing approximately 169
pence per share (2018: 101 pence per share)
-- Underlying central costs(1) reduced to GBP2.9m (2018: GBP3.5m)
-- Group cash and term deposits at 31 December 2019 of GBP71.6m (31 December 2018: GBP50.1m)
-- Group cash and term deposits at 30 April 2020 of GBP89.0m
(1) A reconciliation of underlying central costs to statutory
measures can be found in the Financial Statements.
(2) Underlying comprises ingenie and Central.
(3) EBITDA is Earnings Before Interest Tax Depreciation and
Amortisation. A reconciliation of statutory measures to alternative
measures can be found in the Financial Statements.
The Annual Report and Accounts for the year ended 31 December
2019 will be released by 31 May 2019 and posted to registered
shareholders. Once published, the Annual Report and Accounts will
be available at www.watchstonegroup.com/investors .
The 2020 AGM will be held on 24 June 2020 in London. Notice of
the Annual General Meeting ("AGM") will be posted to registered
shareholders in due course. The evolving COVID-19 situation and the
related Government restrictions will likely impact the ability of
shareholders to attend the AGM in person. The situation regarding
COVID-19 is evolving rapidly and the Company is following the
health advice of the UK Government and Public Health England.
Shareholders are encouraged to monitor the Company's website for
any further updates in relation to arrangements for the AGM.
For further information:
Watchstone Group plc Tel: 03333 448048
investor.relations@watchstonegroup.com
Tel: 020 7220
WH Ireland Limited, Nominated Adviser and broker 1666
------------------
Chris Hardie
Lydia Zychowska
------------------
Chairman's Report
2019 was an important year for the Group as we continue along
the path of resolving the outstanding legacy issues of the Group
and the divesting of our operating businesses. Once again, we
reduced costs and the size of our central overhead with Board
changes, the closure of our central office and further reduction of
other such costs.
A huge amount of work was required by us to defend the serious
but unmerited claims made by Slater & Gordon (UK) 1 Limited
("S&G") which we ultimately settled shortly before the
commencement of the trial in October 2019. During the course of the
S&G litigation we identified claims against other third parties
which we are pursuing.
After the year end, on 27 April 2020, the Serious Fraud Office
("SFO") informed us that the Company will not be prosecuted for
criminal offences in respect of those matters which were the
subject of the investigation. We are pleased with this outcome
which came after full co-operation and engagement with the SFO.
We remain on track with the execution of our plan to prepare our
businesses for future disposal and to do so when appropriate. In
September 2019, an agreement was reached to dispose of our Canadian
physiotherapy clinic and technology business, ptHealth, and the
transaction completed in February 2020 after regulatory approval.
We believe this represents good value for our shareholders and I
would like to thank the Healthcare Services team for their hard
work during the Group's ownership of the business. We wish them
well under their new ownership.
These events have left the Group with significant cash reserves
and we are taking steps to return the majority of this to
shareholders in a tax efficient manner, being mindful of the
continuing legal matters in the Group. As announced in April 2020,
notwithstanding the COVID-19 situation, we hope to complete this
further cash return of GBP50.5m before the end of June 2020. The
shareholders approved this return of cash on 27 April 2020, and if
approved by the Court, this would bring the total cash returned to
shareholders to approximately GBP465 million in aggregate. As we
continue to resolve the remaining legacy issues, we hope to return
more cash to shareholders as soon as practicable.
We continue to address these historical matters and to manage
our remaining trading business, ingenie, to maximise future value
for shareholders.
ingenie's business has been on a journey of development and
recovery for some time but has inevitably been impacted by the
COVID-19 restrictions and its board has taken the steps necessary
to protect the business for when the situation resolves.
There is still much work to be done, both at the Group level and
within ingenie, and I would like to thank our colleagues for their
commitment. I would also like to thank our shareholders who have
been patient and maintained support for the Company as the intense
work to maximise value from all our assets has continued. As
always, the Board remains confident that we will go on to reward
that support.
Richard Rose
Non-executive Chairman
Group Chief Executive's Update
When I became Group Chief Executive Officer in January 2018, I
used an analogy that we were trying to land a number of planes
concurrently circling overhead to describe the complex task in
hand. Our aim has been to land as many of the planes as quickly,
safely and efficiently as possible. With the matters completed in
2019 and since year end we are now well advanced on that plan.
Having resolved the S&G litigation and disposed of our
Healthcare Services business we will be distributing the majority
of our excess cash to shareholders (subject to Court approval)
before the half year. On 27 April 2020, we were notified by the SFO
that, whilst the investigation being undertaken by it into
historical matters continues, the Company is no longer a suspect
and will not be liable to prosecution. This was another major
development towards our ultimate aims of resolving all of our
remaining legacy matters and generating as much value as we can
from our remaining assets.
Business review: ingenie
In March 2019, ingenie completed a transformational move of its
policy administration to a new provider. This significant
development allows ingenie's consumer business to better control
its proposition and whilst ingenie's retail business continued to
face difficult market conditions in 2019, changes are now bearing
fruit with new policy sales at their highest levels for a number of
years. The programme supporting our external customer in the
Netherlands, ANWB, continues to perform well and the contract was
extended during the year. Furthermore, ingenie recently signed a
deal with a leading insurance brand to provide their telematics
offering. This will also add incremental revenues to both the
retail and SaaS/B2B sides of the business. ingenie's business has
been inevitably impacted by the COVID-19 restrictions and its board
has taken the steps necessary to protect the business for when the
situation resolves.
Update on outstanding legacy matters
We will continue to cooperate with the continuing SFO
investigation but the Company itself is no longer a suspect and
will not be prosecuted in respect of it.
Whilst we understand that the previously threatened class action
litigation first announced in September 2015 has been abandoned, a
firm purporting to act for a group of twelve individuals (some of
whom participated in the original threatened litigation) submitted
a "Notice of intended claim" to the Company in November 2019.
However, it provides no information to support the validity or
valuation of the individual prospective claimants' claims, which
they would be required to prove in due course in any litigation. We
responded fully to this correspondence, outlining our view that the
purported claim had no legal merit, because the legal tests for
bringing a claim of this sort were not satisfied. The Company will
vigorously defend all such claims if so brought.
We continue to pursue a number of contingent but valuable assets
including potential legal claims.
2020 outlook
We will look to dispose of our remaining trading business when
we believe the optimal return for shareholders can be achieved and
will manage the business prudently until this time whilst
continuing to support development of its leading market offering
and technology. Central costs will be carefully managed at reduced
levels consistent the needs of the organisation.
Stefan Borson
Group Chief Executive Officer
Consolidated Income Statement
for the year ended 31 December 2019
2019 2019 2019 2018 2018 2018
Underlying Non-underlying* Total Underlying Non-underlying* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 7,342 - 7,342 7,841 - 7,841
Cost of sales (5,366) - (5,366) (4,375) - (4,375)
Gross profit 1,976 - 1,976 3,466 - 3,466
Administrative
expenses (8,084) (651) (8,735) (9,112) (13,338) (22,450)
Group operating
loss (6,108) (651) (6,759) (5,646) (13,338) (18,984)
Finance income 389 - 389 355 - 355
Finance expense (259) - (259) 19 - 19
Loss before
taxation (5,978) (651) (6,629) (5,272) (13,338) (18,610)
Taxation 178 3 181 167 - 167
Loss after
taxation for
the year from
continuing
operations (5,800) (648) (6,448) (5,105) (13,338) (18,443)
Net gain on
disposal of
discontinued
operations - - - - 558 558
Profit/(loss)
for the year
from discontinued
operations,
net of taxation - 37,342 37,342 - (1,019) (1,019)
Profit/(loss)
after taxation
for the year (5,800) 36,694 30,894 (5,105) (13,799) (18,904)
--------------------- ----------- ---------------- -------- ----------- ---------------- ---------
Attributable
to:
Equity holders
of the parent (5,800) 36,669 30,869 (5,105) (13,799) (18,904)
Non-controlling
interests - 25 25 - - -
(5,800) 36,694 30,894 (5,105) (13,799) (18,904)
-------------------- ----------- ---------------- -------- ----------- ---------------- ---------
Earnings/(loss)
per share (pence):
Basic (12.6) 67.1 (11.1) (41.1)
Diluted (12.6) 67.1 (11.1) (41.1)
----------------------- ------- ------- ------- -------
Loss per share
from continuing
operations (pence):
Basic (14.0) (40.1)
Diluted (14.0) (40.1)
----------------------- ------- ------- ------- -------
*Non-underlying results have been presented separately to give a
better guide to underlying business performance.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2019
2019 2018
GBP'000 GBP'000
Profit/(loss) after taxation 30,894 (18,904)
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations (6) (365)
Total comprehensive income/(loss) for the
year 30,888 (19,269)
---------------------------------------------------- -------- ---------
Attributable to:
Equity holders of the parent 30,856 (19,234)
Non-controlling interest 32 (35)
30,888 (19,269)
------------------------------ ------- ---------
Consolidated Statement of Financial Position
as at 31 December 2019
2019 2018
GBP'000 GBP'000
Non-current assets
Goodwill - 8,157
Other intangible assets 819 3,144
Property, plant and equipment 646 1,854
Other receivables 260 759
1,725 13,914
------------------------------------------ --------- ---------
Current assets
Inventories 435 760
Corporation tax 178 -
Trade and other receivables 2,777 5,110
Term deposits 15,000 40,000
Cash 56,611 10,113
75,001 55,983
Assets of disposal group classified 27,601 -
as held for sale
Total current assets 102,602 55,983
Total assets 104,327 69,897
------------------------------------------ --------- ---------
Current liabilities
Cumulative redeemable preference
shares - (2,209)
Trade and other payables (4,719) (8,201)
Provisions (4,147) (11,319)
(8,866) (21,729)
Liabilities of disposal group classified (17,749) -
as held for sale
Total current liabilities (26,615) (21,729)
------------------------------------------ --------- ---------
Non-current liabilities
Cumulative redeemable preference
shares - (1,278)
Provisions (19) (85)
Deferred tax liabilities (1) (1)
(20) (1,364)
------------------------------------------ --------- ---------
Total liabilities (26,635) (23,093)
------------------------------------------ --------- ---------
Net assets 77,692 46,804
------------------------------------------ --------- ---------
Equity
Share capital 4,604 4,604
Other reserves 137,486 137,827
Retained earnings (64,905) (96,288)
Equity attributable to equity holders
of the parent 77,185 46,143
Non-controlling interests 507 661
Total equity 77,692 46,804
------------------------------------------ --------- ---------
Consolidated Cash Flow Statement
for the year ended 31 December 2019
2019 2018
GBP'000 GBP'000
Cash flows from operating activities
Cash used in operations before exceptional
costs, net finance expense and tax (1,639) (1,672)
Non underlying cash in/(out) flows excluding
discontinued operations 32,616 (6,834)
Cash generated by/(used in) operations
before net finance expense and tax 30,977 (8,506)
Net cash generated by/(used by) operating
activities 30,977 (8,506)
------------------------------------------------ --------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (5,732) (1,411)
Purchase of intangible fixed assets (693) (1,057)
Disposal of subsidiaries net of cash foregone - 87
Investment in term deposits (75,000) (100,000)
Maturity of term deposits 100,000 100,000
Interest income 333 349
Recovery of fully impaired investment - 250
Net cash generated by/(used in) investing
activities 18,908 (1,782)
------------------------------------------------ --------- ----------
Cash flows from financing activities
Finance expense paid (1,052) -
Finance income received 56 -
Redemption of preference shares (1,832) (2,454)
Finance lease repayments - (4)
Net cash used in financing activities (2,828) (2,458)
------------------------------------------------ --------- ----------
Net increase/(decrease) in cash and cash
equivalents 47,057 (12,746)
Cash and cash equivalents at the beginning
of the year 10,113 22,808
Exchange gains on cash and cash equivalents 6 51
Cash and cash equivalents at the end of
the year 57,176 10,113
------------------------------------------------ --------- ----------
The above Consolidated Cash Flow Statement includes cash flows
from both continuing and discontinued operations.
As at 31 December 2019, the Group had cash and cash equivalents
of GBP57,176,000 (2018: GBP10,113,000) of which GBP565,000 (2018:
GBPnil) is included within assets held for sale. The Group also has
term deposits of GBP15,000,000 (2018: GBP40,000,000).
Notes:
1. Results announcement
The Financial Statements for the year ended 31 December 2019
have been prepared in accordance with International Financial
Reporting Standards and IFRIC interpretations adopted by the
European Union (EU) (adopted IFRS). However, this announcement does
not contain sufficient information to comply with adopted IFRS. The
Group will publish its Annual Report and Financial Statements by 31
May 2020 and these will appear on the Group's website at
www.watchstonegroup.com and be posted to shareholders . The
auditors have reported on those accounts; their report was (i)
unqualified; and (ii) did not contain a statement under Section 498
(2) or (3) of the Companies Act 2006. The financial information set
out in this announcement does not constitute the Group's statutory
accounts for the year ended 31 December 2019. Statutory accounts
for the year ended 31 December 2018 have been delivered to the
Registrar of Companies and those for the year ended 31 December
2019 will be delivered following the AGM. This preliminary
announcement was approved by the Board of Directors on 12 May 2020
and these preliminary results have been extracted from the audited
results for the year ended 31 December 2019.
2. Consolidated Income Statement presentation
The Income Statement is presented in three columns. This
presentation is intended to give a better guide to underlying
business performance by separately identifying adjustments to Group
results which are considered to either be exceptional in size,
nature or incidence, relate to businesses which do not form part of
the continuing business of the Group, or have potential significant
variability year on year in non-cash items which might mask
underlying trading performance. The columns extend down the Income
Statement to allow the tax and earnings per share impacts of these
transactions to be disclosed. Equivalent elements of the Group
results arising in different years, including increases in or
reversals of items recorded, are disclosed in a consistent
manner.
3. Business segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker
(the Board). The Group historically operated two segments, being
Healthcare Services and ingenie.
During the year ended 31 December 2019, Healthcare Services was
classified as discontinued and therefore no longer forms a
reportable segment. The continuing business at 31 December 2019
consequently represents a single division, ingenie supported by a
Group cost centre ("Central" below). The principal activities of
ingenie is telematics based insurance broking and technology
solutions provider. Central is a cost centre carrying the
administrative expenses of running the Group.
Segment information about these businesses is presented
below.
ingenie Central Total
GBP'000 GBP'000 GBP'000
Year ended 31 December 2019
Underlying revenue 7,342 - 7,342
Underlying cost of sales (5,366) - (5,366)
Underlying gross profit 1,976 - 1,976
Underlying administrative
expenses excluding depreciation
and amortisation* (4,566) (2,911) (7,477)
Underlying EBITDA (2,590) (2,911) (5,501)
----------------------------------- -------- -------- --------
Depreciation and amortisation* (607)
Underlying Group operating
loss (6,108)
Net finance income 130
Underlying Group loss before
tax (5,978)
Non-underlying adjustments (651)
Total Group loss before tax
from continuing operations (6,629)
----------------------------------- -------- -------- --------
ingenie Central Total
GBP'000 GBP'000 GBP'000
Year ended 31 December 2018
Underlying revenue 7,841 - 7,841
Underlying cost of sales (4,375) - (4,375)
Underlying gross profit 3,466 - 3,466
Underlying administrative
expenses excluding depreciation
and amortisation* (5,391) (3,514) (8,905)
Underlying EBITDA (1,925) (3,514) (5,439)
----------------------------------- -------- -------- ---------
Depreciation and amortisation* (207)
Underlying Group operating
loss (5,646)
Net finance income 374
Underlying Group loss before
tax (5,272)
Non-underlying adjustments (13,338)
Total Group loss before tax
from continuing operations (18,610)
----------------------------------- -------- -------- ---------
* Depreciation added back above when calculating Underlying
EBITDA from continuing operations excludes depreciation on
telematics devices of GBP782,000 (2018: GBP1,497,000) which is
included within cost of sales. The depreciation of telematics
devices is included within cost of sales since they directly
generate revenue for the business and are therefore included in
gross margin.
4. Non-underlying results
Non-underlying administrative expenses are analysed as
follows:
Year ended 31 December 2019 2018
GBP'000 GBP'000
Exceptional items:
* Legal expenses 1,554 5,688
* Legal settlements (1,026) (160)
* Tax related matters - (1,612)
* Net impairments of non-cash assets - 9,148
* Restructuring 123 (251)
Total exceptional items 651 12,813
---------------------------------------------- -------- --------
Other adjustments:
* Amortisation of acquired intangibles - 525
Total other adjustments - 525
---------------------------------------------- -------- --------
Total non-underlying administrative expenses 651 13,338
---------------------------------------------- -------- --------
Amortisation represents a non-cash charge relating to
acquisition accounting and is not taken into account by management
when reviewing operational performance of the Group.
The legal expense includes GBP3,701,000 of additional legal fee
provisions in respect of legal claims, GBP3,412,000 of which was
utilised during the year in achieving settlement with S&G. The
settlement resulted in GBP2,797,000 of provision releases which are
netted off of the expense.
The legal settlement credit of GBP1,026,000 relates to a
settlement with former management.
The credit for the period ended 31 December 2018 of GBP160,000
includes credits of GBP1,328,000, being two settlements with former
management. This is partially offset by an expense of GBP1,168,000,
also relating to a settlement with former management.
Tax related matters in 2018 mainly comprises the release of
unused provisions which were created in previous periods.
The restructuring expense of GBP123,000 is stated after taking
into account the release of unused provisions of GBP211,000.
Net impairments of non-cash assets above relates to:
Year ended 31 December 2019 2018
GBP'000 GBP'000
Goodwill - 9,081
Other intangible assets - 317
Investments - (250)
- 9,148
----------------------------------- --------
5. Goodwill
The movement in goodwill is as follows:
Goodwill
GBP'000
Cost
At 1 January 2018 96,989
Exchange differences (926)
At 1 January 2019 96,063
Exchange differences 415
Transfer to assets held for sale (37,328)
At 31 December 2019 59,150
---------------------------------- ---------
Impairment
At 1 January 2018 79,546
Charge 9,081
Exchange differences (721)
At 1 January 2019 87,906
Exchange differences 323
Transfer to assets held for sale (29,079)
At 31 December 2019 59,150
---------------------------------- ---------
Net book value
31 December 2019 -
---------------------------------- ---------
31 December 2018 8,157
---------------------------------- ---------
At 31 December 2019, goodwill relating to Healthcare Services
was included within assets held for sale. This was assessed as
being fully recoverable based upon the pending disposal of the
business at a surplus over the carrying value of the net assets.
The disposal was subsequently completed in February 2020.
The goodwill of ingenie was fully impaired at 31 December
2018.
6. Provisions
Tax related Legal Onerous
matters disputes contracts Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2018 3,193 7,442 492 1,984 13,111
Additional provisions - 3,752 - 430 4,182
Unused amounts
released (1,493) (96) (156) (167) (1,912)
Used during the
year - (2,891) (272) (836) (3,999)
Exchange movements - - 23 (1) 22
-------------------------- -------------- ------------ ------------- ---------- ---------
At 1 January 2019 1,700 8,207 87 1,410 11,404
Additional provisions - 3,701 47 409 4,157
Unused amounts
released (1,700) (127) - (1,010) (2,837)
Used during the
year - (7,978) (48) (534) (8,560)
Exchange movements - - 2 - 2
At 31 December
2019 - 3,803 88 275 4,166
-------------------------- -------------- ------------ ------------- ---------- ---------
Split:
Non-current - - 19 - 19
Current - 3,803 69 275 4,147
Tax related matters
A provision for tax-related matters had been established in
previous years with respect to judgemental tax positions primarily
in relation to historical PAYE and VAT issues. During the year
ended 31 December 2018, the outstanding PAYE issues were resolved
and resulted in GBP693,000 of provision being released to the
income statement. Further information also become available during
the year allowing an improved estimate to be made of the liability,
resulting in GBP800,000 of the provision being released to the
income statement.
As part of the settlement announced on 19 October 2019 with
S&G, S&G assumed the liability for historical disputed VAT
amounts against which S&G had previously been indemnified for
by the Group in respect of the disposal of the PSD. Consequently,
the remaining provision was reversed.
Legal disputes and regulatory matters
In legal cases where the Group is (or would be) the defendant,
defence costs are provided as the Group is committed to defending
the actions. Such costs are provided for at the mid-range of
possible eventualities given the uncertainty of the outcome, this
range is reassessed on a continuous basis. If the Group is
successful in defending such actions, then the final costs may be
lower than the total provision recognised above. Additional
provisions and amounts used during the year in the table above
primarily relate to higher than expected legal costs in the defence
of the claim from S&G settled during the year.
The remaining provision at 31 December 2019 represents the costs
of additional legal fees in respect of the Group's defence against
any proposed class action and in respect of the ongoing
investigation by the SFO (albeit the Company has been informed it
will not be prosecuted and is not a suspect in the investigation).
The provisions will be utilised further as the matters
progress.
In legal cases where the Group is the claimant (or counter
claimant), costs are not provided as there is no obligation to
proceed and the Group is not contractually committed to incur
costs.
Onerous contracts
Where contracted income is expected to be less than the related
expected expenditure the difference is provided in full. At 31
December 2018 the provision related exclusively to the maximum
exposure remaining under a single onerous property lease, the
timing of which may be reliably determined. During the year ended
31 December 2019 a further, non-property contract has been
identified as onerous and has been provided for in full. The latter
item is expected to be resolved during the next twelve months.
Other
Provisions have been established for expected costs where a
commitment has been made at the balance sheet date and for which no
future benefit is anticipated. These primarily relate to policy
cancellations which are based upon historic experience within the
business and is limited to one year from policy inception.
Additional amounts relate to commission clawback within
non-underlying businesses and warranties provided by the Group.
Unused amounts reversed and amounts used represents the result of
legal settlements for less than the amount provided at 31 December
2018. The majority of the remaining balance relating to
non-underlying businesses at 31 December 2019 was settled in
January 2020.
7. SFO investigation
On 5 August 2015, the SFO informed the Group that it had opened
an investigation, which relates to past business and accounting
practices at the Group. At 31 December 2019 the Group was unable to
reliably estimate the amount or timing of any potential penalty or
settlement and therefore, having taken external advice, had not
established a provision. The Group had however established a
provision for legal costs associated with the ongoing
investigation.
On 27 April 2020, the SFO informed the Company of its decision
not proceed to prosecute the Company for criminal offences in
respect of those matters which were the subject of the
investigation. The investigation continues and the Group continues
to co-operate fully.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFUESEESSEDI
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