TIDMWTG
RNS Number : 3666A
Watchstone Group PLC
29 September 2020
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Results for the six months ended 30 June 2020
Watchstone (AIM:WTG.L) today announces its results for the six
months ended 30 June 2020.
-- GBP50.5m of cash returned to shareholders in H1 2020 with a
further return of GBP18.4m after the period end in July 2020
-- Completion of the disposal of Healthcare Services for
GBP21.7m recognising a profit of GBP7.5m, net cash received of
GBP18.8m
-- Underlying EBITDA loss of GBP1.4m (2019: loss of GBP1.5m)
-- Total continuing profit before tax of GBP0.7m (2019: loss of GBP4.7m)
-- Group net assets of GBP35.3m at 30 June 2020 (as at 31 December 2019: GBP77.7m)
-- Group cash and term deposits, excluding amounts included
within assets held for sale at 30 June 2020 of GBP37.3m (as at 31
December 2019: GBP71.6m)
-- Group cash at 25 September 2020 of GBP17.2m including amounts
held in escrow (GBP2.0m) but excluding amounts included within
assets held for sale.
For further information:
Watchstone Group plc Tel: 03333 448048
WH Ireland Limited, Nominated Adviser and broker Tel: 020 7220
Chris Hardie 1666
------------------
Update
A full summary of actions and issues was presented in our Annual
Report published in May 2020.
Impact of COVID 19 the United Kingdom leaving the European
Union
Action was taken to reduce costs whilst the Stay at Home and
related COVID-19 measures were in place in the UK and in the
Netherlands where one of ingenie's customers operates. This
included furloughing a small number of ingenie employees amongst
other measures. With the return of driving tests in the UK, the
ingenie business has started to return to pre-COVID-19 levels in
respect of new business volumes.
The Group experienced no material impact from the departure of
the UK from the European Union on 31 January 2020 whilst
transitional measures remain in place.
A significant proportion of the Group's assets are held as cash
and therefore the Group remains relatively insulated from
macroeconomic factors.
Business review
The results of ingenie have improved significantly from H1 2019
despite the impact of COVID-19 restrictions, which included a
temporary halt to driving tests in the UK. The ingenie business has
however inevitably been adversely impacted by COVID-19. The board
of ingenie has taken the steps necessary to protect the business
for when the situation resolves. Revenue for the period to 30 June
2020 was GBP4,766,000 compared to GBP3,315,000 for the same period
in 2019. The loss for the period, net of tax was GBP671,000 (six
months to 30 June 2019, loss of GBP1,810,000). These results
reflect a 53% increase in new business volumes over H1 2019 and the
continued success of the relationship with the ANWB. Furthermore,
in the half, ingenie signed a deal with Endsleigh Insurance for the
provision of an end-to-end telematics, behavioural coaching, data
analytics, policy administration, and claims management solution
built upon ingenie's decade of experience in insurance and
technology.
The Group is committed to a plan to dispose of its ingenie
business and to primarily realise value from this business through
sale. The assets and liabilities of the business have therefore
been included within assets and liabilities held for sale and
classified as Discontinued within the Condensed Consolidated Income
Statement. Comparatives are restated on a consistent basis.
Remaining legal claims and other assets
Other than ingenie, the Group retains no material trading
businesses and the assets of the Group are primarily in cash.
Several non-trading entities remain within the Group which are
primarily retained since they are party to legal action or, for
example, hold onerous property leases (which are provided against).
Additionally, there are three historic investments in unlisted
entities, all impaired to nil.
Litigation in relation to the historic activities of the Group
is being pursued where it is considered that we have a strong case
and where the Board having taken advice, expects a successful
outcome in favour of the Group. These include filed cases against
PricewaterhouseCoopers LLP ("PwC"), Aviva Canada Inc as well as
other potential claims against other parties currently in
contemplation.
The Healthcare Services disposal included deferred contingent
consideration although COVID-19 is likely to have a negative impact
upon the post disposal trading of Healthcare Services which was not
anticipated when the transaction completed. No deferred contingent
consideration has been included within these financial results. As
is customary, the Group has provided time bound warranties to the
purchasers of Healthcare Services.
Financial update
The Group disposed of its Healthcare Services business in
February 2020 for GBP21,713,000 and a profit on disposal of
GBP7,470,000 has been recognised in the period ended 30 June 2020.
Further details are provided in note 9. At 30 June 2020, the Group
was also committed to a plan to dispose of its ingenie business and
to primarily realise value from this business through sale.
Accordingly, the results of both the Healthcare Services
business to the date of disposal (6 February 2020) and ingenie are
included within discontinued operations within the Condensed
Consolidated Income Statement. Comparative amounts have been
restated on a consistent basis. At 30 June 2020, the assets and
liabilities of ingenie are included as held for sale within the
Condensed Consolidated Statement of Financial Position. The assets
and liabilities of Healthcare Services were included as held for
sale within assets and liabilities at 30 December 2019.
Legal update
On 27 April 2020, the Serious Fraud Office ("SFO") informed the
Company that it will not be prosecuted for criminal offences in
respect of those matters which were the subject of its
investigation. The Group has received no further correspondence
during the period in respect of a threatened class legal action
against the Company. As a consequence of these factors GBP2,246,000
of provisions have been released to non-underlying results within
the Condensed Consolidated Income Statement.
The resolution of litigation with Slater & Gordon during
2019 in relation to the disposal of the Professional Services
Division resulted in GBP39,390,000 of amounts placed in escrow
being returned to the Company during 2019 and allowed other cash
reserves to be distributed. Accordingly, the Company returned
GBP50,518,000 to shareholders during the period. Subsequent to the
SFO's decision above, the Company also returned a further
GBP18,398,000 after the period end ("July Return of Cash") .
Further details are provided in note 14.
Cash
Cash and term deposits totalled GBP37,340,000 as at 30 June
2020, excluding amounts included within assets held for sale. The
reduction from GBP71,611,000 at 31 December 2019 was primarily as a
result of GBP50,518,000 being returned to shareholders and
operating cash outflows from ingenie and central costs net of
GBP18,816,000 from the disposal of Healthcare Services and
GBP467,000 in respect of a settlement from a former Director (note
11).
As at 25 September 2020, the Group had cash of GBP17,206,000
(including GBP2,000,000 held in escrow), following the July Return
of Cash to shareholders and excluding amounts included within
assets held for sale.
Principal risks and uncertainties
The principal risks and uncertainties to which the Group is
exposed remain broadly as set out in section 4 of the Strategic
Report included within the Annual Report and Financial Statements
for the year ended 31 December 2019.
Outlook
We remain focussed on resolving the Group's remaining legacy
matters as efficiently as possible and are confident of returning
further cash sums to shareholders in due course.
Directors' Responsibility Statement
Responsibility statement of the Directors in respect of this
interim report.
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting, as adopted
by the EU;
-- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Stefan Borson
Group Chief Executive Officer
On behalf of the Directors
Condensed Consolidated Income Statement
for the period ended 30 June 2020
Six months ended 30 Six months ended 30
June 2020 June 2019
2020 2020 2020 2019 2019 2019
Underlying Non-underlying* Total Underlying Non-underlying* Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue - - - - - -
( (
Cost of sales - - - - - -
Gross profit - - - - - -
Administrative
expenses 4 (1,406) 1,853 447 (1,562) (3,173) (4,735)
Group operating
profit/(loss) (1,406) 1,853 447 (1,562) (3,173) (4,735)
Finance income 248 - 248 222 - 222
Finance expense - - - (214) - (214)
Profit/(loss)
before taxation 4 (1,158) 1,853 695 (1,554) (3,173) (4,727)
Taxation - - - - - -
Profit/(loss)
after taxation
for the period
from continuing
operations (1,158) 1,853 695 (1,554) (3,173) (4,727)
-
Net gain on disposal
of discontinued
operations 9 - 7,470 7,470 - - -
Loss for the period
from discontinued
operations 9 - (922) (922) - (2,553) (2,553)
Profit/(loss)
after taxation
for the period (1,158) 8,401 7,243 (1,554) (5,726) (7,280)
Attributable to:
Equity holders
of the parent (1,158) 8,401 7,243 (1,554) (5,726) (7,280)
Non-controlling - - - - - -
interests
(1,158) 8,401 7,243 (1,554) (5,726) (7,280)
------------------------ ----------- ---------------- -------- ----------- ---------------- ----------
Profit/(loss)
per share (pence):
Basic (2.5) 15.7 (3.4) (15.8)
Diluted (2.5) 15.7 (3.4) (15.8)
------------------------ ----------- ---------------- -------- ----------- ---------------- ----------
Profit/loss per
share from continuing
activities (pence):
Basic 1.5 (10.3)
Diluted 1.5 (10.3)
------------------------ ----------- ---------------- -------- ----------- ---------------- ----------
* Non-underlying results have been presented separately to give
a better guide to underlying business performance (see notes 1 and
5).
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2020
Six months Six months
ended 30 ended 30
June 2020 June 2019
GBP'000 GBP'000
Profit/(loss) after taxation 7,243 (7,280)
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations (471) 549
Total comprehensive profit/(loss) for the
period 6,772 (6,731)
---------------------------------------------------- ----------- -----------
Attributable to:
Equity holders of the parent 6,772 (6,745)
Non-controlling interests - 14
6,772 (6,731)
------------------------------ ------------------ --------
Condensed Consolidated Statement of Financial Position
as at 30 June 2020
At 30 June At 31 December
2020 2019
Note GBP'000 GBP'000
Non-current assets
Other intangible assets - 819
Property, plant and equipment 1 646
Other receivables - 260
1 1,725
--------------------------------------- ----- ----------- ---------------
Current assets
Inventories - 435
Corporation tax - 178
Trade and other receivables 6 568 2,777
Term deposits 15,000 15,000
Cash 22,340 56,611
37,908 75,001
Assets of disposal group held for
sale 9 3,936 27,601
--------------------------------------- ----- ----------- ---------------
Total current assets 41,844 102,602
--------------------------------------- ----- ----------- ---------------
Total assets 41,845 104,327
--------------------------------------- ----- ----------- ---------------
Current liabilities
Trade and other payables 7 (1,507) (4,719)
Provisions 8 (1,527) (4,147)
--------------------------------------- ----- ----------- ---------------
(3,034) (8,866)
Liabilities of disposal group held
for sale 9 (3,488) (17,749)
--------------------------------------- ----- ----------- ---------------
Total current liabilities (6,522) (26,615)
--------------------------------------- ----- ----------- ---------------
Non-current liabilities
Provisions 8 (19) (19)
Deferred tax liabilities (1) (1)
(20) (20)
--------------------------------------- ----- ----------- ---------------
Total liabilities (6,542) (26,635)
--------------------------------------- ----- ----------- ---------------
Net assets 35,303 77,692
--------------------------------------- ----- ----------- ---------------
Equity
Share capital 12 4,604 4,604
Other reserves 88,348 137,486
Retained earnings (57,653) (64,905)
--------------------------------------- ----- ----------- ---------------
Equity attributable to equity holders
of the parent 35,299 77,185
Non-controlling interests 4 507
Total equity 35,303 77,692
--------------------------------------- ----- ----------- ---------------
Condensed Consolidated Cash Flow Statement
for the period ended 30 June 2020
Six months Six months
ended ended
30 June 30 June
Note 2020 2019
GBP'000 GBP'000
Cash flows from operating activities
Cash outflows from operations before exceptional
and non-underlying items, net finance
expense and tax 13 (1,386) (3,860)
Non-underlying cash outflows excluding
discontinued operations (83) (2,996)
Cash used in operations before net finance
expense and tax (1,469) (6,856)
Corporation tax received 178 -
Net cash used by operating activities (1,291) (6,856)
-------------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (516) (521)
Purchase of intangible fixed assets (350) (387)
Disposal of subsidiaries 18,816 -
Investment in term deposits (30,000) (30,000)
Maturity of term deposits 30,000 40,000
Interest income 160 214
Net cash generated from investing activities 18,110 9,306
-------------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Net finance expense (273) (567)
Redemption of preference shares - (886)
Dividends to minority interests (287) -
Return of capital (50,518) -
Net cash used by financing activities (51,078) (1,453)
-------------------------------------------------- ----- ----------- -----------
Net (decrease)/increase in cash and cash
equivalents (34,259) 997
Cash and cash equivalents at the beginning
of the period 57,176 10,113
Exchange losses on cash and cash equivalents (2) (32)
Cash and cash equivalents at the end of
the period 22,915 11,078
-------------------------------------------------- ----- ----------- -----------
Reconciliation of cash to net funds
Term deposits 15,000
Cash 22,340
Cash included within assets held for sale 575
Net funds 37,915
-------------------------------------------------- ----- -----------
Notes to the Interim Statements
1. Preparation of the condensed consolidated financial information
Basis of preparation
The interim financial statements for the six months ended 30
June 2020 have been prepared in accordance with the AIM Rules and
the recognition and measurement requirements of IFRSs as adopted by
the EU. The interim financial information should be read in
conjunction with the Group's Annual Report and Financial Statements
for the year ended 31 December 2019, which were prepared in
accordance with IFRSs as adopted by the EU.
The comparative figures for the financial year ended 31 December
2019 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies. The report of the
auditor was (i) unqualified, (ii) included a reference to matters
to which the auditor drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
The Group's business activities together with the factors that
are likely to affect its future developments, performance and
position are set out in the Update. The interim financial
statements were approved by the Board of Directors on 28 September
2020.
Going Concern
The Group holds significant cash reserves and no material debt.
The Group has concluded that its cash reserves together with
ongoing operating cash flows will be sufficient to fund the ongoing
operations of the Group's activities together with any future needs
of those businesses, and the settlement of legacy matters.
On this basis, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future. The Directors have not
identified any material uncertainties that would cast significant
doubt on the ability of the Group to continue as a going concern.
Therefore the Directors continue to adopt the Going Concern basis
of accounting in the preparation of the Financial Statements.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, this
condensed set of consolidated financial statements have been
prepared in accordance with the AIM Rules.
Significant Accounting Policies
The accounting policies applied by the Group in this condensed
set of consolidated financial statements are the same as those
applied by the Group in its consolidated financial statements for
the year ended 31 December 2019, except for the adoption of new
standards and interpretations as of 1 January 2020. None of these
standards have any significant impact on the accounting policies,
financial position or performance of the Group, as noted below:
-- Amendments to References to Conceptual Framework in IFRS
Standards
-- Definition of Material (Amendments to IAS 1 and IAS 8)
-- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39
and IFRS 7)
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
2. Critical accounting judgements and key sources of estimation
uncertainty
In the process of applying the Group's accounting policies,
management has made a number of judgements, and the preparation of
financial statements requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge of the amount,
event or actions, actual results ultimately may differ from those
estimates.
The key management judgements together with assumptions
concerning the future and other key sources of estimation
uncertainty at 30 June 2020 that have a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities during the current financial year are discussed
below.
Judgement: Classification of businesses as discontinued and held
for sale
At 30 June 2020, the Group was committed to a plan to dispose of
its ingenie business and to primarily realise value from this
business through sale. Similarly, at 30 December 2019, the Group
was committed to the sale of its Healthcare Services business. For
a business to be classified as held for sale the business must be
available for immediate sale in its present condition and the sale
must be highly probable.
In management's view both of these conditions have been met at
the Statement of Financial Position date and consequently the
assets and liabilities of these businesses have been included
within assets and liabilities held for sale. By virtue of being
held for sale, the results of these businesses are also classified
as Discontinued within the Condensed Consolidated Income Statement.
Comparatives are restated on a consistent basis.
Estimate and judgement: Provisions
The Group is aware of a number of legal and regulatory matters
which, by their nature, are subject to significant judgement and
uncertainty. This includes judgements around both the quantum of
any related cash outflows and also the timing. The judgements are
specific to the facts surrounding each case and often involve
historical transactions. All such matters are periodically assessed
with the assistance of external professional advisers, where
appropriate, to determine the likelihood of the Group incurring a
liability and to evaluate the extent to which a reliable estimate
of any liability can be made.
Judgement: Classification of underlying and non-underlying
results
Management is required to exercise its judgement in the
classification of certain items as exceptional and outside of the
Group's underlying results. The determination of whether an item
should be separately disclosed as an exceptional item or other
adjustments requires judgement on its nature and incidence, as well
as whether it provides clarity on the Group's underlying trading
performance. In exercising this judgement, Management take
appropriate regard of IAS 1 "Presentation of financial statements"
as well as guidance issued by the Financial Reporting Council and
the European Securities and Markets Authority on the reporting of
exceptional items and Alternative Performance Measures.
Estimate and judgement: Revenue (within discontinued
operations)
The Group treats a number of contractual promises as single
performance obligations since they are not capable of being
distinct. Management must apply judgement in making this assessment
which has the impact of changing the timing at which revenue is
recognised. Furthermore, where performance obligations are
recognised over time management have assessed that the most
appropriate method is to apportion the revenue evenly over the
duration of the agreement since this best represents the timing of
the transfer of the benefits to the customer.
Where management have reviewed an agreement and consider that it
contains multiple performance obligations the total transaction
price is allocated to each performance obligation, this allocation
may be different to amounts specified in a contract. Where possible
this allocation is made with reference to separate selling prices.
This estimate impacts the timing of recognition of revenue for
these agreements.
In instances where further agreements are made with a customer,
or changes to existing agreements are made, management must apply
judgement in determining if the changes are distinct and therefore
represent a new contract or instead, a contract amendment. The
outcome of this judgement results in the additional revenues either
being recognised entirely prospectively or retrospectively from the
start of the existing agreement.
Judgement: Identifying performance obligations within contracts
with customers
The Group must identify the performance obligations within its
contracts against which revenue is subsequently recognised.
Judgement is applied in determining if the related good or service
is capable of being distinct or if it is distinct in the context of
the contract. In particular, this applies to telematics services
and devices and one-off fees in relation to licences and system
delivery to B2B customers.
It is management's judgement that the telematics device and the
related service represent a single performance obligation delivered
over time and the set-up fees with the related license represent a
single performance obligation recognised over time. The consequence
of this judgement is to spread revenues relating to elements of the
contract over longer periods than if the goods and services were
deemed to be separate performance obligations.
Judgement: Recognition of liabilities arising under the
Distribution Incentive Scheme
As discussed in note 14 and the Directors' Remuneration Report
of the 2019 Annual Report and Financial Statements the Group Chief
Executive Officer is entitled to 5.43% of any distribution over and
above a prescribed distribution hurdle ("DIS Hurdle"). No amounts
have been recognised in these Condensed Consolidated Financial
Statements in respect of this liability despite a distribution
being planned at 30 June 2020 as it is the judgement of management
that the liability does not crystallise, and is materially
uncertain, until Court approval has been obtained for the related
capital reduction and cash return. The impact of this judgement in
relation to the distribution approved on 21 July 2020 is
GBP634,000. The impact of any future distributions is 5.43% of the
amounts to be distributed.
3. Key performance indicators
Six months Six months
ended 30 June ended 30
2020 June 2019
GBP'000 GBP'000
Underlying EBITDA (Note
4) (1,405) (1,537)
----------------------------- --------------- -----------
Underlying group operating
loss (Note 4) (1,406) (1,562)
----------------------------- --------------- -----------
Cash and term deposits
(continuing business) 37,340 71,611*
----------------------------- --------------- -----------
*At 31 December 2019
Reconciliation of Alternative Performance Measures to nearest
GAAP equivalents
Six months Six months
ended 30 June ended 30
2020 June 2019
GBP'000 GBP'000
Underlying EBITDA (1,405) (1,537)
Underlying depreciation and amortisation (1) (25)
------------------------------------------- --------------- -----------
Underlying group operating loss (1,406) (1,562)
Non-underlying group operating
profit/(loss) 1,853 (3,173)
------------------------------------------- --------------- -----------
Group operating profit/(loss) 447 (4,735)
------------------------------------------- --------------- -----------
Further detail regarding non-underlying results is provided in
note 5.
4. Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
At 31 December 2019, this represented a single division, ingenie,
supported by a Group cost centre (denoted as Central below). As
noted in note 9, ingenie has been classified as discontinued during
the period to 30 June 2020 and therefore no longer forms part of
the continuing underlying operations of the Group. The comparative
amounts below have been restated to a consistent basis with the
treatment in 2020.
A reconciliation of alternative performance measure to nearest
GAAP equivalents is presented in note 3.
Central Total
GBP'000 GBP'000
Six months ended 30 June 2020
Underlying administrative expenses excluding
depreciation and amortisation (1,405) (1,405)
Underlying EBITDA (1,405) (1,405)
Depreciation and amortisation (1)
Underlying group operating loss (1,406)
Net finance income 248
Underlying group loss before tax (1,158)
Non-underlying profit before tax 1,853
Total group profit before tax from continuing
operations 695
------------------------------------------------- -------- --------
Central Total
GBP'000 GBP'000
Six months ended 30 June 2019
Administrative expenses excluding depreciation
and amortisation (1,537) (1,537)
Underlying EBITDA (1,537) (1,537)
Depreciation and amortisation (25)
Underlying group operating loss (1,562)
Net finance income 8
Underlying group loss before tax (1,554)
Non-underlying profit before tax (3,173)
Total group profit before tax from continuing
operations (4,727)
-------------------------------------------------- -------- --------
5. Non-underlying administrative expenses
Six months Six months
ended 30 June ended 30
2020 June 2019
GBP'000 GBP'000
Exceptional items:
* Legal expenses (1,371) 2,942
(467) -
* Tax related matters
* Restructuring (15) 231
Total exceptional items (1,853) 3,173
---------------------------------------------- --------------- -----------
Total non-underlying administrative expenses (1,853) 3,173
---------------------------------------------- --------------- -----------
The credit to legal expense includes the release of unused
provisions of GBP2,246,000 net of expenses incurred. Further detail
is provided in note 8. Legal expense during 2019 relates to
additional legal provisions being established and other legal
expenses incurred during the period, net of GBP127,000 partial
provision releases.
The credit to tax related matters relates to a receipt from a
former director as detailed in note 11.
The 2019 restructuring costs relate to the exit of the former
Group Finance Director GBP334,000, net of GBP103,000 of provision
releases in respect of businesses disposed of in prior years.
6. Trade and other receivables
30 June 31 December
2020 2019
GBP'000 GBP'000
Trade receivables (net of impairment provision) - 244
Other receivables 505 1,931
Prepayments 63 602
568 2,777
------------------------------------------------- -------- ------------
7. Trade and other payables
30 June 31 December
2020 2019
GBP'000 GBP'000
Current liabilities
Trade payables 372 729
Payroll and other taxes including social
security 19 84
Accruals 1,073 2,003
Contract liabilities - 1,453
Other liabilities 43 450
1,507 4,719
------------------------------------------ -------- ------------
8. Provisions
Tax related Legal Onerous
matters disputes contracts Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2019 1,700 8,207 87 1,410 11,404
Additional provisions - 2,691 47 100 2,838
Unused amounts
released - (127) - - (127)
Used during the
year - (4,028) (20) (459) (4,507)
Exchange movements - - 6 - 6
-------------------------- -------------- ------------ ----------- --------- ----------
At 30 June 2019 1,700 6,743 120 1,051 9,614
-------------------------- -------------- ------------ ----------- --------- ----------
At 1 January
2020 - 3,803 88 275 4,166
Additional provisions - - - 831 831
Unused amounts
released - (2,246) - - (2,246)
Used during the
year - (85) (15) (693) (793)
Transferred to
liabilities held
for sale - - - (413) (413)
Exchange movements - - 1 - 1
At 30 June 2020 - 1,472 74 - 1,546
-------------------------- -------------- ------------ ----------- --------- ---------- ---
Split:
Non-current - - 19 - 19
Current - 1,472 55 - 1,527
Legal disputes and regulatory matters
In legal cases where the Group is (or would be) the defendant,
such as those set out below and in note 10, defence costs are
provided as the Group is committed to defending the actions. Such
costs are provided for taking into account the range of possible
eventualities given the uncertainty of the outcome. If the Group is
successful in defending such actions, then the final costs may be
lower than the total provision recognised above. No amounts have
been provided for the costs of any settlement, fine or award of
damages.
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 that it did not intend to prosecute the Company for
criminal offences in respect of those matters which were the
subject of the investigation. The investigation itself continues
and the Group continues to co-operate fully.
As detailed in note 10, the Company received a notice of
intended claim during 2019. No further response has been received
from the purported claimants and therefore GBP761,000 of the
related provision for legal fees has been released during the
period ended 30 June 2020. Amounts utilised during the year relates
to legal costs incurred in respect of the above matters.
As a consequence of the facts above GBP2,246,000 of the
provision for legal fees has been released during the period ended
30 June 2020. At 30 June 2020, GBP1,472,000 remains provided for
legal fees since the Company continues to co-operate with the
ongoing SFO investigation and to respond to any future developments
in respect of the notice of intended claim.
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
At 30 June 2020, the remaining amount relates to onerous
property leases. Where contracted income is expected to be less
than the related expected expenditure the difference is provided in
full. The timing and amount of these items can be reasonably
determined. Management are looking to sublet or settle these
obligations within 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 within the ingenie business which are based upon
historic experience within the business and is limited to one year
from policy inception. These amounts have been transferred to
liabilities held for sale along with the other assets and
liabilities of ingenie at 30 June 2020.
9. Discontinued operations and disposals
Loss for the period from discontinued operations:
2020 2019
GBP'000 GBP'000
Healthcare Services (236) (781)
Ingenie (671) (1,810)
Hubio (15) 38
Loss for the period from discontinued operations
net of tax (922) (2,553)
-------------------------------------------------- -------- --------
The sale of Healthcare Services completed in February 2020 and
accordingly the results of this business are included within
discontinued operations within the Condensed Consolidated Income
Statement. The assets and liabilities of Healthcare Services are
presented within assets and liabilities held for sale in the
Condensed Consolidated Statement of Financial Position at 31
December 2019. At 30 June 2020, the Group was committed to a plan
to dispose of ingenie and therefore the results of this business
are also classified as discontinued operations within the Condensed
Consolidated Income Statement. The results for the comparative
period have been restated to the same basis. At 30 June 2020, the
assets and liabilities of ingenie are included within assets and
liabilities held for sale in the Condensed Consolidated Statement
of Financial Position.
Rights around certain potential claims and recoveries remain
with the Group however no amounts are recognised within the results
presented.
The profit recognised in the Condensed Consolidated Income
Statement arising upon the sale of Healthcare Services in February
2020 is as follows:
GBP'000
Sales proceeds 21,713
Net assets at disposal (11,569)
Expenses and other costs of sale (804)
Profit arising on sale 9,340
------------------------------------------------ ---------
Cumulative foreign exchange losses recognised
through OCI (1,870)
------------------------------------------------ ---------
Net profit arising on sale to be recognised
in profit and loss 7,470
------------------------------------------------ ---------
Up to a further CDN $800,000 becomes payable should the business
generate target revenues in the year after disposal. This amount is
not included within the proceeds above.
10. Contingent liabilities
The Group routinely enters into a range of contractual
arrangements in the ordinary course of business which can give rise
to claims or potential litigation against Group companies. It is
the Group's policy to make specific provisions at the Statement of
Financial Position date for all liabilities which, in the opinion
of the Directors, are expected to result in a loss.
On 14 December 2015, the Group received a letter of claim from a
law firm ("Claimant Firm") threatening to commence an action
against the Company under the Financial Services and Markets Act
2000. No proceedings have been commenced to date in respect of this
matter and the last correspondence from the Claimant Firm was
received in June 2016. We therefore believe this purported action
has been discontinued.
Separately, 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
during the year ended 31 December 2019 ("Notice"). The Notice
related to the potential pursuit of a claim arising under section
90A and Schedule 10A of the Financial Services and Markets Act
2000. However, it provided 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.
The Company responded fully to the Notice, outlining its 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. Having taken
external advice, no liability has been recognised at the balance
sheet date as it is not possible to reliably estimate a provision
(if any) in respect of this matter. Defence costs in respect of
this matter have been provided for as set out in note 8.
11. Related party transactions
Transactions with a supplier
As disclosed in note 33 of the 2019 Annual Report and Financial
Statements one of the Group's subsidiaries has entered into an
arms-length agreement with a Company of which Mr Young, a
non-executive Director of Watchstone Group plc is also a
director.
Transactions with former management
On 18 June 2020, GBP467,000 was received from Mr Fielding, who
served as a Director of the Group from 19 June 2014 to 29 May 2015
as settlement for historic tax positions.
12. Share capital
Number Nominal Nominal Nominal
value fully value unpaid value total
paid
000's GBP'000 GBP'000 GBP'000
at 31 December 2019 and
30 June 2020 46,038 4,593 11 4,604
------------------------- ------- ------------- -------------- -------------
13. Cash flow from operating activities
Six months Six months
ended 30 ended 30
June 2020 June 2019
Profit/(loss) after tax 7,243 (7,280)
Tax - 10
Finance expense 273 600
Finance income (248) (222)
Operating profit/(loss) 7,268 (6,892)
Adjustments for:
Non underlying cash out flows excluding discontinued
operations 83 2,996
Depreciation of property, plant and equipment 734 1,782
Amortisation of intangible assets 265 747
Loss on disposal of plant, property and equipment 102 3
Profit on disposal of subsidiary undertakings (7,470) -
and operations
Operating cash flows before movements in
working capital and provisions 982 (1,364)
Decrease/(increase) in inventories 435 (40)
Decrease/(increase) in trade and other receivables 17,302 (405)
(Decrease) in trade and other payables (20,105) (2,051)
Cash outflows from operations before exceptional
and non-underlying items, net finance expense
and tax (1,386) (3,860)
------------------------------------------------------- ----------- -----------
14. Post balance sheet events
On 21 July 2020, the High Court of Justice in England and Wales
approved a further reduction of the Company's share capital
enabling the subsequent return of GBP18,398,000 to shareholders,
taking the total returned to holders of ordinary shares during 2020
to GBP68,944,000. The approval of July Return of Cash exceeded the
DIS Hurdle and crystallised a payment of GBP634,000 to Mr Borson.
Further details of the scheme can be found in the Directors'
Remuneration Report of the 2019 Annual Report and Financial
Statements.
On 7 August 2020, the Company filed and served a claim against
PwC in the High Court. The Particulars of Claim are available on
written application to the Commercial Court, alternatively online
at the HM Courts & Tribunals e-filing Service.
Officers and Advisors
Directors
Mr R Rose (Chairman)
Rt. Hon. Lord M Howard
Mr D Young
Mr S Borson
Company Secretary
Mr S Borson
Registered Office
Highfield Court
Tollgate, Chandler's Ford
Eastleigh
Hampshire, SO53 3TY
Company Registration No. 05542221
Bankers
Royal Bank of Scotland Plc
Abbey Gardens
4 Abbey Street
Reading, RG1 3BA
Broker and Nominated Advisor
WH Ireland Limited
24 Martin Lane
London, EC4R 0DR
Auditor
BDO LLP
Arcadia House
Maritime Walk
Southampton, SO14 3TL
Solicitors
Dorsey & Whitney LLP
199 Bishopsgate
London, EC2M 3UT
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London, EC2A 2EG
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent, BR3 4TU
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END
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(END) Dow Jones Newswires
September 29, 2020 02:00 ET (06:00 GMT)
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