TIDMWTG
RNS Number : 7008X
Watchstone Group PLC
06 May 2021
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Preliminary results for the year ended 31 December 2020
Watchstone Group plc (WTG.L) today announces its results for the
year ended 31 December 2020.
-- GBP68.9m of cash returned to shareholders (2019: GBPnil)
-- Total profit after tax GBP7.7m (2019: GBP30.9m)
-- Group operating loss of GBP1.4m (2019: GBP3.6m)
-- Group net assets of GBP17.1m representing approximately 37
pence per share (2019: 169 pence per share)
-- Group cash and term deposits at 31 December 2020 of GBP16.7m
(31 December 2019: GBP71.6m) not including amounts held in escrow
of GBP1.9m (2019: GBPnil)
-- Group cash and term deposits at 31 March 2021 of GBP15.3m not
including amounts held in escrow of GBP1.8m
The Annual Report and Accounts for the year ended 31 December
2020 will be released by 31 May 2021 and posted (where applicable)
to registered shareholders. Once published, the Annual Report and
Accounts will be available at www.watchstonegroup.com/investors
.
The 2021 Annual General Meeting ("AGM") will be held on 29 June
2021 in London. As announced on 23 April 2021, pursuant to AIM Rule
41, the Company intends to seek shareholder approval for the
cancellation of trading of its Ordinary Shares on AIM at the
AGM.
The Company's Circular relating to the proposed Cancellation of
Admission of Ordinary Shares to trading on AIM and the Notice of
the AGM will be published on the Company's website at
https://www.watchstonegroup.com/investors/shareholder-information/
.
For further information:
Watchstone Group plc Tel: 03333 448048
investor.relations@watchstonegroup.com
WH Ireland Limited, Nominated Adviser and broker Tel: 020 7220 1666
---------------------
Chris Hardie
Lydia Zychowska
---------------------
Chairman's Report
The Group achieved a number of significant milestones in 2020,
consistent with our plan to dispose of businesses when appropriate,
resolve legacy issues and return cash to shareholders.
Taking these objectives in turn, the disposal of our Canadian
Physiotherapy business completed in February 2020 after regulatory
approval. In light of the impact of COVID-19 around the world,
particularly for face to face service industries, the timing was
fortuitous. Whilst this has adversely impacted the recovery of
additional contingent consideration from the sale, the Group has
recorded a profit on disposal and resultant cash inflows rather
than experiencing a significant cash drain which would have
inevitably occurred owning this business through this difficult
period.
The disposal of ingenie in November 2020 completed the process
of disposing of our trading businesses and we wish our former
colleagues every success under the new ownership of the
business.
In 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
continue to co-operate with the SFO in their remaining ongoing
investigation. We have received no further correspondence in
respect of the threatened shareholder class actions since November
2019.
The disposal of businesses and resolution of legacy matters has
allowed us, with Court approval, to return a further GBP68.9m to
shareholders during 2020 taking the total to almost GBP500m.
We continue to pursue litigation both in the UK and Canada where
we believe we have a very strong case and therefore it is in the
interests of shareholders. We plan to make further returns to
shareholders as, and when, the outcome to our litigation becomes
clearer.
In accordance with the AIM Rules, the disposal of ingenie
constituted a fundamental change of business and the Company was
classified by AIM as an AIM Rule 15 cash shell leading to our
suspension from AIM. Accordingly, the Board were keen to provide
shareholders with the services of a regulated market and a trading
facility while it pursues its litigation assets and its strategy
unfolds. Therefore, we decided to apply for admission of our shares
to trading on the AQSE Growth Market operated by the Aquis Stock
Exchange. Our Acquis listing commenced after the year end on 30
April 2021.
I would like to thank our now former colleagues for their
commitment as we have worked through a difficult but ultimately
successful year. I would also once again like to thank our
shareholders who have been patient in waiting for the cash returns
which recommenced in 2020 and for their support for the Company as
the 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
2020 was another key year for the Group as we continued to
address the remaining operational and litigation assets and issues.
In the year, we completed the sale of the Healthcare Services
division and the ingenie business, our final remaining operating
assets. Both businesses are well placed for future success in their
new owners' hands and we wish them well.
We successfully defended the Group against further putative
claims and it is now more than 17 months since the threat of new
litigation against the Group was last received. We also received
confirmation from the SFO that its investigation into the Group's
historic business and accounting practices had been closed. A
number of small claims were resolved in our favour in the year.
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 claims against
PricewaterhouseCoopers LLP ("PwC"), Aviva Canada Inc ("Aviva
Canada") and HMRC.
We also successfully completed two court approved cash returns
and further rationalised the central cost and corporate structure
such that we now operate from a virtual office and with only Lee
James, our Finance Director and myself as executive, permanent
staff. We use additional remote consultancy resource judiciously to
maintain as flexible a cost base as possible.
Update on outstanding legacy matters
In August 2020, we filed and served a claim against PwC in the
High Court. The claim against PwC is for damages or equitable
compensation of GBP63m plus interest and costs. The claim is for
breach of contract and/or breach of confidence and/or breach of
fiduciary duty and/or unlawful means conspiracy. PwC has filed its
defence and the matter is not expected to go to trial before H2
2022. The Group expects to initiate a claim against its former
auditor, KPMG LLP ("KPMG"), in respect of its audit of the Group's
accounts for the year ended 31 December 2013 which were restated in
the subsequent financial year.
Our claim for the recovery of historic VAT paid in the ingenie
business is expected to go to a Tribunal in December 2021. Finally,
our Canadian subsidiary's claim against Aviva Canada is
ongoing.
We will continue to co-operate with the continuing SFO
investigation but the Company itself is no longer a suspect and
will not be prosecuted in respect of it.
2021 outlook
At the end of April 2021, we joined the Acquis market to provide
our shareholders with continued access to trading and the benefits
of a regulated market in advance of the suspension from AIM which
occurred on 4 May 2021. In due course, we expect to delist from AIM
following the suspension caused by becoming a cash shell when we
disposed of ingenie. We will look to prosecute our remaining
litigation assets for the optimal return for shareholders. 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 2020
2020 2019
Total Total
GBP'000 GBP'000
Administrative expenses (1,361) (3,606)
Group operating loss (1,361) (3,606)
Finance income 169 352
Finance expense (12) (69)
Loss before taxation (1,204) (3,323)
Taxation - 3
Loss after taxation for the year from
continuing operations (1,204) (3,320)
Net gain on disposal of discontinued operations 10,268 -
(Loss)/profit for the year from discontinued
operations, net of taxation (1,381) 34,214
Profit/(loss) after taxation for the year 7,683 30,894
-------------------------------------------------- -------- --------
Attributable to:
Equity holders of the parent 7,683 30,869
Non-controlling interests - 25
7,683 30,894
------------------------------------------------- -------- --------
Earnings per share (pence):
Basic 16.7 67.1
Diluted 16.7 67.1
-------------------------------------------- ------ ------
Loss per share from continuing operations
(pence):
Basic (2.6) (7.2)
Diluted (2.6) (7.2)
-------------------------------------------- ------ ------
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
2020 2019
GBP'000 GBP'000
Profit after taxation 7,683 30,894
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations (688) (6)
Total comprehensive income for the year 6,995 30,888
---------------------------------------------------- -------- --------
Attributable to:
Equity holders of the parent 6,995 30,856
Non-controlling interest - 32
6,995 30,888
------------------------------ ------ -------
Consolidated Statement of Financial Position
as at 31 December 2020
2020 2019
GBP'000 GBP'000
Non-current assets
Goodwill - -
Other intangible assets - 819
Property, plant and equipment - 646
Other receivables - 260
- 1,725
------------------------------------------ --------- ---------
Current assets
Inventories - 435
Corporation tax 81 178
Trade and other receivables 2,468 2,777
Term deposits - 15,000
Cash 16,656 56,611
19,205 75,001
Assets of disposal group classified
as held for sale - 27,601
Total current assets 19,205 102,602
Total assets 19,205 104,327
------------------------------------------- --------- ---------
Current liabilities
Trade and other payables (1,808) (4,719)
Provisions (258) (4,147)
(2,066) (8,866)
Liabilities of disposal group classified
as held for sale - (17,749)
Total current liabilities (2,066) (26,615)
------------------------------------------- --------- ---------
Non-current liabilities
Provisions - (19)
Deferred tax liabilities (1) (1)
(1) (20)
------------------------------------------ --------- ---------
Total liabilities (2,067) (26,635)
------------------------------------------- --------- ---------
Net assets 17,138 77,692
------------------------------------------- --------- ---------
Equity
Share capital 4,604 4,604
Other reserves 69,752 137,486
Retained earnings (57,222) (64,905)
Equity attributable to equity holders
of the parent 17,134 77,185
Non-controlling interests 4 507
Total equity 17,138 77,692
------------------------------------------- --------- ---------
Consolidated Cash Flow Statement
for the year ended 31 December 2020
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
Cash used in operations, net finance expense
and tax (6,283) 30,977
Net cash (used by)/generated from operating
activities (6,283) 30,977
------------------------------------------------ --------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (790) (5,732)
Purchase of intangible fixed assets (618) (693)
Disposal of subsidiaries net of cash foregone - -
Investment in term deposits (30,000) (75,000)
Maturity of term deposits 45,000 100,000
Interest income 170 333
Disposal of subsidiaries 21,617 -
Net cash generated by investing activities 35,379 18,908
------------------------------------------------ --------- ---------
Cash flows from financing activities
Finance expense paid (451) (1,052)
Finance income received 42 56
Redemption of preference shares - (1,832)
Return of capital (68,916) -
Dividends paid to non-controlling interests (287) -
Net cash used in financing activities (69,612) (2,828)
------------------------------------------------ --------- ---------
Net (decrease)/increase in cash and cash
equivalents (40,516) 47,057
Cash and cash equivalents at the beginning
of the year 57,176 10,113
Exchange gains on cash and cash equivalents (4) 6
Cash and cash equivalents at the end of
the year 16,656 57,176
------------------------------------------------ --------- ---------
The above Consolidated Cash Flow Statement includes cash flows
from both continuing and discontinued operations.
At 31 December 2019, the Group cash and cash equivalents of
GBP57,176,000 included GBP565,000 within assets held for sale.
Notes:
1. Results announcement
The Financial Statements for the year ended 31 December 2020
have been prepared in accordance with International Financial
Reporting Standards. 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 2021
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 2020. Statutory accounts
for the year ended 31 December 2019 have been delivered to the
Registrar of Companies and those for the year ended 31 December
2020 will be delivered following the AGM. This preliminary
announcement was approved by the Board of Directors on 5 May 2021
and these preliminary results have been extracted from the audited
results for the year ended 31 December 2020.
2. 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
2020 both of these segments were disposed of and therefore neither
form reportable segments.
3. Administrative expenses
Year ended 31 December 2020 2019
GBP'000 GBP'000
Administrative expenses include:
* Legal expenses 1,578 4,419
* Releases of provisions for legal expenses and tax
related matters (3,503) (2,797)
* Legal settlements (617) (1,026)
* Restructuring 79 123
(2,463) 719
---------------------------------------------------------- -------- --------
For the year ended 31 December 2020, legal expenses primarily
relate to the costs of actual or proposed litigation where the
Group is the Claimant. No provisions are made in respect of the
costs of such actions since the Group is not obliged to continue to
pursue them.
The release of provisions for legal fees in 2020 relates to the
discontinued SFO investigation into the Company and potential class
action.
During the year ended 31 December 2019, legal expenses 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.
The legal settlement credits of GBP617,000 and of GBP1,026,000
during 2019 relate to settlements with former management.
4. Goodwill
The movement in goodwill is as follows:
Goodwill
GBP'000
Cost
At 1 January 2019 96,063
Exchange differences 415
Transfer to assets held for sale (37,328)
At 1 January 2020 59,150
Disposals (59,150)
At 31 December 2020 -
---------------------------------- ---------
Impairment
At 1 January 2019 87,906
Exchange differences 323
Transfer to assets held for sale (29,079)
At 1 January 2020 59,150
Disposals (59,150)
At 31 December 2020 -
---------------------------------- ---------
Net book value
31 December 2020 -
---------------------------------- ---------
31 December 2019 -
---------------------------------- ---------
5. 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 - 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 1 January 2020 - 3,803 88 275 4,166
-------------------------- -------------- ------------ ------------- ---------- --------
Additional provisions - - - 1,100 1,100
Unused amounts
released - (3,503) (30) - (3,533)
Used during the
year - (100) - (1,136) (1,236)
Disposals - - - (239) (239)
At 31 December
2020 - 200 58 - 258
-------------------------- -------------- ------------ ------------- ---------- --------
Split:
Non-current - - - - -
Current - 200 58 - 258
Tax related matters
During 2019, 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
It is the policy of the Group to provide for legal costs in
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.
The provision as at 31 December 2019 represented the costs of
additional legal fees in respect of the Group's defence against any
proposed class action and in respect of the investigation by the
SFO. On 27 April 2020, the SFO informed the Company of its decision
not to 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.
In respect of the proposed class action the Group has received
no further correspondence since November 2019 nor objections during
the 2020 Court approved capital reduction processes.
Since the SFO is not proceeding to prosecute the Company and the
putative class action has not proceeded, all defence costs provided
at 31 December 2019, other than those utilised during the year and
the estimated costs of continuing to support the SFO with their
enquiries with which the Company is obliged to do, have been
released to the income statement.
The future costs of assisting the SFO with their enquiries may
ultimately be different from the amount provided at 31 December
2020.
During the year ended 31 December 2019, 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.
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. Similarly, in such legal cases where the Group is the
claimant and has indemnified a third party, potential future costs
associated with the indemnification are not provided for.
Onerous contracts
Where contracted income is expected to be less than the related
expected expenditure the difference is provided in full. At 31
December 2020, the provision relates exclusively to the maximum
exposure remaining under onerous property leases, the timing of
which may be reliably determined. These are expected to be resolved
in full 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. At 31 December 2019, these primarily
relate to policy cancellations within the ingenie business which
are based upon historic experience and is limited to one year from
policy inception. These obligations were disposed of as part of the
disposal of the ingenie business.
6. Contingent assets and liabilities
Litigation in relation to the historic activities of the Group
is being pursued including claims against PwC and Aviva Canada. The
Group expects to initiate a claim against its former auditor, KPMG,
in respect of its audit of the Group's accounts for the year ended
31 December 2013. These give rise to contingent assets, which are
not recognised within the Financial Statements due to lack of
certainty as to the outcome, despite an inflow of economic benefit
being considered probable.
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.
During the year ended 31 December 2019, a firm purporting to act
for a group of twelve individuals wrote a "Notice of intended
claim" to the Company ("Notice"). The Notice related to 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. Furthermore, the
Group has received no further correspondence nor objections during
2020 including during the Court approved capital reduction
processes. Since the possibility of any action is now considered
remote no amounts, including for defence costs, have been provided
at 31 December 2020.
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END
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