TIDMWTG
RNS Number : 6749I
Watchstone Group PLC
16 August 2021
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Results for the six months ended 30 June 2021
Watchstone today announces its results for the six months ended
30 June 2021.
-- EBITDA loss of GBP1.8m (2020: profit of GBP0.4m)
-- Group net assets of GBP15.4m at 30 June 2021 (as at 31 December 2020: GBP17.1m)
-- Group cash at 30 June 2021 of GBP14.3m and GBP1.8m held in
escrow (as at 31 December 2020: GBP16.7m and GBP1.9m
respectively)
-- As at 13 August 2021, the Group had cash of GBP14.1m and GBP1.8m held in escrow.
For further information:
Watchstone Group plc Tel: 03333 448048
WH Ireland Limited, 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 2021.
Offer from Polygon
On 1 July 2021, Polygon Global Partners LLP ("Polygon")
announced an unsolicited mandatory offer for the Ordinary Shares it
does not already own of 34 pence in cash per Ordinary Share
("Offer"). On 23 July 2021, the Directors wrote to shareholders
stating that they did not believe that the Offer reflected any
premium for control and significantly undervalued Watchstone's
assets. Accordingly, the Directors recommended that shareholders
should reject the Offer.
The Offer is conditional on Polygon receiving acceptances which
would give Polygon a shareholding of greater than 50 per cent., so
the Offer would fail if that level is not achieved and any
accepting shareholders would not receive the 34 pence per share for
their holding. On 9 August 2021, Polygon announced acceptances as
at 6 August 2021 in respect of 474,309 Ordinary Shares, being 1.03
per cent. of the existing issued share capital and that the Offer
has been extended until 1 p.m. on 20 August 2021. The Board
re-iterates its advice to shareholders as a whole not to accept the
Offer for the reasons set out in its response to shareholders dated
23 July 2021.
Business review and legal update
At the end of April 2021, the Group joined the Aquis market to
provide our shareholders with continued access to a trading
facility and the benefits of a regulated market in advance of the
delisting from AIM which occurred on 7 July 2021.
The first half of 2021 has been occupied with progressing
realisation of our remaining litigation assets for the benefit of
shareholders.
As previously announced, in August 2020, we filed and served a
claim against PriceWaterhouseCoopers LLP ("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 2023. The first Case
Management Conference is scheduled to take place in late September
2021. As stated in those proceedings, we consider that PwC acted
contrary to our interests and in breach of the fundamental
principles of objectivity and integrity which represent the core of
the relationship between a client and its financial adviser. We are
satisfied that we have a very strong case and are determined to
take the claim to trial, should that prove necessary.
The preliminary work for a claim against the former auditor of
the Group, KPMG LLP ("KPMG") is advanced and, if not settled, we
expect to file the claim in before the end of 2021. The claim is in
respect of the 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 former
ingenie business, to which we retain the economic benefits, is
expected to go to a Tribunal in December 2021 and finally, our
Canadian subsidiary's claim against Aviva Canada Inc. is
ongoing.
We will continue to co-operate with the continuing SFO
investigation but as announced on 28 April 2020, we have been
informed by the SFO that the Company will not be prosecuted in
respect of their investigation into the Company.
Impact of COVID 19
A significant proportion of the Group's assets are held as cash
and therefore the Group remains relatively insulated from
macroeconomic factors save for interest rate and inflation
risks.
Financial update
The costs of pursuing our litigation assets are expensed as
incurred. No associated income from settlement or otherwise is
recognised due to the inherent uncertainty in the outcome and
timing of the legal cases. GBP0.6m of external legal fees were
incurred in the six months ended 30 June 2021 (six months ended 30
June 2020: GBP0.6m).
Costs of defending legal action in previous years were provided
against and legal expenses incurred were utilised against the
provision. Since litigation in favour of the Group is pursued at
the discretion of the Group, no provision for legal expenses is
made.
The net assets of the Group at 30 June 2021 are GBP15.4m (31
December 2020: GBP17.1m). This primarily comprises cash of GBP14.3m
(31 December 2020: GBP16.7m) and amounts placed in escrow by the
Group as security of costs in respect of certain of its litigation
assets, included within Other Receivables of GBP1.8m (31 December
2020: GBP1.9m)
Any value attributable to litigation in favour of the Group
represents contingent assets and is therefore not recognised in the
Condensed Consolidated Statement of Financial position due to the
inherent uncertainty in respect of their outcome, value and
timing.
As at 13 August 2021, the Group had cash of GBP14.1m and GBP1.8m
held in escrow.
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 2020.
Outlook
We remain focussed on realising the Group's remaining litigation
assets 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 set of condensed consolidated financial statements has
been prepared in accordance with IAS 34 Interim Financial
Reporting, as adopted for use in the UK;
-- 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 set of
condensed consolidated 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 2021
Six months Six months
ended ended
30 June 30 June
2021 2020
Note GBP'000 GBP'000
Revenue - -
Cost of sales - -
Gross profit - -
Administrative expenses 4 (1,834) 447
Group operating (loss)/profit (1,834) 447
Finance income 16 248
(Loss)/profit before taxation 4 (1,818) 695
Taxation - -
(Loss)/profit after taxation for the period
from continuing operations (1,818) 695
Net gain on disposal of discontinued operations 8 - 7,470
Profit/(loss) for the period from discontinued
operations 8 118 (922)
(Loss)/profit after taxation for the period (1,700) 7,243
Attributable to:
Equity holders of the parent (1,700) 7,243
Non-controlling interests - -
(1,700) 7,243
------------------------------------------------- ----------- -----------
(Loss)/profit per share (pence):
Basic (3.7) 15.7
Diluted (3.7) 15.7
------------------------------------------------- ----------- -----------
(Loss)/profit per share from continuing
activities (pence):
Basic (3.9) 1.5
Diluted (3.9) 1.5
------------------------------------------------- ----------- -----------
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2021
Six months Six months
ended 30 ended 30
June 2021 June 2020
GBP'000 GBP'000
(Loss)/profit after taxation (1,700) 7,243
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations (22) (471)
Total comprehensive (loss)/profit for the
period (1,722) 6,772
---------------------------------------------------- ----------- -----------
Attributable to:
Equity holders of the parent (1,722) 6,772
Non-controlling interests - -
(1,722) 6,772
------------------------------ -------------------- ------
Condensed Consolidated Statement of Financial Position
as at 30 June 2021
At 30 June At 31 December
2021 2020
Note GBP'000 GBP'000
Current assets
Corporation tax 81 81
Trade and other receivables 5 2,437 2,468
Cash 14,348 16,656
Total current assets 16,866 19,205
--------------------------------------- ----- ----------- ---------------
Total assets 16,866 19,205
--------------------------------------- ----- ----------- ---------------
Current liabilities
Trade and other payables 6 (1,261) (1,808)
Provisions 7 (188) (258)
--------------------------------------- ----- ----------- ---------------
Total current liabilities (1,449) (2,066)
--------------------------------------- ----- ----------- ---------------
Non-current liabilities
Deferred tax liabilities (1) (1)
Total non-current liabilities (1) (1)
--------------------------------------- ----- ----------- ---------------
Total liabilities (1,450) (2,067)
--------------------------------------- ----- ----------- ---------------
Net assets 15,416 17,138
--------------------------------------- ----- ----------- ---------------
Equity
Share capital 10 4,604 4,604
Other reserves 69,730 69,752
Retained earnings (58,922) (57,222)
--------------------------------------- ----- ----------- ---------------
Equity attributable to equity holders
of the parent 15,412 17,134
Non-controlling interests 4 4
Total equity 15,416 17,138
--------------------------------------- ----- ----------- ---------------
Condensed Consolidated Cash Flow Statement
for the period ended 30 June 2021
Six months Six months
ended ended
30 June 30 June
Note 2021 2020
GBP'000 GBP'000
Cash flows from operating activities
Cash used in operations before net finance
expense and tax 11 (2,309) (1,469)
---------------------------------------------- ----- ----------- -----------
Corporation tax received - 178
Net cash used by operating activities (2,309) (1,291)
---------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment - (516)
Purchase of intangible fixed assets - (350)
Disposal of subsidiaries - 18,816
Investment in term deposits - (30,000)
Maturity of term deposits - 30,000
Interest income - 160
Net cash generated from investing activities - 18,110
---------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Net finance expense - (273)
Dividends to minority interests - (287)
Return of capital - (50,518)
Net cash used by financing activities - (51,078)
---------------------------------------------- ----- ----------- -----------
Net decrease in cash and cash equivalents (2,309) (34,259)
Cash and cash equivalents at the beginning
of the period 16,656 57,176
Exchange gains/(losses) on cash and cash
equivalents 1 (2)
Cash and cash equivalents at the end of
the period 14,348 22,915
---------------------------------------------- ----- ----------- -----------
Notes to the Interim Statements
1. Preparation of the condensed consolidated financial information
Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 June 2021 have been prepared in accordance with the
AQSE Growth Market Rules and the recognition and measurement
requirements of IFRSs as adopted for use in the UK. The interim
financial information should be read in conjunction with the
Group's Annual Report and Financial Statements for the year ended
31 December 2020, which were prepared in accordance with IFRSs as
adopted for use in the UK.
The comparative figures for the financial year ended 31 December
2020 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 condensed consolidated
financial statements were approved by the Board of Directors on 13
August 2021.
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 condensed consolidated
financial statements.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, this
set of condensed consolidated financial statements have been
prepared in accordance with the AQSE Growth Market Rules.
Significant Accounting Policies
The accounting policies applied by the Group in this set of
condensed consolidated financial statements are the same as those
applied by the Group in its consolidated financial statements for
the year ended 31 December 2020, except for the adoption of new
standards and interpretations as of 1 January 2021. None of these
standards have any significant impact on the accounting policies,
financial position or performance of the Group, as noted below:
-- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
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
condensed consolidated financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the condensed consolidated
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 2021 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.
Estimate and judgement: Legal cases
The Group is involved with a number of actual or potential legal
cases which, if successful, could result in material cash inflows
to the Group. The relative merits of these cases and the assessment
of their likely outcome is highly judgemental by nature. Similarly,
management recognise the hurdle set by accounting standards to
recognise an asset or disclose a contingent asset is very high and
therefore neither is recognised or disclosed within these condensed
consolidated financial statements.
Judgement: Recognition of contingent consideration due on
disposals
The disposal of ingenie included an element of contingent
consideration of up to GBP2,500,000. The receipt of this is
contingent upon the revenue of the disposed business during 2021
exceeding a predetermined level. Given the impact of COVID-19 and
in particular the cessation of driving tests during periods of
lockdown it is not considered probable at 30 June 2021 that the
contingent consideration will be received.
Judgement: Recognition of liabilities arising under the
Distribution Incentive Scheme
As discussed in the Directors' Remuneration Report on pages 20
to 23 of the 2020 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")
which was first and permanently exceeded during 2020. No amounts
have been recognised in these condensed consolidated financial
statements in respect of any future payments 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 and furthermore, any
distribution (and therefore incentive payment) is made at the
discretion of the Group. The impact of this judgement is 5.43% of
any future amounts distributed.
3. Key performance indicators
Year ended 31 December Six months Six months
ended 30 June ended 30
2021 June 2020
GBP'000 GBP'000
Cash returned to shareholders - 50,518
---------------------------------- --------------- -----------
EBITDA (1,834) 448
---------------------------------- --------------- -----------
Group net assets 15,416 17,138*
---------------------------------- --------------- -----------
Cash 14,348 16,656*
---------------------------------- --------------- -----------
Basic (loss)/profit (pence per
share) - continuing operations (3.9) 1.5
---------------------------------- --------------- -----------
*At 31 December 2020
Reconciliation of Alternative Performance Measures to nearest
GAAP equivalents
Six months Six months
ended 30 June ended 30
2021 June
2020
GBP'000 GBP'000
EBITDA (1,834) 448
Depreciation and amortisation - (1)
-------------------------------- --------------- -----------
Group operating (loss)/profit (1,834) 447
-------------------------------- --------------- -----------
4. Administrative expenses
Six months Six months
ended 30 June ended 30
2021 June 2020
GBP'000 GBP'000
Administrative expenses include:
* Legal expenses 560 567
* Releases of provisions for legal expenses - (2,246)
* Tax related matters 63 185
* Legal settlements - (467)
623 (1,961)
-------------------------------------------------- --------------- -----------
Legal expenses and tax related matters primarily relate to the
costs of legal cases where the Group is the claimant or counter
claimant.
The 2020 credit for the release of provisions for legal expenses
relates to the decision by the SFO not to proceed to prosecute the
Company and the continued absence of correspondence in relation to
any potential class action. Further details are provided in note 7.
The 2020 credit for legal settlements relates to a receipt from a
former director as detailed. Further details are included in note
32 of the 2020 Annual Report and Financial Statements.
5. Trade and other receivables
30 June 31 December
2021 2020
GBP'000 GBP'000
Trade receivables (net of impairment provision) 100 81
Other receivables 2,215 2,352
Prepayments 122 35
2,437 2,468
------------------------------------------------- -------- ------------
6. Trade and other payables
30 June 31 December
2021 2020
GBP'000 GBP'000
Current liabilities
Trade payables 170 194
Payroll and other taxes including social
security 41 70
Accruals 770 1,304
Other liabilities 280 240
1,261 1,808
------------------------------------------ -------- ------------
7. Provisions
Legal Onerous
disputes contracts Other Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2020 3,803 88 275 4,166
Additional provisions - - 831 831
Unused amounts released (2,246) - - (2,246)
Used during the period (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
---------------------------------- ---------- ------------- --------- ----------
At 1 January 2021 200 58 - 258
Unused amounts released - (47) - (47)
Used during the period (12) (11) - (23)
At 30 June 2021 188 - - 188
---------------------------------- ---------- ------------- --------- ----------
Split:
Non-current - - - -
Current 188 - - 188
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.
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.
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 its
investigation.
Since the SFO is not proceeding to prosecute the Company and the
putative class action has not proceeded only the estimated costs of
continuing to support the SFO with their enquiries, which the
Company is obliged to do, have been provided for. The amounts used
during the period ended 30 June 2021 relate to the costs of
assisting the SFO during this period. The future costs of assisting
the SFO with their enquiries may ultimately be different from the
amount provided at 30 June 2021.
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
At 1 January 2021, 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 leases conclude in the second half of 2021.
8. Discontinued operations and disposals
Profit/(loss) for the period from discontinued operations:
2021 2020
GBP'000 GBP'000
Healthcare Services - (236)
Ingenie 65 (671)
Hubio 53 (15)
Profit/(loss) for the period from discontinued
operations net of tax 118 (922)
------------------------------------------------ -------- --------
The net gain on disposal of discontinued operations arising in
the six months ended 30 June 2020 relates to the disposal of
Healthcare Services.
9. Contingent assets and liabilities
Litigation in relation to the historic activities of the Group
is being pursued including claims against PricewaterhouseCoopers
LLP and Aviva Canada Inc. The Group expects to initiate a claim
against its former auditor, KPMG LLP, 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
condensed consolidated 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.
10. Share capital
Number Nominal Nominal Nominal
value fully value unpaid value total
paid
000's GBP'000 GBP'000 GBP'000
at 31 December 2020 and
30 June 2021 46,038 4,593 11 4,604
------------------------- ------- ------------- -------------- -------------
11. Cash flow from operating activities
Six months Six months
ended 30 ended 30
June 2021 June 2020
(Loss)/profit after tax (1,700) 7,243
Tax - -
Finance expense - 273
Finance income (16) (248)
Operating (loss)/profit (1,716) 7,268
Adjustments for:
Depreciation of property, plant and equipment - 734
Amortisation of intangible assets - 265
Loss on disposal of plant, property and equipment - 102
Profit on disposal of subsidiary undertakings
and operations - (7,470)
Operating cash flows before movements in
working capital and provisions (1,716) 899
Decrease in inventories - 435
Decrease in trade and other receivables 31 17,302
(Decrease) in trade and other payables (624) (20,105)
Cash outflows from operations before exceptional
and non-underlying items, net finance expense
and tax (2,309) (1,469)
---------------------------------------------------- ----------- -----------
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Watchstone (AQSE:WTG)
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