Watchstone Group PLC - Final Results
RNS Number : 8481M
Watchstone Group PLC
26 May 2022
 

 

Watchstone Group plc

 ("Watchstone" or the "Company" or the "Group")

Preliminary results for the year ended 31 December 2021

 

Watchstone Group plc (WTG.L) today announces its results for the year ended 31 December 2021.

·    Total loss after tax £3.6m (2020: Profit of £7.7m)

·    Group operating loss of £3.7m (2020: £1.4m)

·    Group net assets of £13.5m representing approximately 29 pence per share (2020: 37 pence per share)

·    Group cash at 31 December 2021 of £13.0m (31 December 2020: £16.7m)

·    Group cash and term deposits at 24 May 2022 of £11.1m not including amounts held in escrow of £1.8m

The Annual Report and Accounts for the year ended 31 December 2021 will be released by 6 June 2022 and posted (where applicable) to registered shareholders. Once published, the Annual Report and Accounts will be available at www.watchstonegroup.com/investors.

 

The 2022 Annual General Meeting ("AGM") will be held on 30 June 2022 in London.  

 

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

investor.relations@watchstonegroup.com

Tel: 03333 448048

 

WH Ireland Limited, Financial Adviser and Broker

 

Tel: 020 7220 1666

Chris Hardie


 



 

Chairman and CEO's Report

During the year the Group has significantly progressed the realisation of its litigation assets including the formal filing of its claim against its former auditors, KPMG LLP ("KPMG").  This is in addition to continued work in respect of the claim filed during 2020 against PricewaterhouseCoopers LLP ("PwC") and older claims against Aviva Canada Inc. ("Aviva Canada") and HMRC.

Now all trading businesses have been disposed our plan remains optimum resolution of legacy matters and then to return cash to shareholders.

The ongoing impact of COVID-19 in the UK during 2021 resulted in the target revenues of the disposed ingenie business falling short of the required target for additional consideration.  However, the timing of the sales proved fortuitous, and the Group was spared the financing requirement which would likely have been associated with ownership of this business through this difficult period.

On 30 April 2021, we listed on the Aquis Stock Exchange to continue to provide a trading facility on a regulated market.  We subsequently delisted from AIM as required by the AIM Rules.

Notification from the Serious Fraud Office ("SFO") of their decision to cease its remaining investigation means we can confidently now draw a line under this part of the Company's history with no material outstanding litigation against the Group.  We move forward in a strong position to realise maximum shareholder value from the four contingent assets we are pursuing.

During 2021, we were the target of a mandatory offer from one of the Company's major shareholders.  The offer was not hostile but the board recommended the rejection of the offer and counteroffer, and this was overwhelmingly supported by our shareholders. We would like to thank our shareholders for their support and this endorsement of our approach to obtaining value from our remaining assets.  We plan to make further returns to shareholders as, and when, the outcome to our litigation becomes clearer and final resolution more imminent.

 

Update on outstanding legacy matters

Our claim against PwC proceeds in the High Court with the trial expected to begin in January 2023. The claim against PwC is for damages or equitable compensation of £63m plus interest and costs. Our claim against our former auditor, KPMG, in respect of its audit of the Group's accounts for the year ended 31 December 2013 has been filed and KPMG's defence recently received. This matter is not expected to go to trial before 2024.

Our appeal for the recovery of historic VAT paid in the ingenie business was heard by the First Tier VAT Tribunal in December 2021 and we were notified in April 2022 of the Tribunal's judgement in favour of HMRC. This was, of course, disappointing but having taken advice, we are now appealing that decision to the Upper Tribunal. Finally, our Canadian subsidiary's claim against Aviva Canada is ongoing and is expected to go to trial in H2 2023.

2022 outlook

We will look to prosecute our remaining litigation assets for the optimal return for shareholders.  Central costs will continue to be carefully managed at reduced levels consistent with the needs of the organisation.

Once again, we would like to thank our shareholders for their continuing patience whilst we work to realise optimal value from our remaining assets.

 

Richard Rose, Non-executive Chairman          Stefan Borson, Group Chief Executive Officer



 

Consolidated Income Statement

for the year ended 31 December 2021

 

 

 

2021

2020

 

 

Total

Total

 

 

£'000

£'000



 


Administrative expenses


(3,722)

(1,361)



 


Group operating loss


(3,722)

(1,361)



 


Finance income


-

169

Finance expense


(8)

(12)



 


Loss before taxation


(3,730)

(1,204)

Taxation


-

-



 


Loss after taxation for the year from continuing operations


(3,730)

(1,204)

Net gain on disposal of discontinued operations


-

10,268

Profit/(loss) for the year from discontinued operations, net of taxation


135

(1,381)



 


(Loss)/profit after taxation for the year


(3,595)

7,683



 


Attributable to:


 


Equity holders of the parent


(3,592)

7,683

Non-controlling interests


(3)

-



 




(3,595)

7,683

 

Earnings per share (pence):



 

Basic


(7.8)

16.7

Diluted


(7.8)

16.7

Loss per share from continuing operations (pence):




Basic


(8.1)

(2.6)

Diluted


(8.1)

(2.6)

 

 

 

 



 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2021

 


2021

2020


£'000

£'000


 


(Loss)/profit after taxation

(3,595)

7,683


 


Items that may be reclassified in the Consolidated Income Statement

 


    Exchange differences on translation of foreign operations

(18)

(688)


 


Total comprehensive (loss)/income for the year

(3,613)

6,995

 

Attributable to:

 

 

Equity holders of the parent

(3,610)

6,995

Non-controlling interest

(3)

-


 


 

(3,613)

6,995



 

Consolidated Statement of Financial Position

as at 31 December 2021



2021

2020



£'000

£'000

Non-current assets

 

 


Goodwill


-

-

Other intangible assets


-

-

Property, plant and equipment


-

-



 

 



-

-



 


Current assets


 


Corporation tax


-

81

Trade and other receivables


1,910

2,468

Cash


12,996

16,656



 


Total current assets


14,906

19,205



 


Total assets


14,906

19,205



 


Current liabilities


 


Trade and other payables


(1,251)

(1,808)

Provisions


(129)

(258)



 


Total current liabilities


(1,380)

(2,066)



 


Non-current liabilities


 


Provisions


-

-

Deferred tax liabilities


(1)

(1)



 




(1)

(1)



 


Total liabilities


(1,381)

(2,067)



 


Net assets


13,525

17,138



 


Equity


 


Share capital


4,604

4,604

Other reserves


69,734

69,752

Retained earnings


(60,814)

(57,222)



 


Equity attributable to equity holders of the parent


13,524

17,134

Non-controlling interests


1

4



 


Total equity


13,525

17,138

 

 

 

 

 

 

 

 

 

Consolidated Cash Flow Statement

for the year ended 31 December 2021


 

2021

2020



£'000

£'000

Cash flows from operating activities

 

 


Cash used in operations, net finance expense and tax


(3,751)

(6,283)

Tax received


81

-


 

 


Net cash used by operating activities

 

(3,670)

(6,283)


 

 


Cash flows from investing activities

 

 


Purchase of property, plant and equipment

 

-

(790)

Purchase of intangible fixed assets

 

-

(618)

Disposal of subsidiaries net of cash foregone

 

-

-

Investment in term deposits

 

-

(30,000)

Maturity of term deposits

 

-

45,000

Interest income

 

-

170

Disposal of subsidiaries

 

-

21,617


 

 


Net cash generated from investing activities

 

-

35,379


 

 


Cash flows from financing activities

 

 


Finance expense paid

 

-

(451)

Finance income received

 

-

42

Return of capital

 

-

(68,916)

Dividends paid to non-controlling interests

 

-

(287)


 

 


Net cash used in financing activities

 

-

(69,612)


 

 



 

 


Net decrease in cash and cash equivalents

 

(3,670)

(40,516)

Cash and cash equivalents at the beginning of the year


16,656

57,176

Exchange gains/(losses) on cash and cash equivalents


10

(4)

 


 


Cash and cash equivalents at the end of the year


12,996

16,656

 

The above Consolidated Cash Flow Statement includes cash flows from both continuing and discontinued operations.



 

Notes:

1.   Results announcement

The Financial Statements for the year ended 31 December 2021 have been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006.  However, this announcement does not contain sufficient information to comply with adopted IFRS. The Group will publish its Annual Report and Financial Statements by 6 June 2022 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 2021. Statutory accounts for the year ended 31 December 2020 have been delivered to the Registrar of Companies and those for the year ended 31 December 2021 will be delivered by 30 June 2022. This preliminary announcement was approved by the Board of Directors on 25 May 2022 and these preliminary results have been extracted from the audited results for the year ended 31 December 2021.

 

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

2021

2020


£'000

£'000


 


Administrative expenses include:

 


-      Legal expenses

1,059

1,578

-      Net releases of provisions for legal expenses and tax related matters

(105)

(3,503)

-      Legal settlements

-

(617)

- Restructuring

-

79


 



954

(2,463)

 

Legal fees incurred during 2021 primarily relate to the litigation being undertaken by the Company against PricewaterhouseCoopers LLP ("PwC"), KPMG LLP ("KPMG"). 

For the year ended 31 December 2021, 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 2021 relates to the discontinued SFO investigation into former management of the Company.  The release during 2020 relates to the discontinued SFO investigation into the Company and potential class action.  This is partially offset by additional provisions in respect of the First Tier VAT Tribunal hearing.

 

The legal settlement credits of £617,000 during 2020 relate to settlements with former management.

 

 

4.   Provisions


 

Legal

disputes

Onerous contracts

Other

Total


 

£'000

£'000

£'000

£'000

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 1 January 2021

 

200

58

-

258

Unused amounts released

 

(187)

(47)

-

(234)

Used during the year

 

(13)

(11)

-

(24)

Additional provisions

 

129

-

-

129







At 31 December 2021

 

129

-

-

129







Split:

Non-current


-

-

-

-

Current


129

-

-

129







 

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. 

At 31 December 2020, the estimated costs of continuing to support the SFO with their enquiries in to individuals with which the Company is obliged to do were provided.  During 2021 the SFO ceased their investigation into former management, therefore concluding all activity relating to the historic Group.  The remaining provision for fees of £187,000 was therefore released to the income statement.

Additional provisions relate to the decision of the First Tier VAT Tribunal.  Following a hearing held in December 2021, on 12 April 2022, Watchstone was informed of the decision of the First Tier Tribunal which found in favour of HMRC in respect of the appeal by Watchstone's subsidiary WTGIL Limited ("WTGIL"). The First Tier Tribunal found that WTGIL did not make any supplies of telematics devices or related services in the VAT periods 07/2014 to 07/2018. Accordingly, WTGIL's appeal was dismissed. WTGIL has consulted with its advisers and Counsel and intends to appeal to the Upper Tax Tribunal.

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 related exclusively to the maximum exposure remaining under onerous property leases, the lease expired during 2021 and therefore no provision remains at 31 December 2021.

 

 

5.   Contingent assets and liabilities

Litigation in relation to the historic activities of the Group is being pursued including claims against PwC, KPMG and Aviva Canada Inc. 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.

 

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