Watchstone Group PLC - Half-year Report
RNS Number : 8421W
Watchstone Group PLC
23 August 2022
 

 

 

Watchstone Group plc

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

Results for the six months ended 30 June 2022

Watchstone today announces its results for the six months ended 30 June 2022.

 

·    Operating loss of £2.1m (2021: loss of £1.8m)

·    Group net assets of £11.4m at 30 June 2022 (as at 31 December 2021: £13.5m)

·    Group cash and term deposits at 30 June 2022 of £10.6m and £1.8m held in escrow (as at 31 December 2021: £13.0m and £1.8m respectively)

·    As at 19 August 2022, the Group had cash and term deposits of £10.2m and £1.8m held in escrow

 

For further information:

 

Watchstone Group plc

 

Tel: 03333 448048

WH Ireland Limited, Adviser and broker

Chris Hardie

Tel: 020 7220 1666



 



 

 

 

 

 

 

 

 

 


Update

 

A full summary of actions and issues was presented in our Annual Report published in May 2022.

 

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 £63.0m 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 January 2024.

 

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. £1.0m of external legal fees were incurred in the six months ended 30 June 2022 (six months ended 30 June 2021: £0.6m).

Since litigation in favour of the Group is pursued at the discretion of the Group, no provision for legal expenses is made.  As a result of the decision of the First Tier VAT Tribunal finding in favour of HMRC, a provision for the costs of the defence incurred by HMRC had been provided at 31 December 2021, the Group is appealing this decision.

In response to increases in market interest rates, the Group has placed a proportion of its cash holding into short term deposits, but for prudence, these are with household name UK banks.

The net assets of the Group at 30 June 2022 were £11.4m (31 December 2021: £13.5m).  This primarily comprises cash and term deposits of £10.6m (31 December 2021: £13.0m) and amounts placed in escrow by the Group as security for costs in respect of certain of its litigation assets, included within Other Receivables of £1.8m (31 December 2021: £1.8m).

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 19 August 2022, the Group had cash and term deposits of £10.2m and £1.8m 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 2021.

 

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 2022

 



Six months ended 30 June 2022

Six months ended 30 June 2021

Note

£'000

£'000


 

 




 


Administrative expenses

4

(2,117)

(1,834)



 


Group operating loss


(2,117)

(1,834)



 


Finance income


90

16



 


Loss before taxation

4

(2,027)

(1,818)

Taxation


-

-



 


Loss after taxation for the period from continuing operations


(2,027)

(1,818)


 

 


(Loss)/profit for the period from discontinued operations

8

(26)

118

Loss after taxation for the period

 

(2,053)

(1,700)

Attributable to:

 

 


Equity holders of the parent

 

(2,053)

(1,700)

Non-controlling interests

 

-

-


 

 


 

 

(2,053)

(1,700)

 

 

 


Loss per share (pence):

 

 


Basic


(4.5)

(3.7)

Diluted


(4.5)

(3.7)

Loss per share from continuing activities (pence):


 


Basic


(4.4)

(3.9)

Diluted


(4.4)

(3.9)

 



 

Condensed Consolidated Statement of Comprehensive Income

for the period ended 30 June 2022


Six months ended 30 June 2022

Six months ended 30 June 2021


£'000

£'000


 


Loss after taxation

(2,053)

(1,700)

 

 


Items that may be reclassified in the Consolidated Income Statement

 


    Exchange differences on translation of foreign operations

(47)

(22)


 



 


Total comprehensive (loss)/profit for the period

(2,100)

(1,722)

 

Attributable to:

 


Equity holders of the parent

(2,100)

(1,722)

Non-controlling interests

-

-


 



(2,100)

(1,722)

 



 

Condensed Consolidated Statement of Financial Position

as at 30 June 2022

 



At 30 June

2022

At 31 December

2021


Note

£'000

£'000

Current assets

 

 


Trade and other receivables

5

1,874

1,910

Term deposits


8,013

-

Cash


2,630

12,996



 


Total current assets


12,517

14,906

Total assets


12,517

14,906



 


Current liabilities


 


Trade and other payables

6

(962)

(1,251)

Provisions

7

(129)

(129)

Total current liabilities


(1,091)

(1,380)



 


Non-current liabilities


 


Deferred tax liabilities

 

(1)

(1)


 

 


Total non-current liabilities

 

(1)

(1)


 

 


Total liabilities

 

(1,092)

(1,381)


 

 


Net assets

 

11,425

13,525


 

 


Equity

 

 


Share capital

10

4,604

4,604

Other reserves

 

69,687

69,734

Retained earnings

 

(62,867)

(60,814)

Equity attributable to equity holders of the parent

 

11,424

13,524

Non-controlling interests

 

1

1


 

 


Total equity

 

11,425

13,525

 

 

 

 

 



 

Condensed Consolidated Cash Flow Statement

for the period ended 30 June 2022


Note

Six months ended 30 June 2022

Six months ended 30 June 2021



£'000

£'000

Cash flows from operating activities

 

 


Cash used in operations before net finance expense and tax

11

(2,373)

(2,309)


 

 


Corporation tax received

 

-

-


 

 


Net cash used by operating activities

 

(2,373)

(2,309)


 

 


Cash flows from investing activities

 

 


Investment in term deposits

 

(8,000)

-

Maturity of term deposits

 

-

-

Interest income

 

-

-


 

 


Net cash used by investing activities

 

(8,000)

-


 

 


Cash flows from financing activities

 

 


Dividends to minority interests

 

-

-

Return of capital

 

-

-


 

 


Net cash used by financing activities

 

-

-


 

 



 

 


Net decrease in cash and cash equivalents

 

(10,373)

(2,309)

Cash and cash equivalents at the beginning of the period


12,996

16,656

Exchange gains on cash and cash equivalents


7

1

 


 


Cash and cash equivalents at the end of the period


2,630

14,348

 


 


 



 

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 2022 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 2021, which were prepared in accordance with IFRSs as adopted for use in the UK.

 

The comparative figures for the financial year ended 31 December 2021 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, and (ii) 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 22 August 2022.

Going Concern

The Group holds appropriate cash reserves and no debt. The Group has concluded that its cash reserves will be sufficient to fund the Group's ongoing running costs together with any future investment in litigation required.

 

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 2021, except for the adoption of new standards and interpretations as of 1 January 2022.  None of these standards have any significant impact on the accounting policies, financial position or performance of the Group, as noted below:

•              Amendment to IFRS 1 and IAS 12, relating to deferred tax assets and liabilities arising from a single transaction.

•              Amendment to IFRS 16 relating to COVID-19 rent concessions.

•              Taxonomy changes to various standards and 2020 general improvements cycle.

•              Amendments to IAS 1, "Disclosure of Accounting Policies".

•              Amendment to IAS 8, "Definition of Accounting Estimates".

 

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 2022 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 liabilities arising under the Distribution Incentive Scheme

As discussed in the Directors' Remuneration Report on pages 16 to 18 of the 2021 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

ended 30 June

2022

Six months ended 30 June 2021


 

£'000

£'000

 

 

 



 

 


Cash returned to shareholders

 

-

-


 

 



 

 



 

 


Group operating loss

 

(2,117)

(1,834)


 

 


Group net assets

 

11,425

13,525*


 

 


Cash and term deposits

 

10,643

12,996*


 

 


Basic loss (pence per share) - continuing operations

 

(4.4)

(3.9)

*At 31 December 2021

 



 

4. Administrative expenses

 


Six months

ended 30 June

2022

Six months

ended 30 June

2021


£'000

£'000


 


Administrative expenses include:

 


-       Legal expenses

978

560

-       Tax related matters

8

63


 



986

623

 

Legal expenses and tax related matters primarily relate to the costs of legal cases where the Group is the claimant or counter claimant.

 

5. Trade and other receivables


30 June

2022

31 December

2021


£'000

£'000


 


Other receivables

1,814

1,880

Prepayments

60

30


 



1,874

1,910

 

6. Trade and other payables

 


30 June

2022

31 December

2021


£'000

£'000

Current liabilities

 


Trade payables

292

46

Payroll and other taxes including social security

32

47

Accruals

638

1,158


 



962

1,251

 

 



 

7. Provisions

 


Legal

disputes

Onerous contracts

Other

Total


£'000

£'000

£'000

£'000

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

 

 

 

 

 

At 1 January 2022

129

-

-

129






At 30 June 2022

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. 

 

Provisions at 1 January 2022 and 30 June 2022 relate to the decision of the First Tier VAT Tribunal which found against the Group and that Watchstone' s subsidiary WTGIL Limited ("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. The Group has since appealed this decision.

 

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.

 

8. Discontinued operations and disposals

(Loss)/profit for the period from discontinued operations:


2022

2021


£'000

£'000


 


Ingenie

(16)

65

Hubio

(10)

53


 


(Loss)/profit for the period from discontinued operations net of tax

(26)

118

 

 

9. Contingent assets and liabilities

 

Litigation in relation to the historic activities of the Group is being pursued including claims against PricewaterhouseCoopers LLP, KPMG LLP and Aviva Canada Inc. These give rise to contingent assets, which are not recognised within the Condensed 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 Condensed 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 value fully paid

Nominal value unpaid

Nominal value total


000's

£'000

£'000

£'000


 

 

 

 

at 31 December 2021 and 30 June 2022

46,038

4,593

11

4,604






 

11. Cash flow from operating activities


Six months ended 30 June 2022

Six months ended 30 June 2021


 



 


Loss after tax

(2,053)

(1,700)

Tax

-

-

Finance expense

-

-

Finance income

(90)

(16)


 


Operating (loss)/profit

(2,143)

(1,716)


 



 


Operating cash flows before movements in working capital and provisions

(2,143)

(1,716)

Decrease in inventories

-

-

Decrease in trade and other receivables

59

31

(Decrease) in trade and other payables

(289)

(624)


 


Cash outflows from operations before exceptional and non-underlying items, net finance expense and tax

(2,373)

(2,309)

 

 

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