TIDMWTG
RNS Number : 4825Z
Watchstone Group PLC
27 May 2016
27 May 2016
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Results for the year ended 31 December 2015
Watchstone (AIM:WTG.L) today announces its results for the year
ended 31 December 2015, a period of radical change for the
Group.
Financial summary:
-- Underlying* business revenues steady at GBP58.3m (2014: GBP56.5m)
-- Underlying EBITDA loss of GBP16.1m (2014: loss of GBP16.8m)
-- Disposal of the Professional Services Division generated a profit of GBP494.3m
-- Impairment of goodwill and other intangible and non-cash
assets - total charge of GBP113.5m (2014: GBP129.1m). Further
details of the impairments can be found in notes 6 and 7 to the
financial information in this announcement
-- Total profit after tax GBP274.9m (2014: loss of GBP374.5m)
-- Group net assets (excluding contingent liabilities) of
GBP137.1m representing approximately 297 pence per share following
capital return of GBP411.9m
-- Group cash at 31 December 2015 of GBP103.2m including
GBP97.6m in the Company. Group cash of GBP93.1m (unaudited) as at
20 May 2016 including cash in the Company of GBP86.9m (unaudited)
with a further GBP50.0m (unaudited) in escrow.
* Underlying includes ptHealth, Hubio, Ingenie, BAS, Maine
Finance and Central
Operational highlights:
-- Disposal of the Professional Services Division for GBP645m
plus deferred contingent consideration completed in May 2015
-- Court approved capital return of 90 pence per ordinary share completed in December 2015
-- New Group CEO and Board in place which has brought stability
and started to rebuild investor confidence
-- Substantial work completed and on-going to simplify the
Group, reduce the Group's losses and build the platform to deliver
the best possible shareholder value from all the Group's
operational and other assets
-- Clear strategy and plan for all Group businesses -
energetically pursuing opportunities and robustly dealing with
challenges
Current trading (unaudited):
-- Overall trading is in line with expectations with some good
momentum in ptHealth, ingenie and BAS
-- ptHealth has had a solid start to the year
o Unaudited revenue of GBP6.6m in Q1 2016 (an increase of 4.4%
vs. Q1 2015 (excluding exchange rate fluctuations) from a reduced
number of clinics)
o Average revenue per clinic up 12% in Q1 2016 compared to the
same period in 2015
o Assessment and treatment numbers have increased by 11% and 7%
respectively during the same period
o Launch of InnoCare as a spin out of ptHealth
-- ingenie performing strongly in Q1 2016
o Gross Written Premium up 23% to GBP20.7m in Q1 2016 (Q1 2015:
GBP16.8m)
o Policies written up 19% to 10,706 in Q1 2016 (Q1 2015:
8,985)
o Approximately 39,700 policies in force at 31 March 2016 (31
March 2015: 34,515)
-- Hubio stable but historic growth expectations proven to be
unrealistic- business being reshaped in line with market
opportunities
o Unaudited Q1 2016 revenue of GBP4.3m (Q1 2015: GBP4.1m)
o Active devices as at 30 April 2016 was 38,631, 77% more than
at 30 April 2015 this was largely recovering from technical issues
with a large customer in the US
-- BAS is now cash generative whilst work continues to improve
Maine Finance and quotesupermarket.com
o Unaudited BAS revenues for Q1 2016 of GBP0.8m, an increase of
21% on the same period in 2015 and the business is now cash
generative
o Unaudited Q1 2016 total revenue for Maine Finance and
quotesupermarket.com was GBP0.4m (Q1 2015: GBP0.5m)
Indro Mukerjee, Group Chief Executive Officer said: "Even taking
the legacy, non-operational matters to one side, the Group I joined
in September 2015 was disproportionately complex and needed
operational improvement. At the same time, I have found a number of
good examples of advanced technology capabilities; capable people;
and healthy market positions across our operating companies. I
believe we have made strong progress towards our key objectives in
the last three quarters and there is demonstrable momentum in our
ptHealth/InnoCare, ingenie and BAS businesses with a strong
determination to continue to set Hubio and Maine Finance/QSM on
paths to maximise their potential."
Richard Rose, Non-executive Chairman said: "I am very pleased
with the significant progress the Group has made over the course of
the last twelve months. The new Board has successfully refocused
the Group's strategic priorities while drawing a line under the
past by working tirelessly to deliver the highest standards of
corporate governance. The sale of our legal services business and
the significant return of value to investors marked the start of
rebuilding shareholder confidence and we are confident of
continuing to deliver value. Watchstone now has solid foundations
on which to build further and the Board and the management team are
committed to maximising the potential of the remaining
businesses."
The Annual Report and Accounts for the year ended 31 December
2015, Notice of the Annual General Meeting ("AGM") and a Form of
Proxy will be posted to registered shareholders.
The AGM is to be held at 10.00am on 30 June 2016 at Plaza Suites
1 - 3, 200 Westminster Bridge Road, London SE1 7UT. Following the
AGM, there will be a product demonstration and showcase from the
Group's companies.
These results have been extracted from the Annual Report and
Accounts for the year ended 31 December 2015, a full version of
which is available at www.watchstonegroup.com/investors.
For further information:
Watchstone Group plc Tel: 01489
864 200
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Tulchan Communications Tel: 020
Susanna Voyle, Charlotte Church 7353 4200
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Peel Hunt LLP, Nominated Adviser and Tel: 020
broker 7418 8900
Dan Webster, Adrian Trimmings, George
Sellar
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Notes to editors:
About Watchstone
Watchstone Group plc is focused on managing the Group's
operating, contingent and cash assets in order to achieve the
maximum value possible, whilst always ensuring good governance.
The Group's businesses offer leading technology solutions and
other services primarily to the insurance, automotive and
healthcare industries. While we have a diverse portfolio, our
operating businesses are unified by a set of shared commercial
principles:
-- We seek to anticipate change and we have the agility to
exploit the dynamism of customer behaviour;
-- We invest in the people and technologies that will drive
innovation and success in our markets;
-- We promote in-depth sector knowledge and experience as the
starting point of value creation; and
-- We strive for efficiency across our businesses through the
optimal allocation of resources and good governance.
The individual businesses and segments in which they operate are
set out below:
-- Hubio was created as a combination of Himex, our UK based
insurance policy and claims technology business, QETS and our
Canadian software and services division, QSI. It provides
integrated solutions to help organisations in the insurance and
automotive sectors increase efficiency, reduce claims, build
customer engagement and enable usage-based personalisation.
-- Healthcare
o ptHealth is a national healthcare company that owns and
operates physical rehabilitation clinics across Canada. From large
cities to small communities, ptHealth takes pride in delivering
quality services in a compassionate and patient-centered atmosphere
that is focused on providing recovery solutions for its
patients.
o InnoCare is a proprietary clinic management software platform
and call centre and customer service operation based in Canada.
InnoCare was a spin out from ptHealth and uses its established
industry expertise to enable clinic owners to transform their
patient's experience and operate more efficient and productive
practices in the growing North American healthcare market.
-- ingenie is an insurance broker focused on helping young
drivers get on the road safely and affordably. Using telematics
technology, ingenie gives its community feedback, advice and
discounts to help them improve their driving skills and stay safe.
ingenie was recently named Telematics Champion of the Year by the
Insurance Times.
-- Other
o BAS is one of the UK's leading energy brokerages providing a
range of energy services to UK companies - including procurement,
energy audit, monitoring and targeting and data sampling.
o Maine Finance is a life insurance broker, selling life,
critical illness and income protection insurance policies direct to
customers and businesses throughout the UK. Maine Finance
specialises in offering real-time pricing to customers from some of
the largest insurance brands in the UK. Maine Finance works with
our comparison site QuoteSupermarket.com which seeks to help people
save money and to find the best quotes from a wide range of high
quality insurance providers.
Chairman's Report
The story of Watchstone through 2015 was one of challenge and
change. Today, however, we can look back on the period as one in
which decisive action brought stabilisation, through which we have
started to rebuild investor confidence.
Watchstone began 2015 with operational and reputational issues
and a challenged financial position, all due to our historic
legacy. The team has worked tirelessly to deliver a series of
achievements including the transformational sale of the
Professional Services Division ("PSD") to Slater and Gordon Limited
("S&G") for GBP645m plus contingent consideration and the
execution of a Court approved, return of capital. In addition, the
Board and corporate governance of the Company was overhauled and
the Group refocused strategically, while the extent of the issues
we were dealing with was laid bare with the publication of an
extraordinarily complex set of accounts for the period ended 31
December 2014.
The Board is pleased with the significant progress made in
consigning historical issues to the past and with the fact that we
are well advanced in creating a solid base for the future. In
November 2015, the Group was rebranded to Watchstone Group plc and
this has helped reposition the Group as the smaller, more focused
Group it now is, with a clear strategy going forward.
Board and management team
In the year, we appointed a new Board. Indro Mukerjee, became
Group Chief Executive Officer in September 2015. He is supported by
Mark Williams, our Group Finance Director, appointed in May 2015
and Stefan Borson, Group General Counsel & Company Secretary.
Together they have made a substantial impact re-shaping and
repositioning the Group. We have been open as to the scale of the
challenges we face as well as the opportunities ahead if we can
succeed in our chosen markets.
In addition to my appointment as Non-executive Chairman, we
introduced a number of other Non-executive Directors to the Company
and constituted four new Committees (Audit, Disclosure,
Remuneration and Nomination). The Board now has the right level of
seniority, skills, independence and governance to ensure the
highest level of oversight.
Corporate activity
In addition to the transformational PSD disposal, in November
2015, we completed the acquisition of the remaining shares that we
did not own in the leading Canadian physiotherapy business, PT
Healthcare Solutions Corp ("ptHealth"). We also carried out a
number of small disposals including our holdings in Nationwide
Accident Repair Solutions plc ("NARS") and the 360GlobalNet Group
("360"). These decisions were taken with a view to simplifying and
focusing the Group on delivering shareholder value. We have
continued into 2016 with this strategy by exiting our property
services interests and selling Quintica Holdings Limited
("Quintica"), both of which were loss making. As we have made
clear, further disposals will occur over time if we think this is
the right path to take to create shareholder value.
Restoring confidence
I am pleased to say that our decisive action through 2015 has
brought some stability back to the Group. We have much work to do,
but we have started to rebuild the confidence of investors,
customers and suppliers, regulators and colleagues alike. The year
prior to the disposal of the PSD was a difficult period for the
Group and the businesses suffered both from management challenges
and financial issues. Inevitably, the Group focused its efforts on
ensuring its continued viability and only following receipt of the
proceeds of the PSD disposal could the re-building task begin in
earnest. A great deal has been done in a relatively short space of
time to turn the tide, and the Board is confident in the Company's
future and the potential of our businesses.
On 5 August 2015, following the publication of our results for
the year ended 31 December 2014, the Financial Reporting Council
("FRC") closed its enquiry into the Group's historic financial
reports specifically commenting that this was in light of the
positive actions taken by the Directors in correcting the
identified errors and amending accounting policies. On the same
day, the Serious Fraud Office ("SFO") informed the Company that it
had opened an investigation relating to previous management's past
business and accounting practices at the Company. Shortly after
this the Financial Conduct Authority announced that, in light of
the investigation by the SFO, it had decided to discontinue its own
investigation with immediate effect. The SFO investigation is
on-going and we continue to co-operate fully with it and it is now
the only regulatory enquiry to which the Company is subject.
Cash and return of capital
In December 2015, the Company completed an unprecedented Court
approved, return of capital totaling GBP411.9m. As at 20 May 2016,
the Group has cash of approximately GBP93.1m including cash in the
Company of GBP86.9m with a further GBP50.0m in escrow, and no
material debt. We are confident that the GBP50.0m currently
reserved in a joint escrow account for any warranty claims will be
released in November 2016. No claims have been received from
S&G at this stage. As detailed at the time of the December 2015
return of capital, we will look to make a further return of capital
of approximately GBP1 per share if, as anticipated, the further
escrow monies are released at the end of November 2016.
It is likely that such a return of capital will require both the
approval of shareholders and Court approval for a further capital
reduction. As previously required, the Board will need to ensure
the interests of creditors are adequately safeguarded (including in
respect of any contingent liabilities). An appropriate amount will
also be held in reserve for developing and growing our
businesses.
We remain hopeful of receiving, in time, contingent
consideration in respect of the disposal of the PSD and we remain
in close contact with S&G in respect of this matter.
Conclusions
I would like to take this opportunity to thank all of our
colleagues who worked under very stressful and trying circumstances
in the first half of 2015 yet remained focused on delivering for
our customers. I would also like to thank our investors who have
maintained support for the Company and been patient as the intense
work to deliver the best possible value from our assets has
continued. The Board is confident that we will go on to reward that
support.
A vast amount of work has been carried out but, as always, there
remains much to be done. We have some exciting opportunities to
create value in our remaining businesses and we are committed to
deploy resources and energy to maximise such potential.
Richard Rose
Non-executive Chairman
Group Chief Executive's Update
"Building the future, managing the past"
As I approach the start of my fourth quarter with the Group, I
would like to take this opportunity to share some thoughts and
plans.
I feel that we already have a very different company today from
when I started and, while we continue with determination to manage
issues of the past, we are working with clarity and focus to build
the best value possible from our operating companies.
Watchstone Group plc has been developed to be a company focused
on managing the Group's operating, contingent and cash assets in
order to achieve the maximum value possible, whilst always ensuring
good governance. As Group CEO, this has involved my working both
closely with, and very much in our operating businesses.
Our results for the year ended 31 December 2015 give an idea of
my starting point with the Group. From the start, it was clear to
me that the Group was a diverse collection of businesses spanning a
number of sectors - some being quite sub scale and all needing work
to improve strategic positioning and operational execution.
Our focus has been on the simultaneous aims of reducing the
Group's unsustainable losses whilst creating a platform to achieve
the best possible value and performance from our operating
businesses. It has been apparent that these twin aims are closely
linked. In some areas, we have reduced losses by ceasing activities
that have no positive future and, in others, by reshaping those
businesses where we see long term potential value so that they are
leaner, more focused and more efficient.
The work to reduce costs and losses continues and has been
determined and successful to date. So far, approximately GBP7.6m of
annualised losses have been eliminated. This work continues and by
the end of 2016, the total is expected to be in excess of GBP13.5m.
Critically, our teams have ensured that work for our customers has
not been negatively impacted by these changes.
BUSINESS REVIEW
Taking each of our businesses in turn:
1. Healthcare Services - ptHealth
ptHealth is the largest and longest established of our
businesses and operates the third largest physiotherapy and
rehabilitation clinic network in Canada treating over 5,000
patients a day. ptHealth's unaudited revenue performance of GBP6.6m
in Q1 2016 was 4.4% up vs. Q1 2015 (excluding exchange rate
fluctuations) which is encouraging given this was achieved with
fewer corporate owned clinics. I detail this further below.
ptHealth has potential to be of real value to the Group with its
strong fundamentals, the opportunities for expansion afforded by
the fragmented nature of the Canadian clinic market and the fact
that the North American healthcare space is one which is attracting
interest from investors and buyers in the public and private
markets.
ptHealth has established a presence in the Canadian market via
its 83 owned clinics (where we employ the people) and further
generates income from providing services to some 153 independent
network clinics. This latter activity is enabled by ptHealth's
managed services offering which includes our proprietary clinic
management software as well as digital marketing for lead
generation and other services.
In order to fully exploit the shareholder value possibilities in
this business, ptHealth, which is now cash generative, was recently
divided into two focused activities, each with its own clear
strategy:
-- Owned clinic business - immediate and determined operational improvement work
ptHealth's owned clinic business is being taken from loss making
to profitability during 2016. This is being done by improving or
exiting from the previously loss making clinics. Where possible,
loss making clinics are being sold with a service contract element
to allow us to assist and share in operational improvement made
following their sale. Since the start of 2016, 11 owned clinics
have been disposed of and 10 clinics have been taken from loss
making to profitable.
In all our work at ptHealth, we are ensuring that in operating
the business in line with our commitment to improve shareholder
value we stay true to the core health service principles of
ensuring patient care, dignity and ethics. In order to do this, I
have spent significant time with management to understand what
makes the business tick and the "soul" of its excellent connection
with Canadians as a respected care provider, including first class
relationships with important patient and regulatory bodies. For
example, it is a measure of these relationships that one of our
colleagues is the current President of the Ontario College of
Physiotherapists and we are active contributors to standards
bodies.
Underpinning the work to improve the business results has been
the implementation of a full performance tracking information suite
which looks at all aspects of treatments provided, return on
investment throughout and enables the optimisation of capacity
planning and utilisation. Key improvements noted include average
revenue per clinic, which improved by 12% comparing Q1 2016 to Q1
2015. In addition, assessment and treatment numbers have increased
by 11% and 7% respectively during the same period.
ptHealth has the potential to scale profitably through improved
utilisation of clinic capacity by:
-- broadening its range of services to patients to include sales
of medical devices and appliances;
-- providing other types of treatments; and
-- procuring contracts from insurance companies for
volume-related road traffic and other rehabilitation work.
This strategy is starting to bear fruit and we are currently
implementing two additional insurance contracts which are expected
to provide a minimum of 200 new assessments per month which could
generate an additional 2,000 treatments every month.
-- Clinic management services - InnoCare
InnoCare was successfully launched as an innovative spin out
from ptHealth in April 2016, with the objective of creating a
company to supply SaaS, cloud-based clinic management software as
well as business process outsourcing products to the North American
healthcare market. Our initial focus is on the Canadian
physiotherapy and rehabilitation clinics (approximately 9,000
independent clinics) but our products could then be expanded to
other types of clinic (opticians, doctors) as well as expanded into
the US.
The foundation of this business is our proven clinic management
technology which already powers 236 clinics across Canada and
InnoCare will be developed as a technology led, B2B business.
InnoCare is already showing positive business development
indicators in terms of leads generated and its first new customers
since launch. Indeed, since launch, there have been over 10,000
unique visits to InnoCare's website generating over 500 credible
inbound leads for InnoCare software despite limited marketing
activity to date.
2. Hubio
Hubio was launched in January 2016 bringing together three quite
disparate insurance technology companies into one in order to most
efficiently deal with the challenges in and opportunities for these
companies and to create the optimal way to go forward. Hubio's
unaudited Q1 2016 revenue was GBP4.3m which is 4.4% above Q1
2015.
I decided to be the 'founding CEO' in order to deeply immerse
myself into what we have, what we were trying to do and the
markets, customers and competitors. My objective was to fully
understand our businesses in this space and to develop a strategy
to optimise the use of our cash resources.
Working with Hubio's businesses and in the external market with
customers, prospects and influencers, I could see that our
businesses generally had poor market connections, certainly through
2015, partly attributable to past reputational issues within the
insurance sector and partly due to financial constraints caused by
the working capital intensive, growth of the professional services
division prior to its disposal.
As a consequence of these challenges in 2014 and 2015, the sales
and commercial pipeline was very weak across all of Hubio's product
lines. Existing telematics engagements in North America have not
developed as planned and, across Hubio generally, the resource base
had become one more suited to a much larger scale business, with
the need to improve processes and efficiencies across businesses
which had not been integrated. It has therefore been necessary to
make the impairments to carried forward goodwill in the businesses
that comprise Hubio and these changes are reflected in these
results.
The number of active devices as at end of April 2016 was 38,631
which, although 77% more than at the same point last year, is not
where it should be. These numbers are reflective of the challenges
both in Hubio and in the wider insurance telematics market.
Nevertheless, it is also clear to me that we do have a number of
relevant and well-engineered technology capabilities which have
potential. These include a highly scalable and versatile telematics
tracking platform in terms of gateway and data analytics on our
servers, advanced algorithms for scoring and rating and an
award-winning policy and claims enterprise suite. I believe that
these and other Hubio technologies have the potential to create
shareholder value but the way the business is run and the scale of
continued investment must and will be bounded by reality.
We have therefore started on a program to make Hubio much more
streamlined, focused and agile by taking the following actions:
-- Sharpening Hubio's value proposition and target markets
-- Fleet - this is the most established telematics sector with a
clearly growing market and real demand in many countries. We are
launching HubioFleet which will combine our already developed
telematics tracking platform with our relatively small, RoadAngel
fleet business. We have approximately 10,000 devices across 750
customers in the market and the plan is to grow this installed base
with a new, improved proposition rolling out by the end of Q3. The
fleet market is proven and has a number of well-established players
so execution will be critical but we are confident in our plan with
the intention to price our differentiated technologies
competitively, mainly targeting small to medium sized fleets of
5-100 vehicles initially in the UK and then we will plan to move to
other markets. We have some capable people involved here and
believe there is strong return on investment potential in this
market;
-- Usage based insurance (UBI) - this remains a niche market but
we believe that, in line with market analyst research, it will grow
in scale from low single digit penetration in some countries to
over 10% by the start of the next decade. This has been the area of
greatest unfulfilled hope for Hubio to date and, having studied the
market, the area with the lowest return on investment for other
service providers. Hubio will now strictly focus on engagements
with highly qualified opportunities where we can leverage our
insight and analytics capabilities, in particular young driver
programs. We do not need to develop any fundamental new technology
in this area, will better filter our target engagements and will
act accordingly when we find real potential from existing and new
customers;
-- Automotive - there are opportunities to help dealerships,
motoring organisations and warranty companies connect directly with
their consumers' cars. Hubio can offer relevant technologies to
enable this. As with UBI, our sales focus will be on opportunity
qualification and on efficiently deploying resources. What we know
from the engagements we have developed over the last few months is
that there are some really interesting possibilities, with our
technologies being well suited to this area. We need to and will
act smartly in this vertical because the historic speed of market
development has been slower than the industry originally expected;
and
-- Enterprise and professional - Hubio's enterprise software for
insurance policy and claims management is recognised in the
industry and has a number of customer engagements but also the
potential to be sold more widely. This UK focused business
certainly wasn't helped by some of the reputational issues during
2014 and 2015 and, by its nature, its target projects have long
sales cycles. This business and its resources will now be clearly
focused on projects with mid/small tier insurance players where our
technology enables fast implementation, including SaaS capability
and out-compete alternatives on price and speed. Hubio's broker
portal and reporting tools are well established with a presence in
the Canadian market. There are some interesting opportunities in
this market as shown by our recent successful 'farming portal'
launch. We have good technology in enterprise software and
insurance portals and have a clear plan on how to develop business
efficiently and effectively.
-- Operating Hubio smartly with financial prudence
Whilst there are opportunities for Hubio's technologies, we need
to and will ensure that these are pursued smartly with financial
prudence. This will be achieved by the continued process of
reshaping the organisation to have a smaller, more agile footprint
with market engagement more efficiently focused.
This process is well advanced and has been informed by what we
have found in the market. Cash investment in Hubio will reduce from
in excess of GBP11.0m in 2015 to less than GBP5.0m per annum on an
annualised basis from September 2016 with a target to make the
business self-financing during 2017.
3. ingenie
ingenie is a leading telematics based insurance broker and one
of the original pathfinders in the industry. ingenie has
established a position in the market through a successful focus on,
and development of, a proposition for young drivers. Its business
model is to generate fees and commissions from its panel of
underwriters on new and renewal insurance policies. ingenie's
unaudited revenue for Q1 2016 was GBP3.5m which is 34% above Q1
2015 and reflective of the good momentum detailed below.
The essential elements of ingenie are its relationship with its
customers through smart communications and services (on average its
customers review driver feedback 14 times a month); its
relationship with leading insurance underwriters, for whom it plays
an important part of their respective telematics strategies; and
its access to differentiated technology and knowhow, the foundation
of which is a set of over 200 advanced data analytics algorithms
for determining driver behaviour and adding value to both drivers
and insurers (see below for our plans for our technology).
Over the last couple of years, the market has grown with the
addition of new entrants, including a number of the large direct
insurance players. This certainly created pressure on retention
rates during 2015.
Our activities over the last couple of quarters have been to
focus on the fundamentals of the business with the following
actions:
-- Energising customer connections and improving partnerships with underwriters
ingenie's business model is proven and scalable and so the
decision was taken around the end of last year to energise the
brand, way of working and to improve market outreach. With greater
focus on marketing, including smart social media and radio
campaigns, strongly improved results from aggregator sales together
with new policies sold via the Vauxhall affinity scheme, results
have increased significantly over last year as the table below
highlights:
Metric 2014 2015 % change Q1 Q1 % change
2015 2016
------------------- --------- --------- --------- --------- --------- ---------
Gross written
premium ("GWP") GBP55.2m GBP65.6m +18% GBP16.8m GBP20.7m +23%
------------------- --------- --------- --------- --------- --------- ---------
Policies written 30,727 33,757 +10% 8,985 10,706 +19%
------------------- --------- --------- --------- --------- --------- ---------
Policies in
force (at period
end) 31,294 36,963 +18% 34,515 39,700 +15%
------------------- --------- --------- --------- --------- --------- ---------
ingenie has built strong relationships with a panel of leading
underwriters, which consists of Ageas, RSA, Covea and LV. These are
important and reciprocal relationships with ingenie gaining
customers and market access and the underwriters benefiting from
ingenie's technology which has enabled a strong connection between
driving scores and claims frequency and severity. Rebroking (our
ability to switch a customer's underwriter at renewal to enable
them to receive the most competitive rate) was introduced at the
end of last year and this has shown a marked increase in retention
rates.
-- Making our core technology a repeatable, white label B2B sales proposition
ingenie's customer proposition and the service it provides to
its panel of underwriters are both enabled by the Group's
technology which includes the ability to host data, process journey
information, perform advanced server side analytics and driver
scoring algorithms based on over 600 million driving miles of
data.
This technology has been used to create a white label
proposition which can be licensed to multiple third party
brands/insurers who wish to create their own young driver
telematics based offering. Following targeted marketing our first
external customer is expected to be announced in the second half of
this year.
4. Other
a. Business Advisory Service ("BAS")
BAS is an energy brokerage which provides added value energy
procurement and consultancy services and receives commissions from
a panel of suppliers. We are a relatively small player in a
significant and growing market, which will likely undergo further
consolidation.
The focus of our work in this business has been to enable rapid
operational improvements and to position it for growth and the best
way to be able to realise value for shareholders.
BAS is being developed to be profitable during this year and is
well placed for growth, with unaudited revenues for Q1 2016 of
GBP0.8m, an increase of 21% on the same period in 2015 and the
business is now cash generative. BAS is now better placed
strategically with the addition of an Industrial & Corporate
Group to access larger, corporate customers as well as its existing
SME target market. In addition, it has also launched its Openview
platform which enables e-auction pricing for large customer
bids.
In line with the strategy to develop larger corporate customers,
BAS has been working on its first public sector customer, with whom
we are aiming to enter into a contract in the coming months. BAS is
being operated to grow its business profitably, gain share in the
market and we are confident about the prospects for this
business.
b. Maine Finance and quotesupermarket.com
Maine Finance distributes a range of financial services
products, including life insurance and pensions, through the
quotesupermarket.com ("QSM") site. The combined unaudited Q1 2016
revenue for Maine Finance and QSM was GBP0.4m (Q1 2015: GBP0.5m).
In order to move to profitability, we took the decision to exit the
consumer life insurance market and to focus instead on distribution
to the SME market. Additionally, we have ideas to use the
quotesupermarket.com site for other activities across the Group and
beyond.
CONCLUSIONS
Even taking the legacy, non-operational matters to one side, the
Group I joined in September 2015 was disproportionately complex and
needed operational improvement. At the same time, I have found a
number of good examples of advanced technology capabilities;
capable people; and healthy market positions across our operating
companies.
We are determined to build and manage our businesses to be the
best they can in their respective markets. This will be achieved on
a foundation of greater simplicity and efficiency as we continue to
reduce our operational costs and execute our strategy.
In cases where we consider the best way to deliver shareholder
value would be to find alternative owners for a particular
business, we will do so with a clear view of value in mind. Should
such expectation not be met, we will determinedly continue with our
ownership and develop businesses within our principles of strong
governance, careful cash management and prudent investment.
I believe we have made strong progress towards our key
objectives in the last three quarters and there is demonstrable
momentum in our ptHealth/InnoCare, ingenie and BAS businesses with
a strong determination to continue to set Hubio and Maine
Finance/QSM on paths to maximise their potential.
I thank our staff for their continued hard work and our
shareholders for their support.
Indro Mukerjee
Group Chief Executive Officer
Consolidated Income Statement
for the year ended 31 December
Restated
2015 2015 2015 2014 2014 2014
Underlying Non-underlying Total Underlying Non-underlying Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 4 58,256 528 58,784 56,501 3,627 60,128
Cost of sales (33,025) (373) (33,398) (37,569) (3,517) (41,086)
Gross profit 25,231 155 25,386 18,932 110 19,042
Administrative
expenses 5 (47,541) (157,568) (205,109) (42,201) (200,397) (242,598)
Other income - 1,971 1,971 - 18,001 18,001
Share of
results of
associates 103 - 103 278 434 712
Group operating
loss (22,207) (155,442) (177,649) (22,991) (181,852) (204,843)
Finance income 1,236 - 1,236 417 - 417
Finance expense (1,575) - (1,575) (882) - (882)
Loss before
taxation (22,546) (155,442) (177,988) (23,456) (181,852) (205,308)
Taxation 3,771 9,419 13,190 (4,900) 2,124 (2,776)
Loss after
taxation
for the year
from continuing
operations (18,775) (146,023) (164,798) (28,356) (179,728) (208,084)
Net gain
on disposal
of discontinued
operations - 494,317 494,317 - - -
Loss for
the year
from discontinued
operations,
net of taxation - (54,580) (54,580) - (166,400) (166,400)
Profit/(loss)
after taxation
for the year (18,775) 293,714 274,939 (28,356) (346,128) (374,484)
Attributable
to:
Equity holders
of the parent (18,280) 293,714 275,434 (25,791) (346,128) (371,919)
Non-controlling
interests (495) - (495) (2,565) - (2,565)
(18,775) 293,714 274,939 (28,356) (346,128) (374,484)
-------------------- ----- ----------- --------------- ---------- ----------- --------------- ----------
Earnings/(loss)
per share
(pence):
Basic (40.4) 609.0 (60.9) (878.9)
Diluted (40.4) 609.0 (60.9) (878.9)
Loss per
share from
continuing
activities
(pence):
Basic (363.3) (485.7)
Diluted (363.3) (485.7)
-------------------- ----- ----------- --------------- ---------- ----------- --------------- ----------
Consolidated Statement of Financial Position
as at 31 December
Note 2015 Restated
2014
GBP'000 GBP'000
Non-current assets
Goodwill 7 28,377 97,832
Other intangible assets 7,539 66,271
Property, plant and equipment 7,440 14,091
Interests in associates 86 7,169
Investments - 4,017
43,442 189,380
---------------------------------- ----- --------- ----------
Current assets
Inventories 871 3,473
Trade and other receivables 66,169 32,863
Corporation tax assets 8,165 7,196
Cash 103,200 42,036
178,405 85,568
Assets of disposal group
classified as held for
sale 3,382 303,674
Total current assets 181,787 389,242
Total assets 225,229 578,622
---------------------------------- ----- --------- ----------
Current liabilities
Bank overdraft - (4,968)
Cumulative redeemable preference
shares (427) (500)
Other secured and unsecured
loans (154) (2,633)
Trade and other payables (41,667) (71,852)
Obligations under finance
leases (144) (1,081)
Provisions (36,704) (32,767)
(79,096) (113,801)
Liabilities of disposal
group classified as held
for sale (3,534) (182,845)
Total current liabilities (82,630) (296,646)
---------------------------------- ----- --------- ----------
Non-current liabilities
Cumulative redeemable preference
shares (4,816) (4,947)
Obligations under finance
leases (64) (1,080)
Provisions (306) (257)
Deferred tax liabilities (304) (11,196)
(5,490) (17,480)
---------------------------------- ----- --------- ----------
Total liabilities (88,120) (314,126)
---------------------------------- ----- --------- ----------
Net assets 137,109 264,496
---------------------------------- ----- --------- ----------
Equity
Share capital 4,596 65,467
Other reserves 146,626 667,707
Retained earnings (14,722) (472,743)
Equity attributable to
equity holders of the parent 136,500 260,431
Non-controlling interests 609 4,065
Total equity 137,109 264,496
---------------------------------- ----- --------- ----------
Consolidated Cash Flow Statement
for the year ended 31 December
2015 2014
(restated)
GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations
before exceptional costs, net
finance expense and tax (50,109) (76,774)
Cash outflow from exceptional
items (17,983) (2,108)
Cash used in operations before
net finance expense and tax (68,092) (78,882)
Corporation tax received/(paid) 419 (25,747)
Net cash used by operating activities (67,673) (104,629)
-------------------------------------------- ---------- ------------
Cash flows from investing activities
Purchase of property, plant and
equipment (5,636) (9,624)
Purchase of intangible fixed
assets (4,285) (13,126)
Proceeds on disposal of property, 143 -
plant and equipment
Proceeds from sale of investments 1,358 1,500
Acquisition of subsidiaries net
of cash acquired (648) (8,746)
Advance receipt in respect of
sale of PSD - 8,047
Disposal of subsidiaries net
of cash foregone 575,001 (3,849)
Purchase of associated undertakings - (500)
Purchase of fixed asset investments - (1,751)
Disposal of associated undertakings 7,069 -
Deposits held in escrow - (3,000)
Dividends received from associates 109 208
Net cash generated by/(used in)
investing activities 573,111 (30,841)
-------------------------------------------- ---------- ------------
Cash flows from financing activities
Dividends paid - (6,180)
Issue of share capital 1,305 100
Capital return (411,871) -
Cash out of options (11,150) -
Finance expense paid (1,510) (2,135)
Finance income received 1,234 570
Finance lease repayments (2,738) (910)
Additional secured loans 793 6,678
Repayment of secured loans (30,265) (8,247)
Sale of shares treated as held
in treasury 2,746 17,328
Additional unsecured loans - 164
Repayment of unsecured loans (326) (1,386)
Net cash (used in)/generated
by financing activities (451,782) 5,982
-------------------------------------------- ---------- ------------
Net increase/(decrease) in cash
and cash equivalents 53,656 (129,488)
Cash and cash equivalents at
the beginning of the year 50,482 179,954
Exchange (losses)/gains on cash
and cash equivalents (299) 16
Cash and cash equivalents at
the end of the year 103,839 50,482
-------------------------------------------- ---------- ------------
Cash and cash equivalents
Cash 103,839 69,991
Bank overdrafts - (19,509)
103,839 50,482
--------------------------- -------- ---------
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 2015
have been prepared in accordance with International Financial
Reporting Standards and IFIC interpretations adopted by the
European Union (adopted IFRS). However, this announcement does not
contain sufficient information to comply with adopted IFRS. The
Group has today published its Annual Report and Financial
Statements on the Group's website at www.watchstonegroup.com. The
financial information set out in this announcement does not
constitute the Group's statutory accounts for the year ended 31
December 2015. Statutory accounts for the year ended 31 December
2014 have been delivered to the Registrar of Companies and those
for for the year ended 31 December 2015 will be delivered following
the Company's Annual General Meeting. The Auditor's reports on both
the 2015 and 2014 accounts were qualified in respect of the Group's
loss and related party transactions for the year ended 31 December
2014. This preliminary announcement was approved by the Board of
Directors on 27 May 2016.
2. Consolidated Income Statement presentation
The Income Statement is presented in three columns. This
presentation is intended to give a better guide to underlying
business performance by separately identifying adjustments to Group
results which are considered to either be exceptional in size,
nature or incidence, relate to businesses which do not form part of
the continuing business of the Group, or have potential significant
variability year on year in non-cash items which might mask
underlying trading performance. The columns extend down the Income
Statement to allow the tax and earnings per share impacts of these
transactions to be disclosed. Equivalent elements of the Group
results arising in future years, including increases in or
reversals of items recorded, will be disclosed in a consistent
manner.
3. Restatement of prior year
(a) Classification of depreciation on Telematics devices
Telematics devices awaiting fitment are held as inventory until
they generate revenue for the business, at which point they are
transferred to property, plant and equipment and depreciated. In
the previously presented Annual Report and Financial Statements for
the year ended 31 December 2014, GBP1,305,000 of depreciation on
these devices was included within normal administrative expenses.
This depreciation should have been classified within cost of sales,
since this directly relates to the revenue earned from the device.
The amounts presented relating to the year ended 31 December 2014
have therefore been restated to reflect this change. The impact of
this is to reduce gross profit for the year ended 31 December 2014
by GBP1,305,000 and to reduce normal administrative expenses by
GBP1,305,000. There is no impact upon the loss for that year or
upon the Consolidated Statement of Financial Position as at 31
Decmber 2014.
(b) Classification of a provision within Trade and other
Payables
In the previously presented Annual Report and Financial
Statements for the year ended 31 December 2014 a number of
provisions totalling GBP1,958,000 were incorrectly included within
Trade and Other Payables at 31 December 2014. This has been
re-categorised to provisions within the Statement of financial
position at 31 December 2014 within these Financial Statements.
There is no impact upon on the loss for that year or the net assets
as at 31 December 2014.
4. Business segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker
and represent four divisions supported by a Group cost centre
(denoted as Central below). The principal activities of each
segment are as follows:
-- Hubio: a provider of telematics and insurance technology solutions.
-- Ingenie: Telematics based insurance broking.
-- Healthcare Services: A Canadian based physiotherapy network.
-- Other: includes a number of businesses including Business
Advisory Service Limited ("BAS"), an energy brokerage and Maine
Finance Limited ("Maine Finance"), a life insurance broker.
Within the results of the discontinued operation are the PSD,
disposed of to Slater and Gordon UK (1) Limited in May 2015, and
Quintica Holdings Limited ("Quintica") and the Property Services
Division both disposed of in 2016.
Segment information about these businesses is presented below.
The accounting policies of the reportable segments are the same as
the Group's accounting policies. Intra-segmental transactions have
been eliminated in analysis below.
Hubio Ingenie Healthcare Other Central Total
services
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31
December 2015
Revenue 17,341 12,530 25,147 3,238 - 58,256
Cost of sales (9,600) (7,451) (13,864) (2,110) - (33,025)
------------------------ --------- -------- ----------- -------- -------- ----------
Gross profit 7,741 5,079 11,283 1,128 - 25,231
Administrative
expenses excluding
depreciation
and amortisation* (14,966) (4,262) (11,288) (1,920) (8,875) (41,311)
------------------------ --------- -------- ----------- -------- -------- ----------
Underlying EBITDA
before central
cost allocation (7,225) 817 (5) (792) (8,875) (16,080)
Allocation of
central costs (1,983) (333) (319) (876) 3,511 -
------------------------ --------- -------- ----------- -------- -------- ----------
Underlying EBITDA (9,208) 484 (324) (1,668) (5,364) (16,080)
------------------------ --------- -------- ----------- -------- -------- ----------
Depreciation
and amortisation* (6,230)
Share of results
from associates 103
------------------------ --------- -------- ----------- -------- -------- ----------
Underlying group
operating loss (22,207)
Net finance expense (339)
------------------------ --------- -------- ----------- -------- -------- ----------
Underlying group
loss before tax (22,546)
------------------------ --------- -------- ----------- -------- -------- ----------
Non-underlying
adjustments (155,442)
------------------------ --------- -------- ----------- -------- -------- ----------
Total group loss
before tax from
continuing operations (177,988)
------------------------ --------- -------- ----------- -------- -------- ----------
Restated year
ended 31 December
2014
Revenue 17,505 5,933 27,712 5,351 - 56,501
Cost of sales (11,091) (4,035) (15,323) (7,120) - (37,569)
------------------------ --------- -------- ----------- -------- -------- ----------
Gross profit 6,414 1,898 12,389 (1,769) - 18,932
Administrative
expenses excluding
depreciation
and amortisation* (11,648) (2,318) (12,577) (1,194) (7,975) (35,712)
------------------------ --------- -------- ----------- -------- -------- ----------
Underlying EBITDA
before central
cost allocation (5,234) (420) (188) (2,963) (7,975) (16,780)
------------------------ --------- -------- ----------- -------- -------- ----------
Allocation of
central costs (850) (400) (109) (326) 1,685 -
Underlying EBITDA (6,084) (820) (297) (3,289) (6,290) (16,780)
------------------------ --------- -------- ----------- -------- -------- ----------
Depreciation
and amortisation* (6,489)
Share of results
from associates 278
------------------------ --------- -------- ----------- -------- -------- ----------
Underlying group
operating loss (22,991)
Net finance expense (465)
Underlying group
loss before tax (23,456)
------------------------ --------- -------- ----------- -------- -------- ----------
Non-underlying
adjustments (181,852)
------------------------ --------- -------- ----------- -------- -------- ----------
Total group loss
before tax from
continuing operations (205,308)
------------------------ --------- -------- ----------- -------- -------- ----------
* Depreciation added back above when calculating Underlying
EBITDA from continuing operations excludes depreciation on
telematics devices of GBP4,176,000 (2014: GBP2,405,000) which is
included within cost of sales.
5. Non-underlying administrative expenses
2015 2014
GBP'000 GBP'000
Exceptional items:
* Corporate restructuring 8,724 8,937
* Business restructuring 2,763 2,910
* Legal and regulatory 7,055 7,961
* Share based payments 3,914 13,283
* Impairments of non-cash assets 113,510 129,116
* Loss of control over subsidiary - 5,841
Total exceptional items 135,966 168,048
----------------------------------------------------- -------- --------
Other adjustments:
* Share based payments 7,874 5,867
* Amortisation of acquired intangibles 10,957 12,141
* Other non-underlying administrative expenses 2,771 14,341
----------------------------------------------------- -------- --------
Total other adjustments 21,602 32,349
----------------------------------------------------- -------- --------
Total non-underlying administrative
expenses 157,568 200,397
----------------------------------------------------- -------- --------
Impairments of non-cash assets above relates to:
2015 2014
GBP'000 GBP'000
Goodwill 61,836 99,151
Other intangible assets 44,616 8,971
Tangible fixed assets 1,861 661
Associated undertakings - 1,338
Investments 2,691 1,830
Stocks 2,506 1,079
Loans - 16,086
113,510 129,116
------------------------- -------- --------
The corporate restructuring costs of GBP8,724,000 (2014:
GBP8,937,000) for the year ended 31 December 2015 are stated after
taking into account the release of unused provisions of
GBP2,586,000 (2014: GBPnil). These provisions were established
prior to the year ended 31 December 2014. Corporate restructuring
costs consist of acquisition related fees of GBP12,000 credit
(2014: GBP2,798,000 charge), employers national insurance
contributions in respect of the cashing out of options of
GBP243,000 (2014: GBPnil), costs of raising finance of GBPnil
(2014: GBP6,139,000), working capital and strategic review costs of
GBP6,666,000 (2014: GBPnil) and costs associated with the return of
capital of GBP1,827,000 (2014: GBPnil).
Business restructuring includes costs in relation to the
creation of Hubio and the revised structure of the Group.
The legal and regulatory costs of GBP7,055,000 for the year
ended 31 December 2015 are stated after taking into account the
release of unused provisions of GBP5,538,000, which were created in
2014 and GBP12,593,000 of costs in relation to the known historical
issues.
6. Impairments
During the year, the Group refocused its businesses with the
creation of Hubio, focusing on delivering technology services to
businesses in the insurance and automotive sectors.
The creation of Hubio coincided with a thorough assessment of
the markets it operates in, its customers and how best to deploy
its products and other assets to serve them. In addition to
business restructuring comprising rationalisation of staff,
property and inventory, we revisited the market developments,
assumptions and projections inherent in our valuations of goodwill
and other intangible assets. This has resulted in the following
impairments to those assets deployed within Hubio:
GBP'm Goodwill Other Total
intangibles
------------------------------ ---------- ------------- ----------
Net at 31 December 2015
before impairment
* Himex 46,525 38,675 85,200
4,896 4,728 9,624
0 3,057 3,057
* QETS
* QSI
------------------------------ ---------- ------------- ----------
Impairments
* Himex (43,553) (37,962) (81,515)
(4,725) (2,899) (7,624)
0 (2,638) (2,638)
* QETS
* QSI
------------------------------ ---------- ------------- ----------
As at 31 December 2015
Total Hubio 3,143 2,961 6,104
------------------------------ ---------- ------------- ----------
The acquisition of ingenie in 2014, resulted in total intangible
assets of GBP32.7m at the 2014 year end, which have been reviewed
for indicators of impairment, with the following results.
GBP'm Goodwill Other intangibles Total
------------------------- --------- ------------------ ---------
Net at 31 December
2015 before impairment 28,232 4,201 32,433
------------------------- --------- ------------------ ---------
Impairment (13,558) (1,315) (14,873)
------------------------- --------- ------------------ ---------
As at 31 December
2015 14,674 2,886 17,560
------------------------- --------- ------------------ ---------
7. Goodwill
The movement in goodwill is as follows:
Goodwill
GBP'000
Cost
At 1 January 2014 194,969
Additions - purchased 159
Arising on acquisition of subsidiaries 219,760
Arising on acquisition of subsidiaries
- 2013 acquisitions assessment period
change 1,010
Disposal of a subsidiary (62,589)
Transfer of assets of disposal group classified
as held for sale (125,851)
Exchange differences (972)
At 1 January 2015 226,486
Additions - purchased 511
Arising on acquisition of subsidiaries 4,325
Disposal of a subsidiary (4,875)
Transfer to assets of disposal group classified
as held for sale (36,028)
Exchange differences (4,503)
At 31 December 2015 185,916
------------------------------------------------- ----------
Impairment
At 1 January 2014 2,022
Charge for the year 126,632
Transfer to assets of disposal group classified -
as held for sale
At 1 January 2015 128,654
Charge for the year 61,836
Disposal of a subsidiary (1,836)
Transfer to assets of disposal group classified
as held for sale (27,487)
Exchange differences (3,628)
At 31 December 2015 157,539
------------------------------------------------- ----------
Net book value
31 December 2015 28,377
------------------------------------------------- ----------
31 December 2014 97,832
------------------------------------------------- ----------
Goodwill is allocated to the Group's CGUs as follows:
2015 2014
GBP'000 GBP'000
Hubio USA - 36,670
Hubio UK 171 4,896
Hubio Canada - -
Road Angel 2,972 9,855
Total Hubio 3,143 51,421
Ingenie 14,674 28,232
Healthcare services 6,889 7,253
Other UK 3,671 6,710
Other non-UK - 4,216
28,377 97,832
--------------------- -------- --------
The categorisation and description of the Group's CGUs has been
revised in 2015 following a recent strategic review performed by
management.
The Road Angel business (providers of GPS based safety camera
and other such products for the UK consumer and commercial markets)
which formed part of the Himex acquisition in 2014 is now treated
as a separate CGU. The remaining Himex businesses (which currently
operate largely in the Usage Based Insurance (UBI) markets in the
USA) form the 'Hubio USA' CGU.
The other core strategic CGUs have been renamed in line with the
Group's recent branding changes: 'Solutions UK' is now 'Hubio UK',
'Solutions Non-UK' is 'Hubio Canada' and 'Services Non-UK' is
'Healthcare Services'.
'Other' continues to represent those other businesses which have
not been integrated as a result of the change in strategy and focus
of management on other operational matters. This 'Other' category
now, as a result of the change in strategic focus, also includes
both the BAS and Maine Finance operations (which were categorised
as 'Services UK' at 31 December 2014). At 31 December 2015, these
are the only two businesses in the 'Other' category as 360 was
disposed in 2015 and both Quintica and the property services
businesses are treated as held for sale at the year end. All of the
businesses in the 'Other' category continue to be monitored at an
entity level and not measured as one CGU.
Basis of valuation and key assumptions
The recoverable amount of goodwill for businesses at the
year-end is determined on the basis of Value in Use, using a
discounted cash flow ("DCF") appraisal based on periods of between
5 and 7 years (2014: all were based on 11 years) to reflect the
maturity of the businesses and/or markets they operate in. External
market data has been used where possible and the Group has also
drawn upon data used in the strategic review. Other CGUs use growth
assumptions which are more reflective of past experience.
For each of the CGUs with significant amount of goodwill, the
key assumptions used in the Value-in-Use calculations and
recoverable amounts of goodwill are stated below.
Hubio Road Hubio Healthcare
2015 USA Angel UK Ingenie Services Other*
---------------------------- -------- -------- -------- -------- ---------- --------
Long term growth rate 2% 2% 2% 2% 2% 2%
---------------------------- -------- -------- -------- -------- ---------- --------
DCF appraisal period 7 years 7 years 7 years 7 years 5 years 5 years
---------------------------- -------- -------- -------- -------- ---------- --------
Annualised revenue
growth over DCF appraisal
period 21% 9% 9% 6% 8% 6%
---------------------------- -------- -------- -------- -------- ---------- --------
Pre-tax discount rate 32% 17% 17% 18% 13% 12%
---------------------------- -------- -------- -------- -------- ---------- --------
Recoverable amount
of goodwill (m) GBPnil GBP3.0 GBP0.2 GBP14.7 GBP6.9 GBP3.7
---------------------------- -------- -------- -------- -------- ---------- --------
Hubio Road Hubio Healthcare
2014 USA Angel UK Ingenie Services Other*
---------------------------- -------- ------- ------- -------- ---------- -------
Long term growth rate 2% 2% 2% 2% 2% 2%
---------------------------- -------- ------- ------- -------- ---------- -------
DCF appraisal period 11 11 11 11 11 11
years years years years years years
---------------------------- -------- ------- ------- -------- ---------- -------
Annualised revenue
growth over DCF appraisal 5%
period 44% 44% 10% 17% 5% & 8%
---------------------------- -------- ------- ------- -------- ---------- -------
Pre-tax discount rate 50% 50% 15% 19% 13% 13%
---------------------------- -------- ------- ------- -------- ---------- -------
Recoverable amount
of goodwill (m) GBP36.6 GBP9.9 GBP4.9 GBP28.2 GBP7.3 GBP7.9
---------------------------- -------- ------- ------- -------- ---------- -------
* In 2014 only, 'Other' relates to just Quintica and BAS, for
which annualised revenue growth was 5% and 8% respectively.
360GlobalNet Group had been omitted from the table (as goodwill was
carried at the recoverable amount based on its post year end sale)
and Maine Finance was fully impaired at 31 December 2014. In 2015,
'Other' relates to BAS only
Annualised revenue growth rates vary by operating division
depending on the current development to maturity of the CGU. In
determining the applicable discount rate, management has applied
judgement in respect of several factors, including, inter alia,
assessing the risk attached to future cashflows. Pre-tax discount
rates have been assessed for each CGU. The discount rate for Hubio
USA reflects uncertainty caused by the Evogi litigation and the
risks associated with developing an immature market. The discount
rate for Ingenie also reflects uncertainty in developing an
immature market. Discount rates in the Road Angel, Hubio UK and
Healthcare Services CGUs, as well as in the 'Other' category, are
generally lower reflecting the reduced risk associated with those
more mature markets.
Movement in Goodwill by CGU
The movement in goodwill by CGU is as follows:
Arising Asset
in the group
year held
less for
2014 disposal sale Other Impairment 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Hubio USA 36,670 - - - (36,670) -
Hubio UK 4,896 - - - (4,725) 171
Hubio Canada - - - - - -
Road Angel 9,855 - - - (6,883) 2,972
Total Hubio 51,421 - - - (48,278) 3,143
Ingenie 28,232 - - - (13,558) 14,674
Healthcare
Services 7,253 511 - (875) - 6,889
Other (continuing) 6,710 (3,039) - - - 3,671
Continuing
operations 93,616 (2,528) - (875) (61,836) 28,377
Other (discontinued) 4,216 4,325 (185) - (8,356) -
97,832 1,797 (185) (875) (70,192) 28,377
---------------------- -------- ---------- -------- -------- ----------- --------
Impairment charges of GBP36.7m and GBP6.9m arose in Hubio USA
and Road Angel respectively following an in depth review of the
strategic direction of these businesses, its underlying operations
and development activity. This has resulted in a major rebasing of
the Hubio USA forecasts that had been previously provided by local
management, all of whom are now no longer involved in these
businesses. Goodwill allocated to the Road Angel CGU would be
impaired by a further GBP311,000 if there was an increase in the
pre-tax discount rate of 1 ppt or would be impaired by a further
GBP209,000 if the long term growth rate was reduced by 1 ppt.
An impairment charge of GBP13.6m arose in Ingenie which largely
reflects a different strategic direction adopted for this business
together with certain trading assumption changes which have lowered
the forecasts down to more attainable levels. Goodwill allocated to
the Ingenie CGU would be impaired by a further GBP1,172,000 if
there was an increase in the pre-tax discount rate of 1 ppt or
would be impaired by a further GBP747,000 if the long term growth
rate was reduced by 1 ppt.
Goodwill within Hubio UK has been impaired by a charge of
GBP4.7m during the year to take into account the impact of the
adverse publicity surrounding the Group during 2014 and disruption
to its development program which has caused delays to securing
contracts and implementing pipeline opportunities. Goodwill
allocated to the Hubio UK CGU would be fully impaired if there was
an increase in the pre-tax discount rate of 0.3 ppt or if the long
term growth rate was reduced by 0.4 ppt.
GBP8.4m of impairment charges have been reflected in
discontinued activities to reduce these goodwill assets to
realisable value based on the terms of the post year-end sales of
Quintica, BE Insulated (UK) Limited and Carbon Reduction Company
(UK) Limited.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEWEDMFMSELI
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May 27, 2016 02:00 ET (06:00 GMT)
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