TIDMWTG
RNS Number : 4828D
Watchstone Group PLC
27 April 2017
27 April 2017
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Preliminary results for the year ended 31 December 2016
Watchstone (AIM:WTG.L) today announces its results for the year
ended 31 December 2016.
Financial:
-- Underlying* business revenues increase to GBP60.7m (2015: GBP54.9m)
-- Total revenues rise to GBP63.8m (2015: GBP58.8m)
-- Underlying EBITDA** loss of GBP9.8m (2015: loss of GBP15.1m)
-- Group Operating Loss of GBP20.9m (2015: GBP177.6m)
-- Total loss after tax of GBP69.1m (2015: profit of GBP274.9m)
including GBP50.1m impairment of escrow receivable
-- Group net assets (excluding contingent liabilities) of
GBP68.5m (2015: GBP137.1m) representing approximately 147 pence per
share. Group reported net assets no longer includes the escrow
receivable following impairment
-- Group cash and term deposits at 31 December 2016 of GBP81.2m (2015: GBP103.2m)
*Underlying includes Hubio, ingenie, Healthcare Services, BAS
and Central
**EBITDA is Earnings Before Interest Tax Depreciation
Amortisation and Impairments
Operational:
-- Group complexity reduced with disposal or closure of a number
of loss making, cash consumptive businesses
-- Growth and profitability delivered in our largest businesses, ptHealth and ingenie
-- Reshaping of Hubio completed including substantial reduction
of cash requirements and the launch of our new UBI proposition
based on ingenie's leading IP
-- Plan to prepare all remaining businesses for potential
divestment and establish new way of working with the substantially
reduced central team / Board by the end of 2017
Current trading (unaudited):
-- Overall trading is in line with expectations with continued
good momentum in ptHealth and ingenie
-- Unaudited underlying group revenue for Q1 2017 is up 4% vs. Q1 2016
-- Continued improvement in underlying EBITDA loss with
expectation of significantly lower losses vs. 2016 reflecting the
operating improvements made in 2016 and since
-- Unaudited overall group operating loss is an improvement of
approximately 40% for Q1 2017 vs. Q1 2016
-- ptHealth has had a good start to the year
o continued emphasis on clinic optimisation and InnoCare
sales
o unaudited revenue of GBP7.3m in Q1 2017 (an increase of
approximately 11.5% vs. Q1 2016 (excluding exchange rate
fluctuations)
-- ingenie is performing well
o taking advantage of the continued market opportunities seen in
UK insurance telematics
o unaudited revenue of GBP3.9m in Q1 2017 (an increase of
approximately 11% vs. Q1 2016)
-- Smaller and more focused Hubio footprint with a clear
strategy as explained in the Group Chief Executive's Update
-- BAS revenue is broadly in line with Q1 2016 and budget expectations
-- As at 21 April 2017, Group cash and term deposits was (unaudited) GBP71.8m
o Cash outflows since year end reflect both typical settlement
of outstanding 2016 invoices, staff bonuses and settlement of
non-underlying liabilities. This rate of spend is not expected to
be reflective of the trend for the full year
o Group cash excludes escrow monies of GBP50.1m
Indro Mukerjee, Group Chief Executive Officer said: "After some
20 months with the Group, I can confidently say that, with the
rather broad set of things to do, there has never been a dull
moment. Our actions and improvements means the business has entered
2017 in a clearer and stronger position than in 2016. I believe
that we will best serve our shareholders by realising the value of
our operating businesses (through sale, merger/demerger or IPO) at
the optimal time; by managing legacy matters in the most efficient
manner; and then to return the maximum cash to shareholders at the
earliest opportunity subject always to the need to ensure the
interests of creditors are adequately safeguarded (including in
respect of any contingent liabilities). As such, I have
recommended, and the Board has agreed, a plan of action which will
result in completing the phase I started back in September 2015 and
which will move Watchstone into its next phase by the end of 2017.
On a personal level, this will signify the end of my work with the
Group. I have informed my colleagues of my intention to stand down
as Group CEO and resign from the Board, both as of 31 December
2017."
Richard Rose, Non-executive Chairman said: "2016 was another
busy year for Watchstone as we continued to work through
operational and organisational change while dealing with a
multitude of legacy legal and taxation matters. The Board has
decided that all remaining businesses will now be prepared for
divestment. In readiness for possible disposal, the companies will
be shaped to operate more autonomously, with Watchstone taking a
more strategic role rather than seeking to operate the businesses.
The timing for any potential divestment or any alternative
strategic option will be determined with a view to maximising
shareholder value. Under the leadership of Indro Mukerjee, we are
now well placed to move to a much simpler and significantly reduced
cost group structure by the end of 2017 at which point Indro's work
to provide a strong and stable platform for Watchstone and its
businesses to generate value for shareholders will be
complete."
The Annual Report and Accounts for the year ended 31 December
2016 will be released by 5 May 2017 and posted to registered
shareholders. Once published a full version will be available at
www.watchstonegroup.com/investors.
The 2017 AGM will be held at 10.30am on 27 June 2017 at Vauxhall
& Lambeth Suite - 2nd Floor, Park Plaza County Hall, 1
Addington St, Lambeth, London SE1 7RY. Notice of the Annual General
Meeting ("AGM") and a Form of Proxy will be posted to registered
shareholders in due course.
For further information:
Watchstone Group plc Tel: 03333
investor.relations@watchstonegroup.com 448048
---------------------------------------- -----------
Peel Hunt LLP, Nominated Adviser Tel: 020
and broker 7418 8900
Dan Webster, Adrian Trimmings, George
Sellar
---------------------------------------- -----------
Notes to editors:
About Watchstone
Watchstone Group plc is a company focused on managing the
Group's operating, cash and other corporate assets in order to
achieve the maximum shareholder value possible, whilst ensuring
good governance.
The Group has technology at its core and our businesses offer
leading technology solutions and other services primarily to the
insurance, automotive and healthcare sectors. 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
o provides integrated solutions to help organisations in the
insurance and automotive sectors increase efficiency, reduce
claims, build customer engagement and enable usage-based
personalisation.
o through the innovative use of telematics and enterprise
technologies, Hubio is bringing new levels of data-driven insights
to the insurance and automotive industries, while challenging and
redefining established business models.
-- Healthcare Services
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 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
o is an insurance broker focused on helping young drivers get on
the road safely and affordably. Using telematics technology,
ingenie gives its community feedback, bespoke advice via its Driver
Behaviour Unit and discounts to help them improve their driving
skills and stay safe.
-- BAS
o 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.
Chairman's Report
2016 was another busy year for Watchstone as we continued to
work through operational and organisational change while dealing
with a multitude of legacy legal and taxation matters.
Although timing is beyond our control for most of our legacy
matters, it is disappointing we have not yet definitively resolved
a number of these issues facing the Group. We continue to seek to
do this as soon as practical whilst always ensuring that we focus
on the interests of our shareholders.
Throughout the year, we disposed of or closed a number of
businesses which were loss making, consumed cash and presented no
opportunity for additional shareholder value. The executive team
was active across our businesses and we exited our property
services interests, disposed of Quintica, closed and sold the
assets of Road Angel Group and closed Maine Finance.
At the same time, revenues of our underlying businesses
increased and losses were significantly cut.
It is pleasing to note that both ptHealth and ingenie are now
profitable and growing well with strong opportunities for profit
improvement from organic growth and margin enhancement. The
challenge of shaping Hubio has been met and is explained in the
Group Chief Executive's Update.
Under the leadership of Indro Mukerjee, who joined Watchstone as
Group Chief Executive Officer in September 2015, we are now well
placed to move to a much simpler and significantly reduced cost
group structure by the end of 2017.
All remaining businesses will be prepared for divestment. In
readiness for possible disposal, each business will have its own
dedicated management team to enable them to operate without the
levels of Group management involvement that have been required so
far. Watchstone's companies will be shaped to operate more
autonomously, with Watchstone taking a more strategic role rather
than seeking to operate the businesses. Any potential divestment or
any alternative strategic option will be determined with a view to
maximising shareholder value.
As a result, Watchstone will be run by a much smaller team and
Board from the start of 2018 and Indro and I are working together
to shape the makeup of that structure. The main responsibility of
the streamlined Watchstone will be to manage the divestment process
(for those businesses remaining) and bring the legacy issues to
their conclusion with a view to enabling the maximum amount of cash
to be returned to shareholders at the earliest possible
opportunity.
Following the planning and delivery of this strategic reshaping,
Indro has informed the Board of his intention to leave the Group on
completion of the planning and delivery of this strategic reshaping
and will resign from the Board, both as of 31 December 2017. It was
always part of our plan to have a CEO who could navigate the legacy
issues as well as provide a strong and stable platform for
Watchstone and its businesses to generate value for shareholders
and I know that Indro will continue that work until his
departure.
I would, once again, like to take this opportunity to thank all
our colleagues for their commitment and hard work. I would also
like to thank our investors who have been patient and maintained
support for the Company as the intense work to deliver the best
possible value from our assets has continued. The Board remains
confident that we will go on to reward that support.
Richard Rose
Non-executive Chairman
Group Chief Executive's Update
After some 20 months with the Group, I can confidently say that,
with the rather broad set of things to do, there has never been a
dull moment.
My starting point has been well documented and the following
three elements have been at the heart of my work from the
beginning: setting a strategic direction for our businesses;
working to reduce the Group's cash losses; and promoting
uncompromising standards of governance.
Working with high calibre Board colleagues, the governance
aspects of what we do as a company and how we do it have been
developed to high standards. While realising that shareholders
should be able to take this for granted, it should be noted that it
took significant work and determination to get to this point.
Given the scale of the cash losses, it was an obvious priority
to focus on addressing those quickly after I started. Over the
course of 2016, some GBP14m of losses were eradicated through a
combination of cost savings and cessation of entire activities.
For our businesses, the focus of 2016 was about rationalising
what was a diverse starting point and working in the businesses on
practical actions to get the best out of them. In order to be able
to communicate performance clearly to shareholders, the income
statement, including the comparatives, splits the Group between
underlying and non-underlying activities with the latter category
including business activities which do not form part of the Group's
future focus. Today, the Group's underlying businesses are
Healthcare Services (ptHealth including InnoCare), ingenie, Hubio
and BAS.
With increased sales focus and tight cash management, we were
able to show underlying sales growth of approximately 11% and to
reduce the underlying EBITDA loss to (GBP9.8m) in 2016 vs.
(GBP15.1m) in 2015. The full year benefits of the restructuring
during 2016 are not fully reflected in the 2016 numbers and so our
EBITDA losses for 2017 will be significantly lower once again.
At all times, I have done my best to consider the inevitably
broad range of shareholder (both institutional and private)
opinions and the feedback from our owners has helped to shape our
actions. We have placed a significant emphasis on cash management
and this was always the main reason for the cessation of certain
activities in the Group.
With the exception of parts of Hubio, our businesses now no
longer consume cash on an ongoing basis. Within Hubio, the
enterprise and Canadian iter8 insurance software businesses became
cash neutral within 2016 and only the telematics side of the
business consumed cash while its real business prospects were being
fully and now conclusively evaluated in what is a fast-changing
market.
Business Review:
Now, taking each of the operating businesses in turn:
1. Healthcare Services
Our Healthcare Services activities consist of our ptHealth
clinics business as well as InnoCare, which was launched in Spring
2016 to sell software and services to independent clinics in
Canada. With significant effort and focus, Healthcare performed
well in 2016, with revenue increasing by 12% and EBITDA turning
profitable.
During 2016, ptHealth clinics treated a record number of
patients and through strong operational improvement and selective
clinic divestments, all clinics are now profitable. ptHealth clinic
revenue increased some 7% (even with fewer clinics) and EBITDA
increased by 21% compared with FY2015, reflecting operational
improvements.
ptHealth is on target to continue the positive momentum in both
top line revenue, patient treatments and assessments and clinic
capacity utilisation during 2017.
InnoCare comprises:
-- InnoCare SaaS, a market leading services and software package
designed as a complete solution to clinics has increased its
revenue by 101% when comparing Q1 2016 before InnoCare launch to Q1
2017; and
-- InnoCare Charting, a digital charting platform to help
clinicians be more efficient and thereby treat more patients has
led to considerable media attention in Canada, bringing first of
its kind solutions to the marketplace.
InnoCare has been developing momentum, including growth in
network revenue up 17% over the prior period. From September 2016,
investment in sales and business development has resulted in a
substantial growth in its sales pipeline.As commented in the
pre-close trading update released on 19 January 2017, the required
investment in InnoCare's products and associated marketing will
impact the overall Healthcare Services' earnings for the immediate
future. However, we still expect it to be profitable and cash
generative in 2017.
Healthcare Services in 2016 at a glance
-- In 2016, ptHealth treated an average of 3,000 patients a day
-- Of the 2,958 patients surveyed 96% said they would recommend us
-- Over 1,200 Practitioners use InnoCare software. Software sales were up 33% in 2016
-- In 2016, our central call centre took a record 71,093 calls,
made 52,156 new patient appointments and cared for 71,543 new
patients
-- 1,250 people a day visit our ptHealth/InnoCare websites
-- Recent Q1 2017 PR for InnoCare has led to an 11% growth in
sales pipeline for InnoCare products
2. Hubio
Hubio was launched at the start of 2016 to operationally pull
together three previously disparate insurance software businesses
and to evaluate opportunities for value creation. Hubio has been
the business area which most polarised shareholder opinion and I
owed it to all shareholders to pay particular attention to this
business and so have been its CEO since creation.
Through working in this business and meeting customers,
prospects and peers, the following elements became clear:
-- Our telematics business was not able to profitably challenge
larger and established players who had acquired market share;
-- The telematics market was already moving rapidly to mobile
solutions and we could not find a business case for the previously
developed mapping technology; and
-- There was no compelling market for 'end to end' Usage Based
Insurance (UBI) solutions. This meant we could only find limited
synergies between the telematics and enterprise software parts of
Hubio and therefore the overall Hubio cost base was significantly
out of line with its opportunities and so strong measures had to be
taken.
So, 2016 became about reshaping the Hubio organisation to
improve efficiency and to establish the best way to develop value.
Naturally, I was deeply involved with both the restructuring and
with new business initiatives, meeting with customers and industry
commentators as well as guiding our employees.
With these actions, in addition to those taken since the end of
2016, (including the closure of our Dundee operation and the
downsizing of our US telematics team), Hubio's cash needs were
reduced from over GBP11.0m in 2015 to under GBP5.5m on an
annualised basis by the end of 2016. With the full impact of last
year's savings and the recently announced closure of Dundee and the
further downsizing of our US telematics group, overall Hubio cash
needs will be substantially lower in 2017.
With these changes, today we have the following businesses under
the Hubio brand:
- Hubio Enterprise: This is our insurance claims and policy
software business which is now operating profitably with well
proven, award winning technology; a significantly increased sales
pipeline; increased market recognition; and a clear strategy.
- Hubio Exchange: This is our technology solutions business in
Canada which has been downsized and completely reoriented back to
its niche iter8 insurance platform. It recently announced its
Guidewire partnership and has developed its well-proven technology
to be SaaS ready.
- Hubio Fleet: We launched this Fleet focused business using our
telematics platform in September 2016. Since then we have developed
an active book of 2,500 active subscriptions and a growing pipeline
of opportunities. Through a lot of rapid learning since launch and
following the decision to streamline our own software development
resources, we have decided to work with an external technology
partner to improve our Fleet solution which will be taken to market
through the commercial team we have built. This improved solution
has been recently launched and our objective is to rapidly increase
the size of our active subscriber base.
- Hubio Telematics: I have already shared my disappointment with
the development of the UBI activities in communications with
shareholders. Whilst it is clear the US UBI market is growing, it
is also evident that it is difficult to profitably break into this
market without significant cash investment with an uncertain ROI.
Given that we started with two legacy platforms, with the Hubio one
not offering event scoring, we decided that our updated UBI
proposition should be based on our successful ingenie platform.
Engagement with US and European customers and prospects will now be
managed within the ingenie team, but going to market under the
recognised name "Hubio Telematics".
3. ingenie
There was a successful focus on ingenie business development in
2016 resulting in a 17% increase in new business sales and 22%
increase of in force policies, compared with 2015. ingenie is now
profitable and generating cash. Customer engagement and retention
were both increased through ever improving use of social media
which is one of the important differentiators for this
business.
The ingenie business was split into two parts during 2016 to
best focus on developing clear value propositions for its essential
elements of the broker business as well as technology and services
development.
The ingenie broker business, which deals direct with UK based
consumers, is profitable and is expected to increase revenue
further during 2017 through organic growth and with newly developed
products, which will be announced to the market when released.
These will create new product brands, stronger social content and
target demographic awareness and revenue and Gross Written Premium
(GWP) growth for our insurance propositions. As our products
develop, we will establish broader and additional underwriting
partnerships to address our new market propositions.
The ingenie technology division will be branded Hubio Telematics
and manage relationships with UBI business customers and prospects,
offering the transformational impact of ingenie's exceptional
driver engagement along with its powerful algorithms to help
insurers and their customers. Beyond the ANWB contract and
relationship which has been successfully growing, Hubio Telematics
will also target engagements in the US and other European countries
with any partners that can deliver fast growing programs and cash
generative, profitable business for us.
Our ingenie business has strong technological and marketing
capabilities in both its broker and technology divisions and
operates within a space which is growing. We have a strong sense of
the expansion actions necessary to grow revenue and make the
operational improvement to improve the bottom line.
ingenie in 2016 at a glance
-- GWP increased by 22%
-- Exceptional consumer engagement achieved by the combination of technology and psychology:
o 99% ingenie drivers activate their feedback account
o ingenie drivers engage 9x per month via feedback app
o ingenie drivers have 40% fewer crashes than the national
average
o 90% drivers proven to improve after ingenie coaching
-- Facebook and Twitter followers exceed 50,000
-- Social traffic to ingenie.com has increased by 58% over previous year
-- Traffic to ingenie Young Drivers Guide has doubled over the course of 2016
-- Hubio Telematics systems have managed over 150,000 policies over the last 5 years
-- Collects over 2.5 million miles of driver trip data every day
4. BAS
In 2016, BAS launched a new division targeting larger corporate
opportunities in addition to its traditional base of SME customers.
The first major corporate customer was won (providing energy
procurement services for Suffolk County Council) and a further
pipeline has been developed with an expectation for additional wins
during 2017. Total new business sales were a record and up
approximately 30% vs. 2015 resulting in the revenue growth seen in
the accounts section of this report. In addition to launching the
new corporate division, 2016 also saw major efforts in improving
the IT and operational processes of the business and restructuring
some of the South African sales teams. Despite the strong revenue
growth in 2016 the business continues to operate in a competitive
and mature market.
Update on legacy matters
It is well recognised that we have continued to deal with a
substantial number of legacy matters.
Whilst we successfully resolved a number of historic matters in
the year (and since year end), in September 2016, Slater &
Gordon ("S&G") notified us of a purported claim in respect of
its acquisition of our Professional Service Division ("PSD") which
completed in May 2015. In November 2016, S&G obtained an
opinion from an independent barrister in respect of the warranty
escrow that based solely on the information presented to him (and
on the assumption that no further evidence would be provided) that
the purported claim has on balance a prospect of success and that,
if successful, such claim would be likely to have a value of
GBP53.0m ("Opinion"). Accordingly, GBP50.1m (including interest) is
retained in the warranty escrow account until the purported claim
is resolved ("Warranty Escrow").
Whilst Watchstone's view as to the lack of merits of the
purported claim has not changed, on the basis of the Opinion, we
consider it appropriate that a provision for impairment be
established in respect of the Warranty Escrow and have determined
that the appropriate amount should be to fully impair the Warranty
Escrow. This reflects the inherent uncertainty in valuation of the
purported claim and is in no way a reflection of the Group's view
on ultimate resolution, which is uncertain in both time and quantum
(if any).
As yet no proceedings have been brought and the Group will
defend such claim robustly if commenced.
We remain in active dialogue with S&G on a number of other
matters including the performance of the noise induced hearing loss
("NIHL") cases to which deferred consideration is due when, and if,
such cases are profitable. To date, no deferred consideration has
been paid.
The SFO investigation which was launched in August 2015 into
historic matters remains on-going and we continue to co-operate
fully with it. It remains the only regulatory enquiry to which the
Company is subject.
We will continue our efforts to resolve these matters and will
do so with a priority and focus on protecting shareholder
interests.
2017 Outlook and Strategic Plans
Changing the company name to Watchstone in November 2015 was
much more than a cosmetic event. Since then, we have developed
clear plans for our underlying operating businesses with strong
financial controls. We are continuing to work on addressing our
legacy corporate matters with clarity and determination. At the
same time, and realising that all the underlying businesses are
going through improvement paths, I am always mindful of the best
way to deliver best possible shareholder value. Our actions and
improvements means the businesses have entered 2017 in a stronger
position than they did in 2016.
I believe that we will best serve our shareholders by realising
the value of our operating businesses (through sale,
merger/demerger or IPO) at the optimal time; by managing legacy
matters in the most efficient manner; and then to return the
maximum cash to shareholders at the earliest opportunity subject
always to the need to ensure the interests of creditors are
adequately safeguarded (including in respect of any contingent
liabilities).
As such, I have recommended, and the Board has agreed, a plan of
action which will result in completing the phase I started in
September 2015 and moving Watchstone into its next phase by the end
of 2017.
Any businesses held beyond 2017 will be cash generative and will
not need constant operational management by Watchstone, as has been
the case so far. This will mean that any retained businesses will
have their own complete management teams, clear business plans with
milestones as well as systems and controls which will allow
Watchstone to manage them as a shareholder rather than as an
operator. This will enable a smaller Board / central team to divest
of such companies more easily and quickly when the time is
right.
Over the remainder of 2017, work will be done to either sell the
operating businesses or develop them to a state where they can be
managed as described above. There will also be work to re-shape the
Board and further reduce the central team. The completion of this
work by the end of this year will be a significant milestone for
the Group.
On a personal level, this will signify the end of my work with
the Group. I have informed my colleagues of my intention to stand
down as Group CEO and resign from the Board, both as of 31 December
2017.
Since becoming Group Chief Executive Officer, it has been my
intention to get the Group's businesses into the best possible
position, while dealing with an array of legacy issues and
challenges. I believe that the Board's work to date and the plan
for the rest of this year will give shareholders a much better
platform for the future than they had in 2015.
Shareholders will receive a further update on this plan on 27
June 2017 in our AGM statement. The AGM itself will be held in
London on that day and notice will be sent to shareholders in due
course.
There is a much still to be done and I would like to thank our
employees for their commitment and our shareholders for their
support.
Indro Mukerjee
Group Chief Executive Officer
Consolidated Income Statement
for the year ended 31 December 2016
2016 2016 2016 2015 2015 2015
Underlying Non-underlying Total Underlying Non-underlying Total
GBP000
Revenue 60,703 3,053 63,756 54,894 3,890 58,784
Cost of sales (31,805) (1,902) (33,707) (31,105) (2,293) (33,398)
Gross profit 28,898 1,151 30,049 23,789 1,597 25,386
Administrative
expenses (40,883) (10,093) (50,976) (43,120) (161,989) (205,109)
Other income - - - - 1,971 1,971
Share of
results of
associates - - - 103 - 103
Group operating
loss (11,985) (8,942) (20,927) (19,228) (158,421) (177,649)
Finance income 1,504 831 2,335 1,217 19 1,236
Finance expense (269) - (269) (1,508) (67) (1,575)
Loss before
taxation (10,750) (8,111) (18,861) (19,519) (158,469) (177,988)
Taxation (464) 204 (260) 3,666 9,524 13,190
Loss after
taxation
for the year
from continuing
operations (11,214) (7,907) (19,121) (15,853) (148,945) (164,798)
Provision
against escrow
receivable - (50,120) (50,120) - - -
Net gain
on disposal
of discontinued
operations - 323 323 - 494,317 494,317
Loss for
the year
from discontinued
operations,
net of taxation - (152) (152) - (54,580) (54,580)
(Loss)/profit
after taxation
for the year (11,214) (57,856) (69,070) (15,853) 290,792 274,939
--------------------- ----------- --------------- --------- ----------- --------------- ----------
Attributable
to:
Equity holders
of the parent (11,206) (57,856) (69,062) (15,358) 290,792 275,434
Non-controlling
interests (8) - (8) (495) - (495)
(11,214) (57,856) (69,070) (15,853) 290,792 274,939
-------------------- ----------- --------------- --------- ----------- --------------- ----------
(Loss)/earnings
per share
(pence):
Basic (24.3) (150.0) (34.0) 609.0
Diluted (24.3) (150.0) (34.0) 609.0
------------------ ------- --------- ------- ---------
Loss per
share from
continuing
activities
(pence):
Basic (41.5) (363.3)
Diluted (41.5) (363.3)
------------------ ------- --------- ------- ---------
Non-underlying results have been presented separately to give a
better guide to underlying business performance. Where items have
become non-underlying in 2016 the comparable amounts in 2015 have
been revised to also be classified on the same basis. This does not
impact the total 2015 results.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
2016 2015
GBP'000s GBP'000s
(Loss)/profit after taxation (69,070) 274,939
Items that may be reclassified
in the Consolidated Income Statement
Exchange differences on translation
of foreign operations 50 (1,674)
Total comprehensive (loss)/income
for the year (69,020) 273,265
---------------------------------------- --------- ---------
Attributable to:
Equity holders of the parent (69,012) 273,760
Non-controlling interest (8) (495)
(69,020) 273,265
------------------------------ --------- --------
Consolidated Statement of Financial Position
as at 31 December 2016
2016 2015
GBP'000 GBP'000
Non-current assets
Goodwill 23,221 28,377
Other intangible assets 6,259 7,539
Property, plant and equipment 6,293 7,440
Interests in associates - 86
35,773 43,442
---------------------------------- --------- ---------
Current assets
Inventories 941 871
Trade and other receivables 10,228 66,169
Corporation tax assets 355 8,165
Term deposits 37,500 -
Cash 43,714 103,200
92,738 178,405
Assets of disposal group
classified as held for
sale 1,300 3,382
Total current assets 94,038 181,787
Total assets 129,811 225,229
----------------------------------- --------- ---------
Current liabilities
Cumulative redeemable preference
shares - (427)
Other secured and unsecured
loans (163) (154)
Trade and other payables (25,895) (41,667)
Obligations under finance
leases (102) (144)
Provisions (27,816) (36,704)
(53,976) (79,096)
Liabilities of disposal
group classified as held
for sale - (3,534)
Total current liabilities (53,976) (82,630)
----------------------------------- --------- ---------
Non-current liabilities
Cumulative redeemable preference
shares (6,131) (4,816)
Obligations under finance
leases - (64)
Provisions (425) (306)
Deferred tax liabilities (741) (304)
(7,297) (5,490)
---------------------------------- --------- ---------
Total liabilities (61,273) (88,120)
----------------------------------- --------- ---------
Net assets 68,538 137,109
----------------------------------- --------- ---------
Equity
Share capital 4,604 4,596
Other reserves 143,179 146,626
Retained earnings (80,218) (14,722)
Equity attributable to
equity holders of the parent 67,565 136,500
Non-controlling interests 973 609
Total equity 68,538 137,109
----------------------------------- --------- ---------
Consolidated Cash Flow Statement
for the year ended 31 December 2016
2016 2015
GBP'000 GBP'000
Cash flows from operating activities
Cash used in operations before
exceptional costs, net finance
expense and tax (18,921) (57,554)
Non underlying operating cash
out flows excluding discontinued
operations (10,422) (10,538)
Cash used in operations before
net finance expense and tax (29,343) (68,092)
6
Corporation tax received 6,990 419
Net cash used by operating activities (22,353) (67,673)
Cash flows from investing activities
Purchase of property, plant and
equipment (5,469) (5,636)
Purchase of intangible fixed
assets (1,400) (4,285)
Proceeds on disposal of property,
plant and equipment - 143
Proceeds from sale of investments - 1,358
Acquisition of subsidiaries net
of cash acquired - (648)
Disposal of subsidiaries net
of cash foregone 4,013 575,001
Investment in term deposits (82,500) -
Maturity of term deposits 45,000 -
Interest income 97 -
Disposal of associated undertakings 86 7,069
Dividends received from associates - 109
Repayment of financing loan 1,255 -
Net cash (used in)/generated
by investing activities (38,918) 573,111
Cash flows from financing activities
Issue of share capital 8 1,305
Capital return - (411,871)
Cash out of options - (11,150)
Finance expense paid (66) (1,510)
Finance income received 743 1,234
Finance lease repayments (103) (2,738)
Additional secured loans - 793
Repayment of secured loans - (30,265)
Sale of shares treated as held
in treasury - 2,746
Repayment of unsecured loans - (326)
Net cash generated by/(used in)
financing activities 582 (451,782)
Net (decrease)/increase in cash
and cash equivalents (60,689) 53,656
Cash and cash equivalents at
the beginning of the year 103,839 50,482
Exchange gains/(losses) on cash
and cash equivalents 564 (299)
Cash and cash equivalents at
the end of the year 43,714 103,839
Cash and cash equivalents
Cash 43,714 103,839
43,714 103,839
--------------------------- ------- --------
The above Consolidated Cash Flow Statement includes cash flows
from both continuing and discontinued operations.
As at 31 December 2016 the group had cash and cash equivalents
of GBP43,714,000 (2015: GBP103,839,000) and term deposits of
GBP37,500,000 (2015: GBPnil).
Notes:
1. Results announcement
The Financial Statements for the year ended 31 December 2016
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 will publish its Annual Report and Financial Statements by 5
May 2017 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,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of any emphasis without qualifying
their opinion and (iii) 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 2016. Statutory
accounts for the year ended 31 December 2015 have been delivered to
the Registrar of Companies and those for the year ended 31 December
2016 will be delivered following the Company's Annual General
Meeting. This preliminary announcement was approved by the Board of
Directors on 27 April 2017 and these preliminary results have been
extracted from the audited results for the year ended 31 December
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 different years, including increases in or
reversals of items recorded, are disclosed in a consistent
manner.
3. 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. Business Advisory Service Limited ("BAS"), an energy
brokerage.
During 2016, Maine Finance Limited ("Maine Finance"), a life
insurance broker and the B2C business of Road Angel Group (being
part of Hubio) ("RAG") ceased and the ingenie Canada business
entered a state of managed wind down. Accordingly, the results of
these businesses have been reclassified to non-underlying and the
amounts for 2015 have been restated to be presented on a comparable
basis
Within the results of the discontinued operation are Quintica
Holdings Limited ("Quintica") and property services, both of which
were disposed of in 2016. In 2015, discontinued operations
additionally includes the PSD, which was disposed of in May
2015.
Segment information about these businesses is presented
below.
Hubio ingenie Healthcare BAS Central Total
Services
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31
December 2016
Underlying revenue 15,004 13,926 28,083 3,690 - 60,703
Underlying cost
of sales (7,025) (7,565) (14,856) (2,359) - (31,805)
Underlying gross
profit 7,979 6,361 13,227 1,331 - 28,898
Underlying administrative
expenses excluding
depreciation
and amortisation* (12,547) (5,316) (13,099) (1,622) (7,474) (40,058)
Underlying EBITDA
before capitalisation
of development
expenditure (4,568) 1,045 128 (291) (7,474) (11,160)
--------------------------- --------- -------- ----------- -------- -------- ----------
Capitalisation
of development
expenditure - 368 1,032 - - 1,400
Underlying EBITDA
before allocation
of central costs (4,568) 1,413 1,160 (291) (7,474) (9,760)
Allocation of
central costs (1,715) (627) (562) (264) 3,168 -
Underlying EBITDA
after allocation
of central costs (6,283) 786 598 (555) (4,306) (9,760)
--------------------------- --------- -------- ----------- -------- -------- ----------
Depreciation
and amortisation* (2,225)
Share of results -
from associates
Underlying group
operating loss (11,985)
Net finance
income 1,235
Underlying group
loss before
tax (10,750)
Non-underlying
adjustments (8,111)
Total group
loss before
tax from continuing
operations (18,861)
--------------------------- --------- -------- ----------- -------- -------- ----------
Hubio ingenie Healthcare BAS Central Total
Services
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31
December 2015
Underlying revenue 14,371 12,530 25,147 2,846 - 54,894
Underlying cost
of sales (7,324) (7,451) (13,864) (2,466) - (31,105)
Underlying gross
profit 7,047 5,079 11,283 380 - 23,789
Administrative
expenses excluding
depreciation
and amortisation* (16,350) (5,290) (11,610) (1,101) (9,049) (43,400)
Underlying EBITDA
before capitalisation
of development
expenditure (9,303) (211) (327) (721) (9,049) (19,611)
--------------------------- --------- -------- ----------- -------- -------- ----------
Capitalisation
of development
expenditure 2,996 1,028 322 - 174 4,520
Underlying EBITDA
before allocation
of central costs (6,307) 817 (5) (721) (8,875) (15,091)
Allocation of
central costs (1,983) (333) (319) (876) 3,511 -
Underlying EBITDA
after allocation
of central costs (8,290) 484 (324) (1,597) (5,364) (15,091)
--------------------------- --------- -------- ----------- -------- -------- ----------
Depreciation
and amortisation* (4,240)
Share of results
from associates 103
Underlying group
operating loss (19,228)
Net finance
income (291)
Underlying group
loss before
tax (19,519)
Non-underlying
adjustments (158,469)
Total group
loss before
tax from continuing
operations (177,988)
--------------------------- --------- -------- ----------- -------- -------- ----------
*Depreciation added back above when calculating Underlying
EBITDA from continuing operations excludes depreciation on
telematics devices of GBP2,998,000 (2015: GBP4,176,000) which is
included within cost of sales.
4. Non-underlying results
The non-underlying results of the business include the income
and expenses of businesses classified as non-underlying by virtue
of these not forming part of the long term plans for the group and
as such are being wound down or disposed of. This includes Maine
Finance, ingenie Canada and RAG. Businesses meeting this criterion
which also meet the definition of a discontinued operation under
IFRS 5 have been further classified as discontinued operations
within the non-underlying results. This includes Quintica, BE
Insulated (UK) Limited and Carbon Reduction Company (UK) Limited,
and additionally in 2015, the PSD. The comparative amounts have
been presented to be on a consistent basis.
Items which are considered to be exceptional in size, nature or
incidence, or have potential significant variability year on year
in non-cash items which might mask underlying trading performance
are also included within non-underlying. In 2016 this includes
providing for the escrowed receivable relating to the PSD disposal,
which has been included alongside the discontinued operations to
which it relates.
Non-underlying administrative expenses is analysed as
follows:
2016 2015
GBP'000 GBP'000
Exceptional items:
* Corporate restructuring 425 8,724
* Business restructuring 1,415 2,763
* Legal and regulatory (1,028) 7,055
(5,419) -
* Tax related matters
* Share based payments - 3,914
* Impairments of non-cash assets 6,627 113,610
Total exceptional items 2,020 136,066
----------------------------------------------------- -------- --------
Other adjustments:
* Share based payments 441 7,874
* Amortisation of acquired intangibles 2,676 10,957
* Other non-underlying administrative expenses 4,956 7,092
----------------------------------------------------- -------- --------
Total other adjustments 8,073 25,923
----------------------------------------------------- -------- --------
Total non-underlying administrative
expenses 10,093 161,989
----------------------------------------------------- -------- --------
Other adjustments are not exceptional however do not relate to
the ongoing future trade of the group and can vary significantly
from year to year. Amortisation of acquired intangibles is
significantly impacted by impairment charges in previous year.
Other non-underlying administrative expenses relate principally
to the costs of businesses classified as non-underlying and central
costs associated with the same. These are specifically identifiable
external costs and do not include allocations of internal
amounts.
Where items have become non-underlying in 2016 the comparable
amounts in 2015 have been revised to also be classified on the same
basis.
Impairments of non-cash assets above relates to:
2016 2015
GBP'000 GBP'000
Goodwill 6,814 61,836
Other intangible assets 178 44,616
Tangible fixed assets - 1,861
Investments - 2,691
Inventory (365) 2,606
6,627 113,610
------------------------- -------- --------
The corporate restructuring costs of GBP425,000 (2015:
GBP8,724,000) for the year ended 31 December 2016 are stated after
taking into account the release of unused provisions of GBPnil
(2015: GBP2,586,000). In 2015, corporate restructuring costs
consisted of acquisition related fees of GBP12,000 credit,
employer's national insurance contributions in respect of the
cashing out of options of GBP243,000, working capital and strategic
review costs of GBP6,666,000 and costs associated with the return
of capital of GBP1,827,000.
Business restructuring includes costs in relation to the wind
down of ingenie Canada, the closure of Maine Finance and the RAG
B2C business and is net of the release of provisions of
GBP1,584,000.
The legal and regulatory credit of GBP1,028,000 includes the
releases of provisions of GBP2,186,000 relating to legal disputes
in the UK and the settlement of the Navseeker claim in the US. This
is partially offset by additional legal fees in relation to
recovery of the outstanding amounts held in escrow upon sale of the
PSD. In 2015 costs of GBP7,055,000 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.
Tax related matters of GBP5,419,000 (2015: GBPnil) includes the
reversal of GBP9,029,000 unused provisions (2015: GBP2,586,000).
This reflects the settlement of historic tax matters with HMRC.
5. Goodwill
The movement in goodwill is as follows:
Goodwill
GBP'000
Cost
At 1 January 2015 226,486
Additions - purchased 511
Arising on acquisition of subsidiaries 4,325
Disposal of a subsidiary (4,875)
Transfer of assets of disposal group classified
as held for sale (36,028)
Exchange differences (4,503)
At 1 January 2016 185,916
Exchange differences 7,978
At 31 December 2016 193,894
------------------------------------------------- ---------
Impairment
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 1 January 2016 157,539
Charge for the year 6,814
Exchange differences 6,320
At 31 December 2016 170,673
------------------------------------------------- ---------
Net book value
31 December 2016 23,221
------------------------------------------------- ---------
31 December 2015 28,377
------------------------------------------------- ---------
Goodwill is allocated to the Group's CGUs as follows:
2016 2015
GBP'000 GBP'000
Total Hubio - 3,143
ingenie 14,674 14,674
Healthcare Services 8,547 6,889
BAS - 3,671
23,221 28,377
--------------------- -------- --------
The categorisation and description of the Group's CGUs was
revised in 2016 following strategic changes implemented by
management.
Hubio-UK, previously comprised Metaskil and Hubio Technologies
businesses. These have been separated in the year into two CGU's
where all of the goodwill was allocated to the Metaskil CGU. Upon
performing an impairment review of this goodwill against the
projected cash flows of the business the goodwill has been written
down to nil.
The RAG business (providers of GPS based safety camera and other
such products for the UK consumer and commercial markets)
represented a single CGU in 2015. During 2016, the consumer (B2C)
elements of the RAG business has ceased with the remaining
commercial elements of the business becoming Hubio Fleet. The RAG
CGU has been split into two CGUs, RAG B2C and Hubio Fleet and the
goodwill allocated between.
The BAS business was previously included within 'Other' along
with the Maine Finance business. Since Maine Finance closed to new
business in 2016 it no longer represents its own CGU and therefore
BAS is now presented on its own.
Basis of valuation and key assumptions for impairment testing of
goodwill and intangible assets
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 explicit forecast
periods of between 2 and 3 years (2015: 5 to 7 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 its annual planning cycle, with
reference to other market participants. In particular changes in
working capital and future investments in non-current assets are
key assumptions.
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 RAG Healthcare
2016 Fleet B2C Metaskil ingenie Services BAS
---------------------------- -------- ----- --------- -------- ---------- --------
Long term growth rate 2% n/a 2% 2% 2% 2%
---------------------------- -------- ----- --------- -------- ---------- --------
DCF appraisal period 4 years n/a 3 years 3 years 3 years 3 years
---------------------------- -------- ----- --------- -------- ---------- --------
Annualised revenue
growth over DCF appraisal
period 11% n/a 7% 8% 5% 5%
---------------------------- -------- ----- --------- -------- ---------- --------
Pre-tax discount rate 19% n/a 13% 13% 15% 11%
---------------------------- -------- ----- --------- -------- ---------- --------
Recoverable amount
of goodwill (m) GBPnil n/a GBPnil GBP14.7 GBP8.5 GBPnil
---------------------------- -------- ----- --------- -------- ---------- --------
Hubio Healthcare
2015 RAG UK ingenie Services BAS
---------------------------- -------- -------- -------- ---------- --------
Long term growth rate 2% 2% 2% 2% 2%
----------------------------- -------- -------- -------- ---------- --------
DCF appraisal period 7 years 7 years 7 years 5 years 5 years
---------------------------- -------- -------- -------- ---------- --------
Annualised revenue
growth over DCF appraisal
period 9% 9% 6% 8% 6%
----------------------------- -------- -------- -------- ---------- --------
Pre-tax discount rate 17% 17% 18% 13% 12%
----------------------------- -------- -------- -------- ---------- --------
Recoverable amount
of goodwill (m) GBP3.0 GBP0.2 GBP14.7 GBP6.9 GBP3.7
----------------------------- -------- -------- -------- ---------- --------
Annualised revenue growth rates vary by operating division
depending on the current development to maturity of the CGU. Hubio
Fleet is higher due to the roll out of its newly developed
proposition and the short appraisal period. In determining the
applicable discount rate, management has applied judgement in
respect of several factors, including, inter alia, assessing the
risk attached to future cash flows. Pre-tax discount rates have
been assessed for each CGU. The discount rate for Hubio Fleet
reflects the risks associated with new product launches in a
developing and immature market. Discount rates in the Healthcare
Services and BAS CGUs are 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:
Foreign
Splitting exchange
2015 of CGUs movements Impairment 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Hubio UK 171 (171) n/a n/a n/a
Metaskil n/a 171 - (171) -
RAG 2,972 (2,972) n/a n/a n/a
RAG B2C n/a 2,080 - (2,080) -
Hubio Fleet n/a 892 - (892) -
Total Hubio 3,143 - - (3,143) -
ingenie 14,674 - - - 14,674
Healthcare
Services 6,889 - 1,658 - 8,547
BAS 3,671 - - (3,671) -
Total 28,377 - 1,658 (6,814) 23,221
------------- -------- ---------- ----------- ----------- --------
During 2016, changes in management have resulted in the Hubio UK
CGU being split between Hubio Technologies and Metaskil, with the
existing goodwill relating to Metaskil. Review of the carrying
value of this goodwill against the forecast cashflows of Metaskil
alone result in an impairment charge of GBP171,000 against this
CGU.
Similarly, in 2015 RAG represented a single CGU. In 2016 this
business was split in to two, representing the RAG B2C products and
the Fleet management products. The goodwill was allocated between
the two CGUs on the basis of revenues at acquisition. The B2C
business ceased in the year and consequently its allocated goodwill
has been impaired to GBPnil (a charge of GBP2,080,000). The
remaining business has become Hubio Fleet, and includes a new
product to market. Due to the uncertainties surrounding the future
success of a new product and the upfront investment in working
capital required this goodwill has also been impaired to GBPnil (a
charge of GBP892,000).
Despite the strong revenue growth in BAS an impairment charge of
GBP3,671,000 arises from reassessment of the prospects for the
business in a highly competitive and mature market.
If there were an increase in the pre-tax discount rate of 1
percentage point there would be no additional impairments to the
amounts above. Similarly, if there were a decrease of 1 percentage
point in the long term growth rate or annualized revenue growth
over the DCF appraisal period there would be no additional
impairments to the amounts above.
6. Provisions
Tax related Legal Onerous
matters disputes contracts Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2015 21,108 7,538 1,511 2,867 33,024
Additional
provisions 6,586 4,400 6,502 1,885 19,373
Unused amounts
released (3,716) (5,538) - - (9,254)
Used during
the year (435) - (4,370) (1,328) (6,133)
At 1 January
2016 23,543 6,400 3,643 3,424 37,010
Additional
provisions 3,231 1,814 525 3,315 8,885
Unused amounts
released (9,181) (1,300) (100) (144) (10,725)
Used during
the year (2,500) (800) (1,349) (2,313) (6,962)
Exchange movements - - - 33 33
At 31 December
2016 15,093 6,114 2,719 4,315 28,241
-------------------- ------------ ---------- ----------- -------- ---------
Split:
Non-current - 419 - 6 425
Current 15,093 5,695 2,719 4,309 27,816
Tax related matters
A provision for tax-related matters has been established with
respect to judgemental tax positions primarily in relation to
historic PAYE and VAT issues which have not yet been resolved. Key
judgements exist around the classification of certain transactions
and therefore the related tax treatment. The amount provided
represents the Directors' estimate of the likely outcome based upon
the information available; however the ultimate settlement may be
different. The Group is taking steps to resolve this and believe
the majority will be settled within twelve months from the balance
sheet date.
Certain elements of the provisions held at 31 December 2015 have
been settled during the year at amounts less than managements'
estimate of the expected outflow at the time of the preparation of
the 31 December 2015 Financial Statements. Any provision held over
and above any specific settlement amount have been released as
unused.
Legal disputes
On 5 August 2015, the SFO informed the Group that it had opened
an investigation, which relates to past business and accounting
practices at the Group. The Group is co-operating fully with the
SFO investigation. At this stage, the timing of completion of the
SFO investigation and its conclusions cannot be anticipated.
Therefore, having taken external advice, no liability has been
recognised at the balance sheet date as it is not possible to
reliably estimate a liability (if any) in respect of this
matter.
On 14 December 2015, the Company received a letter of claim from
a law firm ("Claimant Firm") acting for 342 claimants commencing an
action against the Company under the Financial Services and Markets
Act 2000 ("Letter of Claim"). Despite the Company's endeavours in
correspondence with the Claimant Firm, the Company is not in a
position to verify the assertions in the Letter of Claim which,
inter alia, details the expected value of the potential claims
against the Company to be approximately GBP9.4 million. No
proceedings have been commenced to date in respect of this matter.
Having taken external advice, no liability has been recognised at
the balance sheet date as it is not possible to reliably estimate a
liability (if any) in respect of this matter.
The amount provided in respect of these legal cases is in
respect of defence costs and is considered to be in the mid-range
of possible outcomes given the uncertainty in relation to these
outcomes. If successful in defending these disputes then the final
costs may be lower than the total provision recognised above.
Additional provisions in the table above relate to expected legal
costs to defend a claim arising after the retention of the PSD
escrow monies. This is in addition to further amounts being
provided for the expected legal costs of the other matters
discussed above, although no amounts have been provided for the
costs of any actual settlement
Additional provisions in the table above relate to expected
legal costs to defend a claim arising after the retention of the
PSD escrow monies. This is in addition to further amounts being
provided for the expected legal costs of the other matters
discussed above, although no amounts have been provided for the
costs of any actual settlement.
Amounts used during the year represents legal costs incurred to
date as a result of the above items. The provisions will be
utilised further as the cases progress.
There were also a number of other smaller legal cases
outstanding for which GBP2,000,000 was provided at 31 December
2015. GBP1,000,000 of unused amounts released relates to a historic
technology related dispute within one of the Group's trading
entities. Since no further correspondence has been received on this
matter during 2016 the related provision has been released to the
Consolidated Income Statement. A further GBP300,000 has been
released due to agreement being reached over a historic claim which
will now be settled during the first half of 2017.
Onerous contracts
Where contracted income is expected to be less than the related
expected expenditure the difference is provided in full. The timing
and amount of these items can be reasonably determined. The
majority of the amount provided at 31 December 2016 relates to
three onerous property leases and therefore amounts used during the
year relate to the ongoing costs of these obligations. Management
are looking to sublet or settle these obligations within twelve
months. Unused amounts reversed is a consequence of a change in
estimate regarding the timing of the settlement of one such lease
and new provisions relate to additional property being vacated
during the year.
Other
Provisions have been established for expected costs where a
commitment has been made at the balance sheet date and for which no
future benefit is anticipated. No reimbursement has been recognised
in relation to any provision as there is no certainty of recovery
or reliable means of estimation. This primarily relates to three
areas, commission clawback relating to non-underlying businesses,
warranties provided by the Group and outstanding restructuring
payments and has given rise to an additional GBP3,315,000 charge in
2016. With the exception of the latter, the exact timing and
quantum of the amounts is uncertain and the provision is based upon
historic trends in these businesses. The amounts of the
restructuring provision can be reasonably estimated and are time
bound within an upper limit of one year. Amounts used in the year
primarily relate to commission clawback and unused amounts released
are as a result of actual device warranty claims being lower than
previously anticipated.
7. Impairment of escrow consideration receivable relating to the
disposal of the Professional Services Division
GBP50,120,000 (including interest) of the PSD sale consideration
is retained in a joint escrow account ("Warranty Escrow") until the
expiration of the warranty period or settlement of a claim. In
September 2016, Slater & Gordon ("S&G") notified the Group
of a purported claim in respect of its acquisition of the PSD. In
November 2016, S&G obtained an opinion from an independent
barrister in respect of the Warranty Escrow that based solely on
the information presented to him (and on the assumption that no
further evidence would be provided) that the purported claim has on
balance a prospect of success and that, if successful, such claim
would be likely to have a value of GBP53,000,000 ("Opinion").
As yet no proceedings have been brought and the Group will
defend such claim robustly if commenced. Since proceedings have not
been issued to the Company disclosure of key evidence (if any
exists) in support of the merits or quantum of a claim cannot yet
be enforced. Since the escrow monies have been retained in the
Warranty Escrow at this time, the Company has fully provided
against its recoverability at 31 December 2016. The Company
believes the escrow monies will be sufficient to settle a claim (if
any).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IFMJTMBJTTJR
(END) Dow Jones Newswires
April 27, 2017 02:02 ET (06:02 GMT)
Watchstone (LSE:WTG)
Historical Stock Chart
From May 2024 to Jun 2024
Watchstone (LSE:WTG)
Historical Stock Chart
From Jun 2023 to Jun 2024
