TIDMWTG
RNS Number : 2019Z
Watchstone Group PLC
30 August 2018
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Results for the six months ended 30 June 2018
Watchstone (AIM:WTG.L) today announces its results for the six
months ended 30 June 2018.
-- Revenues of GBP19.7m (2017: GBP22.9m)
-- Underlying EBITDA loss of GBP2.1m (2017: GBP1.7m)
-- Total loss before tax of GBP3.5m (2017: profit of GBP0.01m)
-- Group net assets of GBP63.2m at 30 June 2018 (as at 31 December 2017: GBP66.1m)
-- Group cash and term deposits at 30 June 2018 of GBP58.4m, with a further GBP50.2m in escrow
-- Group cash and term deposits at 10 August 2018 of GBP58.1m
For further information:
Watchstone Group plc Tel: 03333 448048
Peel Hunt LLP, Nominated Adviser and broker Tel: 020 7418
Dan Webster, George Sellar 8900
------------------
UPDATE
A full summary of actions and issues was presented in our Annual
Report published in May 2018 and the focus remains on dealing with
legacy matters as well as improving the underlying results and
ensuring our businesses are positioned in the best possible way for
growth or future divesture.
Business review
Healthcare Services
Healthcare Services consists of our Canadian ptHealth clinics
business and InnoCare. This business is growing, with revenue of
Canadian $26.1m in H1 2018, an increase of 2.6% vs. 2017. The
impact of foreign exchange resulted in Sterling revenues falling by
1.3%. H1 2018 underlying EBITDA of GBP0.4m is broadly flat compared
to last year.
During H1 2018, ptHealth clinics treated approximately 36,760
unique patients and have implemented action plans on selected
under-performing clinics to boost margins. A number of operational
changes have been implemented and management further strengthened
with the results of such changes starting to flow into improved
performance of the business.
Since the end of the half year, ptHealth has been appointed as
the Canadian Arthritis Society's National Physiotherapy Champion -
an exclusive partnership spanning Canada. The official launch will
be in early September as part of Arthritis Awareness month.
Ingenie
ingenie's retail business continues to face very difficult
market conditions. In the first 6 months of 2018, total revenues
fell to GBP4.8m (H1 2017: GBP7.7m).
As previously detailed, the impact of changes to the Ogden
discount rate created falls in motor policy pricing, which were
particularly pronounced in ingenie's young driver market and which
benefitted direct writers who can adjust pricing more quickly.
Reflecting this and continued investment in its technology
platform, profitability was below 2017 in H1. The impact of these
factors has been present since H2 2017 and remedial actions are
being taken to improve volumes. The new management team is
implementing a detailed plan to address these challenges. ingenie
will continue to broaden its underwriting partnerships and its
product range including its newly launched Learner Driver offering.
In addition, ingenie continues to develop its technology platform
to utilise internally and with new B2B business.
The programme supporting our external customer in the
Netherlands, ANWB, continues to perform well, endorsing our
technology and market leading approach to road safety and motor
insurance pricing.
The insurance and fintech sectors continue to experience high
levels of innovation and investment both in the UK and abroad.
Whilst this increases competition, ingenie's team, brand and
technology positions it well for substantial value growth and the
Group remains confident of its long term prospects.
Non-underlying and exceptional items
Significant continued progress has been made towards resolution
of the historic taxation matters allowing the release of GBP0.7m of
the existing provision. We have increased the provision for legal
costs in relation to the Slater & Gordon (UK) 1 Limited
("Slater & Gordon") claim from GBP3.2m at 31 December 2017 to
GBP4.3m at 30 June 2018, which reflects our continued determination
to robustly defend the action.
Cash
Cash and term deposits of our continuing businesses totalled
GBP58.4m as at 30 June 2018. The reduction from GBP62.8m on 31
December 2017 is as a result of: a) GBP0.1m net settlement of
exceptional and other non-underlying liabilities from 2017; b)
GBP2.8m outflow of central costs; c) GBP0.6m outflow from
underlying business trading; d) GBP0.5m outflow for non-underlying
business; and e) GBP0.4m settlement of preference share
liabilities.
As at 10 August 2018, the Group had cash and term deposits of
GBP58.1m (with a further GBP50.2m remaining in escrow).
Update on legacy matters
We continue to address a number of historic matters including
the Slater & Gordon claim which is expected to go to trial in
late 2019. Our position remains that Slater & Gordon's
allegations of deceit and the associated breach of warranty claim
are wholly without merit and should never have been advanced.
The SFO investigation continues and we are cooperating fully. It
remains the only regulatory inquiry to which the Group is
subject.
There have been no further developments on the threatened class
action litigation first announced in September 2015.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group are set
out on pages 11 to 12 of the 2017 Annual Report and Financial
Statements, a copy of which is available on the Group's website.
The Group's risk management approach and the principal risks,
potential impacts and primary mitigating activities are unchanged
from those set out in the 2017 Annual Report and Financial
Statements.
Outlook
We are making good progress in developing the underlying quality
of our businesses and their long term value whilst simultaneously
resolving the Group's legacy matters as efficiently as possible. We
remain confident of a satisfactory ultimate outcome for our
shareholders.
Directors' responsibility statement in respect of this interim
report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting, as adopted
by the EU;
-- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Stefan Borson
Group Chief Executive Officer
INDEPENT REVIEW REPORT TO WATCHSTONE GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 30 June 2018 which comprises the Condensed
Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Condensed Consolidated Statement of
Financial Position, the Condensed Consolidated Cash Flow Statement
and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 30 June 2018 is
not prepared, in all material respects, in accordance with the
recognition and measurement requirements of International Financial
Reporting Standards (IFRSs) as adopted by the EU and the AIM
Rules.
Emphasis of matter - uncertain outcome of the Slater &
Gordon (UK) 1 Limited ("Slater & Gordon") legal claim
We draw attention to note 10 of the interim condensed set of
financial statements concerning the uncertain outcome of the claim
by Slater & Gordon, alleging breach of warranty and/or
fraudulent misrepresentation where the company is the defendant.
The ultimate outcome of the matter cannot currently be determined,
and no provision for any liability that may result has been made in
the financial statements. Our review conclusion is not modified in
respect of this matter.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly report in accordance with the AIM
Rules.
The annual financial statements of the group are prepared in
accordance with IFRSs as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with the
recognition and measurement requirements of IFRSs as adopted by the
EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Tudor Aw
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London, E14 5GL
29 August 2018
Condensed Consolidated Income Statement
for the period ended 30 June 2018
Six months ended 30 Six months ended 30
June 2018 June 2017
2018 2018 2018 2017 2017 2017
Underlying Non-underlying* Total Underlying Non-underlying* Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 4 19,710 - 19,710 22,896 - 22,896
Cost of sales (11,059) - (11,059) (12,294) - (12,294)
Gross profit 8,651 - 8,651 10,602 - 10,602
Administrative
expenses 5 (11,493) (782) (12,275) (12,859) 2,432 (10,427)
Group operating
(loss)/profit (2,842) (782) (3,624) (2,257) 2,432 175
Finance income 163 - 163 228 - 228
Finance expense (53) - (53) (297) (94) (391)
(Loss)/profit
before taxation (2,732) (782) (3,514) (2,326) 2,338 12
Taxation 115 - 115 520 81 601
(Loss)/profit
after taxation
for the period
from continuing
operations (2,617) (782) (3,399) (1,806) 2,419 613
Net gain on disposal
of discontinued
operations 9 - 558 558 - - -
Profit/(loss)
for the period
from discontinued
operations - 268 268 - (2,174) (2,174)
(Loss)/profit
after taxation
for the period (2,617) 44 (2,573) (1,806) 245 (1,561)
Attributable to:
Equity holders
of the parent (2,617) 44 (2,573) (1,804) 245 (1,559)
Non-controlling
interests - - - (2) - (2)
(2,617) 44 (2,573) (1,806) 245 (1,561)
------------------------ ----------- ---------------- --------- ----------- ---------------- ---------
Loss per share
(pence):
Basic (5.7) (5.6) (3.9) (3.4)
Diluted (5.7) (5.6) (3.9) (3.4)
------------------------ ----------- ---------------- --------- ----------- ---------------- ---------
(Loss)/profit
per share from
continuing activities
(pence):
Basic (7.4) 1.3
Diluted (7.4) 1.3
------------------------ ----------- ---------------- --------- ----------- ---------------- ---------
* Non-underlying results have been presented separately to give
a better guide to underlying business performance (see notes 1 and
5). Where items have become non-underlying in 2018 the comparable
amounts in 2017 have been restated to also be classified on the
same basis.
Consolidated Statement of Comprehensive Income
for the period ended 30 June 2018
Six months Six months
ended 30 ended 30
June 2018 June 2017
GBP'000 GBP'000
Loss after taxation (2,573) (1,561)
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations (261) (490)
Total comprehensive loss for the period (2,834) (2,051)
---------------------------------------------------- ----------- -----------
Attributable to:
Equity holders of the parent (2,818) (2,036)
Non-controlling interests (16) (15)
(2,834) (2,051)
------------------------------ -------------------- --------
Condensed Consolidated Statement of Financial Position
as at 30 June 2018
At 30 June At 31 December
2018 2017
Note GBP'000 GBP'000
Non-current assets
Goodwill 17,242 17,443
Other intangible assets 3,961 4,825
Property, plant and equipment 2,360 3,819
Other receivables 759 759
24,322 26,846
------------------------------------------ ----- ----------- ---------------
Current assets
Inventories 933 1,283
Trade and other receivables 6 5,090 6,144
Term deposits 30,000 40,000
Cash 28,386 22,808
64,409 70,235
------------------------------------------ ----- ----------- ---------------
Assets of disposal group classified
as held for sale - 833
Total current assets 64,409 71,068
------------------------------------------ ----- ----------- ---------------
Total assets 88,731 97,914
------------------------------------------ ----- ----------- ---------------
Current liabilities
Cumulative redeemable preference
shares (2,955) (2,203)
Trade and other payables 7 (6,978) (11,710)
Obligations under finance leases - (4)
Provisions 8 (12,920) (13,024)
(22,853) (26,941)
------------------------------------------ ----- ----------- ---------------
Liabilities of disposal group classified
as held for sale - (851)
------------------------------------------ ----- ----------- ---------------
Total current liabilities (22,853) (27,792)
------------------------------------------ ----- ----------- ---------------
Non-current liabilities
Cumulative redeemable preference
shares (2,504) (3,795)
Provisions 8 (85) (87)
Deferred tax liabilities (53) (167)
(2,642) (4,049)
------------------------------------------ ----- ----------- ---------------
Total liabilities (25,495) (31,841)
------------------------------------------ ----- ----------- ---------------
Net assets 63,236 66,073
------------------------------------------ ----- ----------- ---------------
Equity
Share capital 12 4,604 4,604
Other reserves 136,372 136,618
Retained earnings (78,630) (76,095)
------------------------------------------ ----- ----------- ---------------
Equity attributable to equity holders
of the parent 62,346 65,127
Non-controlling interests 890 946
Total equity 63,236 66,073
------------------------------------------ ----- ----------- ---------------
Condensed Consolidated Cash Flow Statement
for the period ended 30 June 2018
Six months Six months
ended ended
30 June 30 June
Note 2018 2017
GBP'000 GBP'000
Cash flows from operating activities
Cash outflows from operations before exceptional
and non-underlying items, net finance
expense and tax 13 (3,085) (2,164)
Non-underlying cash outflows excluding
discontinued operations (186) (7,432)
Cash used in operations before net finance
expense and tax (3,271) (9,596)
Corporation tax received - 514
Net cash used by operating activities (3,271) (9,082)
-------------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (861) (2,659)
Purchase of intangible fixed assets (349) (1,070)
Disposal of subsidiaries net of cash foregone (33) -
Investment in term deposits (30,000) (30,000)
Maturity of term deposits 40,000 37,500
Interest income 146 91
Realisation of non-cash assets 250 -
Net cash generated from investing activities 9,153 3,862
-------------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Net finance expense - (378)
Redemption of preference shares (351) -
Other - 8
Finance lease repayments (4) (61)
Repayment of unsecured loans - (163)
Net cash used by financing activities (355) (594)
-------------------------------------------------- ----- ----------- -----------
Net increase/(decrease) in cash and cash
equivalents 5,527 (5,814)
Cash and cash equivalents at the beginning
of the period 22,808 43,714
Exchange gains/(losses) on cash and cash
equivalents 51 (297)
Cash and cash equivalents at the end of
the period 28,386 37,603
-------------------------------------------------- ----- ----------- -----------
Reconciliation of cash to net funds
Term deposits 30,000
Cash 28,386
Net funds 58,386
-------------------------------------------------- ----- -----------
Notes to the Interim Statements
1. Preparation of the condensed consolidated financial information
Basis of preparation
The interim financial statements for the six months ended 30
June 2018 have been prepared in accordance with the AIM Rules and
the recognition and measurement requirements of IFRSs as adopted by
the EU. The interim financial information should be read in
conjunction with the Group's Annual Report and Financial Statements
for the year ended 31 December 2017, which were prepared in
accordance with IFRSs as adopted by the EU.
The comparative figures for the financial year ended 31 December
2017 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies.
The Group's business activities together with the factors that
are likely to affect its future developments, performance and
position are set out in the Update. The interim financial
statements were approved by the Board of Directors on 29 August
2018.
Going Concern
The Group holds significant cash reserves and no material debt.
The Group has concluded that its cash reserves together with
ongoing operating cash flows will be sufficient to fund the ongoing
operations of the Group's businesses together with any future
development needs of those businesses, and the settlement of legacy
matters.
On this basis, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future. The Directors have not
identified any material uncertainties that would cast significant
doubt on the ability of the Group to continue as a going concern.
As such, the Directors continue to adopt the Going Concern basis of
accounting in the preparation of the Financial Statements. In
forming this judgement, the Directors have taken into account the
existence of the Slater & Gordon legal claim set out in note
10. Having taken legal advice on this claim, the Directors consider
that the risk of this matter giving rise to a level of liability
which would impact the ability of the Company to remain a going
concern is remote. As such, the Directors continue to adopt the
Going Concern basis of accounting in the preparation of the
Financial Statements.
Significant Accounting Policies
The accounting policies applied by the Group in this condensed
set of consolidated financial statements are the same as those
applied by the Group in its consolidated financial statements for
the year ended 31 December 2017, except for the adoption of new
standards and interpretations as of 1 January 2018, which did not
have any significant impact on the accounting policies, financial
position or performance of the Group, as noted below:
-- IFRS15, 'Revenue from contracts with customers';
-- IFRS9, 'Financial instruments';
-- Amendments to IFRS2, 'Classification and measurement of
share-based payment transactions';
-- Amendments to IFRS4, 'Applying IFRS9 Financial instruments
with IFRS4 Insurance contracts';
-- Amendments to IAS40, 'Transfers of investment property';
-- Annual amendments to IFRS standards 2014-16 cycle; and
-- IFRIC22, Foreign currency transactions and advance
consideration.
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
2. Critical accounting judgements and key sources of estimation
uncertainty
In the process of applying the Group's accounting policies,
management has made a number of judgements, and the preparation of
financial statements requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge of the amount,
event or actions, actual results ultimately may differ from those
estimates.
The key management judgements together with assumptions
concerning the future and other key sources of estimation
uncertainty at 30 June 2018 that have a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities during the current financial year are discussed
below.
Judgement: Impairment of goodwill
The Group determines whether goodwill is impaired on an annual
basis and when there is an indication of possible impairment. At 30
June 2018 the Group has determined that there are no indicators of
possible impairment.
Judgement: Consideration receivable for the Professional
Services Division ("PSD") and legal claim
GBP50,000,000 (plus interest) of the PSD sale consideration is
retained in a joint escrow account until settlement or withdrawal
of a claim ("Warranty Escrow"). On 14 June 2017, the Group was
served with High Court proceedings issued by Slater & Gordon
for breach of warranty and/or fraudulent misrepresentation for a
total amount of up to GBP637,000,000 plus interest in damages in
respect of the disposal of the PSD in 2015.
Watchstone denies any misrepresentation in the strongest terms
and remains satisfied that neither the warranty claim nor a
misrepresentation claim have merit and will defend such claims
robustly.
Nevertheless, the outcome remains uncertain and therefore the
carrying amount of the Group's receivable in respect of the
Warranty Escrow is highly judgmental. At 31 December 2016, the
Group had impaired in full its receivable in respect of this
consideration and continues to do so at 30 June 2018. No provision
has been made in respect of the claim.
Consideration for the sale of the PSD also included deferred,
cash consideration and the Company has had to determine the fair
value of this financial asset. At 30 June 2018 and all previous
period ends the fair value has been assessed as GBPnil.
Estimate and judgement: Provisions
The Group is aware of a number of legal and regulatory matters
which, by their nature, are subject to significant judgement and
uncertainty. This includes judgements around both the quantum of
any related cash outflows and also the timing. The judgements are
specific to the facts surrounding each case and often involve
historic transactions. All such matters are periodically assessed
with the assistance of external professional advisers, where
appropriate, to determine the likelihood of the Group incurring a
liability and to evaluate the extent to which a reliable estimate
of any liability can be made. However, the likely cost to the Group
of the Serious Fraud Office ("SFO") investigation and any group
litigation which may potentially be brought against the Group is
subject to a number of significant uncertainties and these cannot
currently be estimated reliably. Accordingly, no provision has been
made in respect of these matters. Further detail is provided in
note 10.
Judgement: Classification of underlying and non-underlying
results
Management is required to exercise its judgement in the
classification of certain items as exceptional and outside of the
Group's underlying results. The determination of whether an item
should be separately disclosed as an exceptional item or other
adjustments requires judgement on its nature and incidence, as well
as whether it provides clarity on the Group's underlying trading
performance. In exercising this judgement, Management take
appropriate regard of IAS 1 "Presentation of financial statements"
as well as guidance issued by the Financial Reporting Council and
the European Securities and Markets Authority on the reporting of
exceptional items and Alternative Performance Measures.
3. Key performance indicators
Six months Six months
ended 30 June ended 30
2018 June 2017
GBP'000 GBP'000
Revenue:
ingenie 4,751 7,738
Healthcare Services 14,959 15,158
Total revenue 19,710 22,896
------------------------------------- --------------- -----------
Underlying gross profit margin 44% 46%
------------------------------------- --------------- -----------
Underlying EBITDA (note 4) (2,089) (1,684)
------------------------------------- --------------- -----------
Underlying group operating
loss (note 4) (2,842) (2,257)
------------------------------------- --------------- -----------
Cash and term deposits (continuing
business) 58,386 62,808
------------------------------------- --------------- -----------
Reconciliation of Alternative Performance Measures to nearest
GAAP equivalents
Six months Six months
ended 30 June ended 30
2018 June 2017
GBP'000 GBP'000
Underlying revenue 19,710 22,896
Non underlying revenue - -
Total revenue 19,710 22,896
-------------------------------------------------- --------------- -------------------------------
Underlying EBITDA (2,089) (1,684)
Underlying depreciation and amortisation* (753) (573)
-------------------------------------------------- --------------- -------------------------------
Underlying group operating loss (2,842) (2,257)
Non-underlying group operating
(loss)/profit (782) 2,432
-------------------------------------------------- --------------- -------------------------------
Group operating (loss)/profit (3,624) 175
-------------------------------------------------- --------------- -------------------------------
30 June 31 December
2017 2017
GBP'000 GBP'000
Cash and term deposits (continuing
businesses) 58,386 62,808
--------------------------------------------- --- --------------- ------------
*excludes depreciation of telematics devices of GBP978,000
(2017: GBP1,469,000) which is included within cost of sales and is
therefore also included within underlying EBITDA.
Further detail regarding non-underlying results is provided in
note 5.
4. Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker
and represent two divisions supported by a Group cost centre
(denoted as Central below). The principal activities of the two
segments are as follows:
- ingenie: Telematics based insurance broking and technology solutions provider; and
- Healthcare Services: Comprising ptHealth and InnoCare.
ptHealth is a national healthcare company that owns and operates
physical rehabilitation clinics across Canada. InnoCare is a
proprietary clinic management software platform and call centre and
customer service operation, also based in Canada.
Segment information about these businesses is presented below.
The accounting policies of the operating segments are the same as
the Group's accounting policies described in note 1. A
reconciliation of alternative performance measure to nearest GAAP
equivalents is presented in note 3.
ingenie Healthcare Central Total
Services
GBP'000 GBP'000 GBP'000 GBP'000
Six months ended 30 June 2018
Underlying revenue 4,751 14,959 - 19,710
Underlying cost of sales (2,698) (8,361) - (11,059)
Underlying gross profit 2,053 6,598 - 8,651
Underlying administrative
expenses excluding depreciation
and amortisation* (2,638) (6,215) (1,887) (10,740)
Underlying EBITDA (585) 383 (1,887) (2,089)
Depreciation and amortisation* (753)
Underlying group operating
loss (2,842)
Net finance income 110
Underlying group loss before
tax (2,732)
Non-underlying loss before
tax (782)
Total group loss before tax
from continuing operations (3,514)
--------------------------------------- -------- ----------- -------- ---------
ingenie Healthcare Central Total
Services
GBP'000 GBP'000 GBP'000 GBP'000
Six months ended 30 June 2017
Underlying revenue (restated**) 7,738 15,158 - 22,896
Underlying cost of sales (restated**) (4,081) (8,213) - (12,294)
Underlying gross profit 3,657 6,945 - 10,602
Administrative expenses excluding
depreciation and amortisation* (2,790) (6,433) (3,063) (12,286)
Underlying EBITDA 867 512 (3,063) (1,684)
Depreciation and amortisation* (573)
Underlying group operating
loss (2,257)
Net finance expense (69)
Underlying group loss before
tax (2,326)
Non-underlying profit before
tax 2,338
Total group profit before
tax from continuing operations 12
--------------------------------------- -------- ----------- -------- ---------
* Depreciation added back above when calculating Underlying
EBITDA from continuing operations excludes depreciation on
telematics devices of GBP978,000 (2017: GBP1,469,000) which is
included within cost of sales.
** In the preparation of the Financial Statements for the year
ended 31 December 2017, certain contracts were identified within
the Healthcare Services segment which should have been presented
gross, rather than as an agent for the period ended 30 June 2017.
Accordingly, the revenue and cost of sales for Healthcare Services
for the period ended 30 June 2017 have been restated. The impact of
this change in 2017 is GBP385,000 to revenue and cost of sales.
There is no impact upon gross margin.
5. Non-underlying administrative expenses
Six months Six months
ended 30 June ended 30
2018 June 2017
GBP'000 GBP'000
Exceptional items:
* Legal and regulatory expenses 2,582 2,715
* Legal settlements (1,328) (46)
* Tax related matters (812) (7,001)
* (Realisation)/impairment of non-cash assets (250) 100
* Restructuring - 176
Total exceptional items 192 (4,056)
----------------------------------------------------- --------------- -----------
Other adjustments:
* Share based payments - 43
* Amortisation of acquired intangibles 590 680
* Other non-underlying administrative expenses - 901
----------------------------------------------------- --------------- -----------
Total other adjustments 590 1,624
----------------------------------------------------- --------------- -----------
Total non-underlying administrative expenses 782 (2,432)
----------------------------------------------------- --------------- -----------
The legal and regulatory expense relates to additional legal
provisions being established and other legal expenses incurred
during the period. The legal settlement credit for the period ended
30 June 2018 of GBP1,328,000 comprises two settlements with former
management as discussed in note 11.
Tax related matters in both 2018 and 2017 mainly comprises the
release of unused provisions which were created in previous
periods, further details are provided in note 8.
Other non-underlying administrative expenses relate to the costs
of businesses defined as non-underlying and central costs
associated with the same. These are specifically identifiable
external costs and do not include allocations of internal
amounts.
6. Trade and other receivables
30 June 31 December
2018 2017
GBP'000 GBP'000
Trade receivables (net of impairment provision) 3,249 4,416
Monies held in Escrow (net of impairment - -
provision)
Other receivables 1,068 1,088
Prepayments 773 630
Accrued income - 10
5,090 6,144
------------------------------------------------- -------- ------------
7. Trade and other payables
30 June 31 December
2018 2017
GBP'000 GBP'000
Current liabilities
Trade payables 1,150 1,571
Payroll and other taxes including social
security 219 482
Accruals 3,675 5,801
Deferred income 1,805 3,793
Other liabilities 129 63
6,978 11,710
------------------------------------------ -------- ------------
8. Provisions
Tax related Legal Onerous
matters disputes contracts Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2017 15,093 6,114 2,719 4,315 28,241
Additional provisions - 2,727 - 375 3,102
Unused amounts
released (7,050) (46) - (386) (7,482)
Used during the
year (2,413) (881) (625) (1,442) (5,361)
Exchange movements - - (16) (12) (28)
------------------------ ------------ ---------- ----------- -------- --------
At 30 June 2017 5,630 7,914 2,078 2,850 18,472
------------------------ ------------ ---------- ----------- -------- --------
At 1 January
2018 3,193 7,442 492 1,984 13,111
Additional provisions - 1,884 - 271 2,155
Unused amounts
released (693) - (154) - (847)
Used during the
year - (662) (255) (514) (1,431)
Exchange movements - - 18 (1) 17
At 30 June 2018 2,500 8,664 101 1,740 13,005
------------------------ ------------ ---------- ----------- -------- --------
Split:
Non-current - - 85 - 85
Current 2,500 8,664 16 1,740 12,920
Tax related matters
A provision for tax-related matters had been established in
previous years with respect to judgemental tax positions primarily
in relation to historic PAYE and VAT issues. During the six months
ended 30 June 2018, the remaining outstanding PAYE issues were
resolved and resulted in GBP693,000 of provision being released to
the income statement. In respect of the remaining provision 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 continues to take steps to resolve these
outstanding items and believe the majority will be settled within
twelve months from the balance sheet date.
Legal disputes and regulatory matters
In legal cases where the Group is (or would be) the defendant,
such as those set out in note 10, defence costs are provided as the
Group is committed to defending the actions. Such costs are
provided for taking into account the range of possible
eventualities given the uncertainty of the outcome. If the Group is
successful in defending such actions, 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 these actions. No amounts have been provided for the costs
of any settlement, fine or award of damages.
Amounts used during the year represent legal costs incurred to
date as a result of the above items. The provisions will be
utilised further as the matters progress.
In legal cases where the Group is the claimant (or counter
claimant), costs are not provided as there is no obligation to
proceed and the Group is not contractually committed to incur
costs.
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. During the
period an onerous contract was settled at an amount less than was
originally provided, resulting in a release of GBP154,000 to the
income statement. The remaining amount provided at 30 June 2018
relates to onerous property leases. Management are looking to
sublet or settle these obligations within twelve months.
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. This primarily relates to three
areas, commission clawback relating to non-underlying businesses,
warranties provided by the Group and outstanding restructuring
payments. GBP514,000 of the amount provided at 31 December 2017 has
been utilised during the period and primarily relates to
restructuring payments and commission clawbacks. The exact timing
and quantum of the amounts provided at 30 June 2018 is uncertain
and the provision is based upon historic trends in these
businesses.
9. Disposals
Hubio Fleet
In February 2018, the Group disposed of its interest in Hubio
Fleet, its UK B2B fleet tracking business.
The profit arising on disposal is as follows.
GBP'000
Sales proceeds 60
Net liabilities at disposal 20
Expenses and other costs of sale (77)
Profit arising on sale 3
----------------------------------- --------
Canadian non-telematics assets
In January 2018, the non-telematics assets of the Group's
Canadian subsidiary, which formed part of Hubio Solutions Inc.
("HSI") was sold to a newly established entity, in which former
members of HSI management have an interest.
The profit arising on disposal is as follows.
GBP'000
Sales proceeds 258
Net liabilities at disposal 323
Expenses and other costs of sale (26)
Profit arising on sale 555
----------------------------------- --------
10. Contingent liabilities and assets
The Group routinely enters into a range of contractual
arrangements in the ordinary course of business which can give rise
to claims or potential litigation against Group companies. It is
the Group's policy to make specific provisions at the Statement of
Financial Position date for all liabilities which, in the opinion
of the Directors, are expected to result in a loss.
On 14 June 2017, the Group was served with High Court
proceedings issued by Slater & Gordon for breach of warranty
and/or fraudulent misrepresentation for a total amount of up to
GBP637,000,000 plus interest in damages in respect of the disposal
of the PSD in 2015 further details of which are provided in note 2.
Having taken external advice, no liability has been recognised at
the balance sheet date as, in management's opinion, it is more
likely than not that the Group will successfully defend these
claims.
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 and 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 provision (if any) in respect of this
matter.
On 14 December 2015, the Group 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 yet 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.
However, having taken external advice, no liability has been
recognised at the balance sheet date as it is not possible to
reliably estimate a provision (if any) in respect of this
matter.
Several contingent assets exist which are not recognised within
the Financial Statements. These include recoveries on customer
contractual matters, vendor warranties relating to taxation,
historic company purchases and litigation in progress.
11. Related party transactions
Transactions with former management
The 31 December 2016 Financial Statements referred to an
investigation by the Group into expense claims submitted by Mr
Robert Terry and payments made to him by the Group during his
period of employment and related litigation. In January 2018, Mr
Terry (together with his wife and former employee, Mrs Louise
Terry) and Watchstone settled certain respective claims arising out
of Mr Terry's contract of employment with Watchstone, the
settlement agreement entered into when Mr Terry departed Watchstone
in November 2014 ("November 2014 Settlement") and a separate
agreement relating to works done at Quob Park (the former head
office of the Group) ("Terry Settlement"). Under the terms of the
Terry Settlement, Mr Terry waived his right to receive GBP280,000
under the November 2014 Settlement and Mr and Mrs Terry paid
Watchstone GBP800,000 (in cash) in the period to 30 June 2018 in
full and final settlement.
On 9 November 2016, Court proceedings were commenced in the High
Court of Justice by the Group against the vendors of Hubio
Solutions Limited (formerly Himex Limited)("HSL") regarding, inter
alia, the cost of litigation in respect of Navseeker Inc, a
subsidiary of HSL (Laurence Baker, et al. v. Hassan Sadiq, et al.
and NavSeeker, Inc. C.A. No. 9464-VCL, Court of Chancery of the
State of Delaware USA) which was settled in June 2016. In March
2018, the parties settled the Court proceedings and the Group
received a net payment of GBP315,000 in full and final
settlement.
12. Share capital
Number Nominal Nominal Nominal
value fully value unpaid value total
paid
000's GBP'000 GBP'000 GBP'000
at 31 December 2017 and
30 June 2018 46,038 4,593 11 4,604
------------------------- ------- ------------- -------------- -------------
13. Cash flow from operating activities
Six months Six months
ended 30 ended 30
June 2018 June 2017
Loss after tax (2,573) (1,561)
Tax (115) (611)
Finance expense 53 544
Finance income (163) (259)
Operating loss (2,798) (1,887)
Adjustments for:
Non underlying cash out flows excluding discontinued
operations 186 7,432
Share-based payments - 43
Depreciation of property, plant and equipment 1,214 2,197
Amortisation of intangible assets 1,137 1,410
Impairment of goodwill - (135)
Loss on disposal of plant, property and equipment 579 584
Profit on disposal of subsidiary undertakings (558) -
and operations
Operating cash flows before movements in
working capital and provisions (240) 9,644
Decrease/(Increase) in inventories 349 (301)
Decrease in trade and other receivables 1,233 1,205
(Decrease) in trade and other payables (4,427) (12,712)
Cash outflows from operations before exceptional
and non-underlying items, net finance expense
and tax (3,085) (2,164)
------------------------------------------------------- ----------- -----------
Officers and Advisors
Directors
Mr R Rose (Chairman)
Rt. Hon. Lord M Howard
Mr D Young
Mr S Borson
Mr M P Williams
Company Secretary
Mr S Borson
Registered Office
Highfield Court
Tollgate, Chandler's Ford
Eastleigh
Hampshire
SO53 3TY
Company Registration No. 05542221
Bankers
Royal Bank of Scotland Plc
Abbey Gardens
4 Abbey Street
Reading, RG1 3BA
Broker and Nominated Advisor
Peel Hunt LLP
Moor House
120 London Wall
London, EC2Y 5ET
Auditor
KPMG LLP
15 Canada Square
London, E14 5GL
Solicitors
Dorsey & Whitney
199 Bishopsgate
London, EC2M 3UT
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London, EC2A 2EG
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent, BR3 4TU
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BCGDIUXDBGIC
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August 30, 2018 02:00 ET (06:00 GMT)
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