TIDMWTG
RNS Number : 4913Y
Watchstone Group PLC
09 May 2019
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Preliminary results for the year ended 31 December 2018
Watchstone (AIM:WTG.L) today announces its results for the year
ended 31 December 2018.
Financial/operational:
-- Revenues of GBP38.0m (2017: GBP44.9m)
-- Underlying* EBITDA loss of GBP4.6m (2017: GBP3.6m)
-- Group operating loss of GBP20.5m (2017: GBP7.4m)
-- Total loss after tax GBP18.9m (2017: GBP2.6m)
-- Group net assets of GBP46.8m representing approximately 101 pence per share
-- Group cash and term deposits at 31 December 2018 of GBP50.1m**
-- Successful resolution of a number of legacy tax matters and
other obligations resulting in the release of provisions of GBP1.9m
(2017: GBP10.3m)
-- Mark Williams, Group Finance Director, to step down from the
Board on 30 June 2019 in line with further simplication of Group
operations
Current trading (unaudited):
-- As at 26 April 2019, Group cash and term deposits (unaudited) of GBP43.9m**
-- Cash outflows since 31 December 2018 include:
o GBP1.9m of legal costs
o GBP0.4m to redeem pt Preference Share liabilities
-- Unaudited total underlying Group revenue for Q1 2019 is down
vs. Q1 2018, due to lower ingenie revenues
-- Healthcare Services:
o continued emphasis on clinic optimisation in ptHealth and on
InnoCare sales
o Q1 2019 revenue in line with Q1 2018 despite clinic closures
due to severe February weather
-- ingenie
o significant actions taken during 2018 and in Q1 2019 are
beginning to show positive signs
* Underlying comprises Healthcare Services, ingenie and Central.
See Note 2 for details on Underlying and Non-Underlying
classification.
** Cash excludes escrow monies of GBP50.2m
The Annual Report and Accounts for the year ended 31 December
2018 will be released by 29 May 2019 and posted to registered
shareholders. Once published, the Annual Report and Accounts will
be available at www.watchstonegroup.com/investors.
The 2019 AGM will be held at 1.30 pm on 26 June 2019 in Room
LGA, WeWork, Aviation House, 125 Kingsway, Holborn, London WC2B
6NH.
For further information:
Watchstone Group plc Tel: 03333 448048
investor.relations@watchstonegroup.com
Peel Hunt LLP, Nominated Adviser and broker Tel: 020 7418
Dan Webster, George Sellar 8900
------------------
Notes to editors:
About Watchstone
Watchstone Group plc is a company focused on managing the
Group's businesses, cash and other corporate assets and legacy
issues in order to achieve maximum shareholder value, whilst
ensuring good governance.
The sectors in which the Group operates are within healthcare in
Canada and insurance telematics. The markets are addressed through
the following businesses:
-- 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-centred 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 alongside ptHealth.
InnoCare uses its established industry expertise to enable
third-party clinic owners to transform their patients' experience
and operate more efficient and productive practices in the growing
North American healthcare market.
-- ingenie
is an insurance broker focused on helping young drivers use the
road safely and affordably. Using telematics technology, ingenie
gives its community discounts, feedback and bespoke advice via its
Driver Behaviour Unit to help them improve their driving skills
whilst staying safe. It provides its telematics technology to
certain third parties as a technology solutions provider.
Chairman's Report
During the year, we largely completed the work to simplify and
rationalise the operating assets of the Group and significantly
reduced the size of the central overhead. In line with this, Mark
Williams, Group Finance Director has notified the Group of his
intention to step down from the Board on 30 June 2019. It is not
currently envisaged that Mark will be replaced on the Board.
We remain on track with the execution of our plan to prepare our
businesses for future disposal. These potential divestments will be
determined with a view to maximising shareholder value taking all
factors into consideration.
Our Canadian physiotherapy clinic and technology business,
ptHealth, trades profitably with future opportunities for profit
improvement from both organic growth and margin enhancement. Our UK
based specialist insurance broker, ingenie, has emerged from a
challenging period and its new management team has formulated a
turnaround plan and although we remain in the early stages, we are
beginning to see shoots of recovery.
We will continue to address the legal and regulatory matters
that face the Group with resolve, focus and determination.
There is still much work to be done, both at the Group level and
within our businesses, and I would like to thank our colleagues for
their commitment. I would particularly like to thank Mark for his
dedication and effectiveness in dealing with a multitude of complex
legacy issues.
I would also like to thank our shareholders who have been
patient and maintained support for the Company as the intense work
to maximise value from all 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
Our focus remains on resolving all of our legacy matters as
efficiently as possible and generating as much value as we can from
our remaining businesses, ptHealth and ingenie.
Each business has a clear strategy as well as high quality and
ambitious management teams and our plan is to achieve maximum value
from an exit at the appropriate time.
Until we resolve the Slater & Gordon litigation we will not
be able to distribute capital to shareholders but that remains our
ultimate aim. Later this year, we will robustly defend in court
what we consider a wholly unmeritorious claim. Further, we remain
in communication with Slater & Gordon regarding any deferred
consideration due from Noise Induced Hearing Loss ("NIHL")
cases.
Business Review:
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 sells software and
services to independent clinics in Canada. Healthcare Services
performed satisfactorily in 2018, with revenue, excluding the
impact of foreign exchange, increasing by 2% and an EBITDA of
GBP0.9m.
Healthcare Services in 2018 at a glance
-- In 2018, ptHealth and InnoCare treated an average of 2,810
patients a day with over 705,000 visits for the year
-- Of the 4,933 patients surveyed 97% said they would recommend us (up 7% from 2017)
-- Over 1,124 Practitioners use InnoCare software, an increase of 17% over 2017
2. ingenie
As previously announced, ingenie had a challenging 2018
continuing the issues of H2 2017 with revenue falling to GBP7.8m
(2017: GBP14.4m) with an EBITDA loss of GBP1.9m (2017: EBITDA
profit of GBP1.3m). The business has taken significant actions
during the year to return the business to profit and it is now
trading with a revised structure and business model. Whilst there
are positive signs, visible results are only expected later this
year. This limited history creates inherent uncertainty in future
forecasts and has resulted in a further impairment charge of
GBP9.1m to goodwill and GBP0.3m to intangibles in the year ended 31
December 2018.
We are investing prudently in the business to achieve the
anticipated turnaround and in March 2019, ingenie completed a
transformational move of its policy management platform to a new
provider. This significant development allows ingenie's consumer
business to better control its proposition including pricing; to
respond rapidly to customer and market demands; and to facilitate
new product deployment at a lower cost. We have seen positive signs
in new business volumes albeit we remain at an early stage
following this move. The programme supporting our external customer
in the Netherlands, ANWB, continues to perform well, endorsing our
technology developments and market leading approach to road safety
and motor insurance pricing.
ingenie in 2018 at a glance
-- Driving and safety improvements achieved by the combination of technology and psychology:
o 99% ingenie drivers activate their feedback account
o 90% of ingenie drivers view their driving feedback at least
once a month
o 91% drivers proven to improve after ingenie coaching on
driving speed
o 89% of drivers proven to improve after ingenie coaching on
braking behaviours
-- Social followers exceed 50,000
-- Over 2,000,000 visits to ingenie.com
-- B2B policies increased by 230%
Update on legacy matters
Whilst we continue to resolve historic legal matters, the Slater
& Gordon claim is ongoing and we are preparing for trial
commencing in October 2019. In November 2018 we received Slater
& Gordon's disclosure which reaffirms the position set out in
our filed defence to the claim. 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. Our preparation for trial is well advanced and it has
been necessary to invest considerable financial resource to ensure
we are fully prepared.
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 (but
not commenced) class action litigation first announced in September
2015 and the Group has received no communication regarding class
action litigation since mid 2016.
2019 outlook
ptHealth continues to make satisfactory progress in operational
improvements generating more appointments and treatments from its
existing clinics. In addition, more third-party clinics are using
our services to meet patient needs.
ingenie's current volumes are being addressed in partnership
with its underwriting panel and by the development of new product
and technology offerings that will launch during 2019.
Central costs will be carefully managed at greatly reduced
levels consistent with the unresolved legacy matters and the needs
of the organisation. The result of the Slater & Gordon trial is
unlikely to be known until 2020 and as such it may not affect the
outcome of the 2019 financial year (save for the costs in defending
the claim).
Stefan Borson
Group Chief Executive Officer
Consolidated Income Statement
for the year ended 31 December 2018
2018 2018 2018 2017 2017 2017
Non-
Underlying Underlying* Total Underlying Non-underlying* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 38,031 - 38,031 44,880 - 44,880
Cost of sales (21,140) - (21,140) (24,582) - (24,582)
Gross profit 16,891 - 16,891 20,298 - 20,298
Administrative
expenses (23,232) (14,118) (37,350) (24,979) (2,737) (27,716)
Group operating
loss (6,341) (14,118) (20,459) (4,681) (2,737) (7,418)
Finance income 346 - 346 270 - 270
Finance expense 8 - 8 (22) 2,220 2,198
Loss before
taxation (5,987) (14,118) (20,105) (4,433) (517) (4,950)
Taxation 172 - 172 754 - 754
Loss after taxation
for the year
from continuing
operations (5,815) (14,118) (19,933) (3,679) (517) (4,196)
Net gain on
disposal of
discontinued
operations - 558 558 - 4,930 4,930
Profit/(loss)
for the year
from discontinued
operations,
net of taxation - 471 471 - (3,378) (3,378)
(Loss)/profit
after taxation
for the year (5,815) (13,089) (18,904) (3,679) 1,035 (2,644)
---------------------- ----------- ------------- --------- ----------- ---------------- ---------
Attributable
to:
Equity holders
of the parent (5,815) (13,089) (18,904) (3,679) 1,047 (2,632)
Non-controlling
interests - - - - (12) (12)
(5,815) (13,089) (18,904) (3,679) 1,035 (2,644)
--------------------- ----------- ------------- --------- ----------- ---------------- ---------
Loss per share
(pence):
Basic (12.6) (41.1) (8.0) (5.7)
Diluted (12.6) (41.1) (8.0) (5.7)
----------------------- ------- ------- ------ ------
Loss per share
from continuing
operations (pence):
Basic (43.3) (9.1)
Diluted (43.3) (9.1)
----------------------- ------- ------- ------ ------
*Non-underlying results have been presented separately to give a
better guide to underlying business performance.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2018
2018 2017
GBP'000 GBP'000
Loss after taxation (18,904) (2,644)
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations (365) 136
Total comprehensive loss for the year (19,269) (2,508)
---------------------------------------------------- --------- --------
Attributable to:
Equity holders of the parent (19,234) (2,481)
Non-controlling interest (35) (27)
(19,269) (2,508)
------------------------------ --------- --------
Consolidated Statement of Financial Position
as at 31 December 2018
2018 2017
GBP'000 GBP'000
Non-current assets
Goodwill 8,157 17,443
Other intangible assets 3,144 4,825
Property, plant and equipment 1,854 3,819
Other receivables 759 759
13,914 26,846
------------------------------------------ --------- ---------
Current assets
Inventories 760 1,283
Trade and other receivables 5,110 6,144
Term deposits 40,000 40,000
Cash 10,113 22,808
55,983 70,235
Assets of disposal group classified
as held for sale - 833
Total current assets 55,983 71,068
Total assets 69,897 97,914
------------------------------------------- --------- ---------
Current liabilities
Cumulative redeemable preference
shares (2,209) (2,203)
Trade and other payables (8,201) (11,710)
Obligations under finance leases - (4)
Provisions (11,319) (13,024)
(21,729) (26,941)
Liabilities of disposal group classified
as held for sale - (851)
Total current liabilities (21,729) (27,792)
------------------------------------------- --------- ---------
Non-current liabilities
Cumulative redeemable preference
shares (1,278) (3,795)
Provisions (85) (87)
Deferred tax liabilities (1) (167)
(1,364) (4,049)
------------------------------------------ --------- ---------
Total liabilities (23,093) (31,841)
------------------------------------------- --------- ---------
Net assets 46,804 66,073
------------------------------------------- --------- ---------
Equity
Share capital 4,604 4,604
Other reserves 137,827 136,618
Retained earnings (96,288) (76,095)
Equity attributable to equity holders
of the parent 46,143 65,127
Non-controlling interests 661 946
Total equity 46,804 66,073
------------------------------------------- --------- ---------
Consolidated Cash Flow Statement
for the year ended 31 December 2018
2018 2017
GBP'000 GBP'000
Cash flows from operating activities
Cash used in operations before exceptional
costs, net finance expense and tax (1,672) (11,289)
Non underlying cash out flows excluding
discontinued operations (6,834) (5,266)
Cash used in operations before net finance
expense and tax (8,506) (16,555)
Corporation tax received - 622
Net cash used by operating activities (8,506) (15,933)
------------------------------------------------ ---------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (1,411) (4,417)
Purchase of intangible fixed assets (1,057) (1,816)
Proceeds on disposal of property, plant
and equipment - 1,260
Disposal of subsidiaries net of cash foregone 87 2,560
Investment in term deposits (100,000) (70,000)
Maturity of term deposits 100,000 67,500
Interest income 349 178
Recovery of fully impaired investment 250 -
Net cash used in investing activities (1,782) (4,735)
------------------------------------------------ ---------- ---------
Cash flows from financing activities
Finance expense paid - (20)
Finance income received (2,454) -
Finance lease repayments (4) (94)
Net cash (used in)/generated by financing
activities (2,458) (114)
------------------------------------------------ ---------- ---------
Net decrease in cash and cash equivalents (12,746) (20,782)
Cash and cash equivalents at the beginning
of the year 22,808 43,714
Exchange gains on cash and cash equivalents 51 (124)
Cash and cash equivalents at the end of
the year 10,113 22,808
------------------------------------------------ ---------- ---------
Cash and cash equivalents
Cash 10,113 22,808
10,113 22,808
--------------------------- ------- -------
The above Consolidated Cash Flow Statement includes cash flows
from both continuing and discontinued operations.
As at 31 December 2018, the Group had cash and cash equivalents
of GBP10,113,000 (2017: GBP22,808,000) and term deposits of
GBP40,000,000 (2017: GBP40,000,000).
Notes:
1. Results announcement
The Financial Statements for the year ended 31 December 2018
have been prepared in accordance with International Financial
Reporting Standards and IFRIC interpretations adopted by the
European Union (EU) (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 29
May 2019 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) drew attention by way of emphasis without qualifying their
report to an uncertain outcome of Slater & Gordon claim; 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 2018. Statutory accounts for the year
ended 31 December 2017 have been delivered to the Registrar of
Companies and those for the year ended 31 December 2018 will be
delivered following the AGM. This preliminary announcement was
approved by the Board of Directors on 8 May 2019 and these
preliminary results have been extracted from the audited results
for the year ended 31 December 2018.
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
(the Board) 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.
ingenie Healthcare Central Total
Services
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 December
2018
Underlying revenue 7,841 30,190 - 38,031
Underlying cost
of sales (4,375) (16,765) - (21,140)
Underlying gross
profit 3,466 13,425 - 16,891
Underlying administrative
expenses excluding
depreciation and
amortisation* (5,391) (12,555) (3,514) (21,460)
Underlying EBITDA (1,925) 870 (3,514) (4,569)
---------------------------- -------- ----------- -------- ---------
Depreciation and
amortisation* (1,772)
Underlying Group
operating loss (6,341)
Net finance income 354
Underlying Group
loss before tax (5,987)
Non-underlying adjustments (14,118)
Total Group loss
before tax from
continuing operations (20,105)
---------------------------- -------- ----------- -------- ---------
ingenie Healthcare Central Total
Services
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 December
2017
Underlying revenue 14,429 30,451 - 44,880
Underlying cost
of sales (7,983) (16,599) - (24,582)
Underlying gross
profit 6,446 13,852 - 20,298
Administrative expenses
excluding depreciation
and amortisation* (5,130) (13,145) (5,633) (23,908)
Underlying EBITDA 1,316 707 (5,633) (3,610)
Depreciation and
amortisation* (1,071)
Underlying Group
operating loss (4,681)
Net finance income 248
Underlying Group
loss before tax (4,433)
Non-underlying adjustments (517)
Total Group loss
before tax from
continuing operations (4,950)
---------------------------- -------- ----------- -------- ---------
* Depreciation added back above when calculating Underlying
EBITDA from continuing operations excludes depreciation on
telematics devices of GBP1,497,000 (2017: GBP3,090,000) which is
included within cost of sales. The depreciation of telematics
devices is included within cost of sales since they directly
generate revenue for the business and are therefore included in
gross margin.
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 and ingenie Canada. 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 Hubio and additionally in
2017, BAS.
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 2018, this primarily
relates to an impairment charge to goodwill, legal fees, movements
in provisions for legal fees and the settlement of historic tax and
legal matters. The classification of provision releases as
underlying or non-underlying are consistent with their initial
establishment.
Non-underlying administrative expenses are analysed as
follows:
Year ended 31 December 2018 2017
GBP'000 GBP'000
Exceptional items:
* Legal expenses 5,688 2,913
* Legal settlements (160) 604
* Tax related matters (1,612) (9,036)
* Net impairments of non-cash assets 9,148 5,633
* Restructuring 71 67
Total exceptional items 13,135 181
----------------------------------------------------- -------- --------
Other adjustments:
* Share based payments - 43
* Amortisation of acquired intangibles 983 1,434
* Other non-underlying administrative expenses - 1,079
----------------------------------------------------- -------- --------
Total other adjustments 983 2,556
----------------------------------------------------- -------- --------
Total non-underlying administrative expenses 14,118 2,737
----------------------------------------------------- -------- --------
Other adjustments are not exceptional in size, nature or
incidence, however they do not relate to the ongoing future trade
of the Group and can vary significantly from year to year.
Amortisation represents a non-cash charge relating to acquisition
accounting and is not taken into account by management when
reviewing operational performance of the Group.
During 2017 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. Since the majority of non-underlying businesses
have wound down or ceased by 31 December 2017 there were no such
costs during 2018.
The legal expense includes GBP3,743,000 of additional legal fee
provisions in respect of recovery of the Warranty Escrow and
defence of the claim of fraudulent misrepresentation. There is a
further GBP857,000 expense in respect of a tax indemnity claim
against the Group. In 2017, this represented GBP2,940,000 of
additional legal fee provisions in respect of recovery of the
Warranty Escrow.
The legal settlement credit for the period ended 31 December
2018 of GBP160,000 includes credits of GBP1,328,000, being two
settlements with former management. This is partially offset by an
expense of GBP1,168,000, also relating to a settlement with former
management. In 2017 the legal settlements were a contribution to
costs in relation to the judgement on OS3 Distribution Limited
litigation.
Tax related matters in both 2018 and 2017 mainly comprises the
release of unused provisions which were created in previous
periods.
The restructuring expense of GBP71,000 is stated after taking
into account the release of unused provisions of GBP248,000.
Net impairments of non-cash assets above relates to:
Year ended 31 December 2018 2017
GBP'000 GBP'000
Goodwill 9,081 5,593
Other intangible assets 317 -
Tangible fixed assets - 40
Investments (250) -
9,148 5,633
------------------------- -------- --------
5. Goodwill
The movement in goodwill is as follows:
Goodwill
GBP'000
Cost
At 1 January 2017 193,894
Disposals (96,071)
Exchange differences (834)
At 1 January 2018 96,989
Exchange differences (926)
At 31 December 2018 96,063
---------------------- ---------
Impairment
At 1 January 2017 170,673
Disposals (96,071)
Charge 5,593
Exchange differences (649)
At 1 January 2018 79,546
Charge 9,081
Exchange differences (721)
At 31 December 2018 87,906
---------------------- ---------
Net book value
31 December 2018 8,157
---------------------- ---------
31 December 2017 17,443
---------------------- ---------
Goodwill is allocated to the Group's CGUs as follows:
2018 2017
GBP'000 GBP'000
ingenie - 9,081
Healthcare Services 8,157 8,362
8,157 17,443
--------------------- -------- --------
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 3 years (2017: 3 to 4 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 revenues and pre-tax
discount rate 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.
Healthcare
2018 ingenie Services
Long term growth rate 2% 2%
-------- ----------
DCF appraisal period 3 years 3 years
-------- ----------
Annualised revenue growth over DCF appraisal period 20% 5%
-------- ----------
Pre-tax discount rate 14% 9%
-------- ----------
The 20% annualised revenue growth for ingenie in the forecast
period appears high as a result of recovering from poor volumes in
2018.
2017 ingenie Healthcare
Services
Long term growth rate 2% 2%
-------- -----------
DCF appraisal period 4 years 3 years
-------- -----------
Annualised revenue growth over DCF appraisal period 3% 4%
-------- -----------
Pre-tax discount rate 13% 11%
-------- -----------
Annualised revenue growth rates vary by operating division
depending on the current development to maturity of the CGU. In
determining the applicable discount rate, management has applied
judgement in respect of several factors, including, inter alia,
assessing the risk attached to future cash flows. Pre-tax discount
rates have been assessed for each CGU.
Market challenges noted at the end of 2017 in respect of ingenie
continued in to 2018 with volumes continuing to fall during the
year. A number of mitigating actions have been taken to regain
competitiveness within its chosen market which, if effective, will
return the business to growth. It is accepted that there are risks
in the successful delivery of these actions and that significant
improvements to cash flows are required to support the carrying
value of the business. Consequently, the goodwill of ingenie has
been fully impaired at 31 December 2018.
Movement in goodwill by CGU
The movement in goodwill by CGU is as follows:
Foreign exchange
2017 movements Impairment 2018
GBP'000 GBP'000 GBP'000 GBP'000
ingenie 9,081 - (9,081) -
Healthcare Services 8,362 (205) - 8,157
Total 17,443 (205) (9,081) 8,157
--------------------- -------- ----------------- ----------- --------
For Healthcare Services neither an increase in the pre-tax
discount rate of 1 percentage point or a decrease of 1 percentage
point in the long term growth rate would result in an impairment to
the carrying value of goodwill.
6. 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 - 2,927 126 936 3,989
Unused amounts
released (9,086) (46) (227) (973) (10,332)
Used during the
year (2,814) (1,553) (2,092) (2,282) (8,741)
Exchange movements - - (34) (12) (46)
------------------------ ------------ ---------- ----------- --------- ---------
At 1 January 2018 3,193 7,442 492 1,984 13,111
Additional provisions - 3,752 - 430 4,182
Unused amounts
released (1,493) (96) (156) (167) (1,912)
Used during the
year - (2,891) (272) (836) (3,999)
Exchange movements - - 23 (1) 22
At 31 December
2018 1,700 8,207 87 1,410 11,404
------------------------ ------------ ---------- ----------- --------- ---------
Split:
Non-current - - 85 - 85
Current 1,700 8,207 2 1,410 11,319
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 year ended
31 December 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. Further information has
become available during the year allowing an improved estimate to
be made of the liability. This resulted in GBP800,000 of the
provision being released to the income statement. 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,
defence costs are provided as the Group is committed to defending
the actions. Such costs are provided for at the mid-range of
possible eventualities given the uncertainty of the outcome, this
range is reassessed on a continuous basis. 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 an increase in the expected
legal costs to defend these actions and do not represent providing
against additional legal disputes. No amounts have been provided
for the costs of any settlement, fine or award of damages, however
a contingent liability of GBP637,000,000 has been disclosed.
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
majority of the provision at 31 December 2017 related to
non-property obligations which were settled during 2018 resulting
in provisions used, and the release of GBP156,000 where the amount
settled was less than managements estimate at 31 December 2017. At
31 December 2018 the provision relates exclusively to the maximum
exposure remaining under a single onerous property lease, the
timing of which may be reliably determined.
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. These primarily relate to two areas,
commission clawback relating to non-underlying businesses and
warranties provided by the Group. The exact timing and quantum of
the amounts is uncertain and the provision is based upon historic
trends in these businesses.
GBP430,000 of the additional provision in the year and
GBP494,000 of provisions used in the year relates to the normal
ongoing business activities of the Group. The amount provided at 31
December 2017 related to restructuring has been used or released
during the year such that no balance remains at 31 December
2018.
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
FR SSSSIUFUSEII
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May 09, 2019 02:00 ET (06:00 GMT)
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