TIDMWTG
RNS Number : 8421W
Watchstone Group PLC
23 August 2022
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Results for the six months ended 30 June 2022
Watchstone today announces its results for the six months ended
30 June 2022.
-- Operating loss of GBP2.1m (2021: loss of GBP1.8m)
-- Group net assets of GBP11.4m at 30 June 2022 (as at 31 December 2021: GBP13.5m)
-- Group cash and term deposits at 30 June 2022 of GBP10.6m and
GBP1.8m held in escrow (as at 31 December 2021: GBP13.0m and
GBP1.8m respectively)
-- As at 19 August 2022, the Group had cash and term deposits of
GBP10.2m and GBP1.8m held in escrow
For further information:
Watchstone Group plc Tel: 03333 448048
WH Ireland Limited, Adviser and broker Tel: 020 7220
Chris Hardie 1666
------------------
Update
A full summary of actions and issues was presented in our Annual
Report published in May 2022.
Update on outstanding legacy matters
Our claim against PwC proceeds in the High Court with the trial
expected to begin in January 2023. The claim against PwC is for
damages or equitable compensation of GBP63.0m plus interest and
costs. Our claim against our former auditor, KPMG, in respect of
its audit of the Group's accounts for the year ended 31 December
2013 has been filed and KPMG's defence recently received. This
matter is not expected to go to trial before 2024.
Our appeal for the recovery of historic VAT paid in the ingenie
business was heard by the First Tier VAT Tribunal in December 2021
and we were notified in April 2022 of the Tribunal's judgement in
favour of HMRC. This was, of course, disappointing but having taken
advice, we are now appealing that decision to the Upper Tribunal.
Finally, our Canadian subsidiary's claim against Aviva Canada is
ongoing and is expected to go to trial in January 2024.
Financial update
The costs of pursuing our litigation assets are expensed as
incurred. No associated income from settlement or otherwise is
recognised due to the inherent uncertainty in the outcome and
timing of the legal cases. GBP1.0m of external legal fees were
incurred in the six months ended 30 June 2022 (six months ended 30
June 2021: GBP0.6m).
Since litigation in favour of the Group is pursued at the
discretion of the Group, no provision for legal expenses is made.
As a result of the decision of the First Tier VAT Tribunal finding
in favour of HMRC, a provision for the costs of the defence
incurred by HMRC had been provided at 31 December 2021, the Group
is appealing this decision.
In response to increases in market interest rates, the Group has
placed a proportion of its cash holding into short term deposits,
but for prudence, these are with household name UK banks.
The net assets of the Group at 30 June 2022 were GBP11.4m (31
December 2021: GBP13.5m). This primarily comprises cash and term
deposits of GBP10.6m (31 December 2021: GBP13.0m) and amounts
placed in escrow by the Group as security for costs in respect of
certain of its litigation assets, included within Other Receivables
of GBP1.8m (31 December 2021: GBP1.8m).
Any value attributable to litigation in favour of the Group
represents contingent assets and is therefore not recognised in the
Condensed Consolidated Statement of Financial position due to the
inherent uncertainty in respect of their outcome, value and
timing.
As at 19 August 2022, the Group had cash and term deposits of
GBP10.2m and GBP1.8m held in escrow.
Principal risks and uncertainties
The principal risks and uncertainties to which the Group is
exposed remain broadly as set out in section 4 of the Strategic
Report included within the Annual Report and Financial Statements
for the year ended 31 December 2021.
Outlook
We remain focussed on realising the Group's remaining litigation
assets as efficiently as possible and are confident of returning
further cash sums to shareholders in due course.
Directors' Responsibility Statement
Responsibility statement of the Directors in respect of this
interim report.
We confirm that to the best of our knowledge:
-- the set of condensed consolidated financial statements has
been prepared in accordance with IAS 34 Interim Financial
Reporting, as adopted for use in the UK;
-- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the set of
condensed consolidated financial statements; and a description of
the principal risks and uncertainties for the remaining six months
of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Stefan Borson
Group Chief Executive Officer
On behalf of the Directors
Condensed Consolidated Income Statement
for the period ended 30 June 2022
Six months Six months
ended ended
30 June 30 June
2022 2021
Note GBP'000 GBP'000
Administrative expenses 4 (2,117) (1,834)
Group operating loss (2,117) (1,834)
Finance income 90 16
Loss before taxation 4 (2,027) (1,818)
Taxation - -
Loss after taxation for the period from
continuing operations (2,027) (1,818)
(Loss)/profit for the period from discontinued
operations 8 (26) 118
Loss after taxation for the period (2,053) (1,700)
Attributable to:
Equity holders of the parent (2,053) (1,700)
Non-controlling interests - -
(2,053) (1,700)
------------------------------------------------ ----------- -----------
Loss per share (pence):
Basic (4.5) (3.7)
Diluted (4.5) (3.7)
------------------------------------------------ ----------- -----------
Loss per share from continuing activities
(pence):
Basic (4.4) (3.9)
Diluted (4.4) (3.9)
------------------------------------------------ ----------- -----------
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2022
Six months Six months
ended 30 ended 30
June 2022 June 2021
GBP'000 GBP'000
Loss after taxation (2,053) (1,700)
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations (47) (22)
Total comprehensive (loss)/profit for the
period (2,100) (1,722)
---------------------------------------------------- ----------- -----------
Attributable to:
Equity holders of the parent (2,100) (1,722)
Non-controlling interests - -
(2,100) (1,722)
------------------------------ -------------------- --------
Condensed Consolidated Statement of Financial Position
as at 30 June 2022
At 30 June At 31 December
2022 2021
Note GBP'000 GBP'000
Current assets
Trade and other receivables 5 1,874 1,910
Term deposits 8,013 -
Cash 2,630 12,996
Total current assets 12,517 14,906
------------------------------- ----- ----------- ---------------
Total assets 12,517 14,906
------------------------------- ----- ----------- ---------------
Current liabilities
Trade and other payables 6 (962) (1,251)
Provisions 7 (129) (129)
------------------------------- ----- ----------- ---------------
Total current liabilities (1,091) (1,380)
------------------------------- ----- ----------- ---------------
Non-current liabilities
Deferred tax liabilities (1) (1)
Total non-current liabilities (1) (1)
------------------------------- ----- ----------- ---------------
Total liabilities (1,092) (1,381)
------------------------------- ----- ----------- ---------------
Net assets 11,425 13,525
------------------------------- ----- ----------- ---------------
Equity
Share capital 10 4,604 4,604
Other reserves 69,687 69,734
Retained earnings (62,867) (60,814)
------------------------------- ----- ----------- ---------------
Equity attributable to equity
holders of the parent 11,424 13,524
Non-controlling interests 1 1
Total equity 11,425 13,525
------------------------------- ----- ----------- ---------------
Condensed Consolidated Cash Flow Statement
for the period ended 30 June 2022
Six months Six months
ended ended
30 June 30 June
Note 2022 2021
GBP'000 GBP'000
Cash flows from operating activities
Cash used in operations before net finance
expense and tax 11 (2,373) (2,309)
--------------------------------------------- ----- ----------- -----------
Corporation tax received - -
Net cash used by operating activities (2,373) (2,309)
--------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Investment in term deposits (8,000) -
Maturity of term deposits - -
Interest income - -
Net cash used by investing activities (8,000) -
--------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Dividends to minority interests - -
Return of capital - -
Net cash used by financing activities - -
--------------------------------------------- ----- ----------- -----------
Net decrease in cash and cash equivalents (10,373) (2,309)
Cash and cash equivalents at the beginning
of the period 12,996 16,656
Exchange gains on cash and cash equivalents 7 1
Cash and cash equivalents at the end
of the period 2,630 14,348
--------------------------------------------- ----- ----------- -----------
Notes to the Interim Statements
1. Preparation of the condensed consolidated financial information
Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 June 2022 have been prepared in accordance with the
AQSE Growth Market Rules and the r ecognition and measurement
requirements of IFRSs as adopted for use in the UK . The interim
financial information should be read in conjunction with the
Group's Annual Report and Financial Statements for the year ended
31 December 2021, which were prepared in accordance with IFRSs as
adopted for use in the UK.
The comparative figures for the financial year ended 31 December
2021 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies. The report of the
auditor was (i) unqualified, and (ii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
The Group's business activities together with the factors that
are likely to affect its future developments, performance and
position are set out in the Update. The condensed consolidated
financial statements were approved by the Board of Directors on 22
August 2022.
Going Concern
The Group holds appropriate cash reserves and no debt. The Group
has concluded that its cash reserves will be sufficient to fund the
Group's ongoing running costs together with any future investment
in litigation required.
On this basis, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future. The Directors have not
identified any material uncertainties that would cast significant
doubt on the ability of the Group to continue as a going concern.
Therefore, the Directors continue to adopt the Going Concern basis
of accounting in the preparation of the condensed consolidated
financial statements.
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, this
set of condensed consolidated financial statements have been
prepared in accordance with the AQSE Growth Market Rules.
Significant Accounting Policies
The accounting policies applied by the Group in this set of
condensed consolidated financial statements are the same as those
applied by the Group in its consolidated financial statements for
the year ended 31 December 2021, except for the adoption of new
standards and interpretations as of 1 January 2022. None of these
standards have any significant impact on the accounting policies,
financial position or performance of the Group, as noted below:
-- Amendment to IFRS 1 and IAS 12, relating to deferred tax
assets and liabilities arising from a single transaction.
-- Amendment to IFRS 16 relating to COVID-19 rent concessions.
-- Taxonomy changes to various standards and 2020 general improvements cycle.
-- Amendments to IAS 1, "Disclosure of Accounting Policies".
-- Amendment to IAS 8, "Definition of Accounting Estimates".
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
2. Critical accounting judgements and key sources of estimation
uncertainty
In the process of applying the Group's accounting policies,
management has made a number of judgements, and the preparation of
condensed consolidated financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results ultimately may differ from those
estimates.
The key management judgements together with assumptions
concerning the future and other key sources of estimation
uncertainty at 30 June 2022 that have a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities during the current financial year are discussed
below.
Estimate and judgement: Legal cases
The Group is involved with a number of actual or potential legal
cases which, if successful, could result in material cash inflows
to the Group. The relative merits of these cases and the assessment
of their likely outcome is highly judgemental by nature. Similarly,
management recognise the hurdle set by accounting standards to
recognise an asset or disclose a contingent asset is very high and
therefore neither is recognised or disclosed within these condensed
consolidated financial statements.
Judgement: Recognition of liabilities arising under the
Distribution Incentive Scheme
As discussed in the Directors' Remuneration Report on pages 16
to 18 of the 2021 Annual Report and Financial Statements the Group
Chief Executive Officer is entitled to 5.43% of any distribution
over and above a prescribed distribution hurdle ("DIS Hurdle")
which was first and permanently exceeded during 2020. No amounts
have been recognised in these condensed consolidated financial
statements in respect of any future payments as it is the judgement
of management that the liability does not crystallise, and is
materially uncertain, until Court approval has been obtained for
the related capital reduction and cash return and furthermore, any
distribution (and therefore incentive payment) is made at the
discretion of the Group. The impact of this judgement is 5.43% of
any future amounts distributed.
3. Key performance indicators
Year ended 31 December Six months Six months
ended 30 June ended 30
2022 June 2021
GBP'000 GBP'000
Cash returned to shareholders - -
------------------------------- --------------- -----------
Group operating loss (2,117) (1,834)
-------------------------------- --------------- -----------
Group net assets 11,425 13,525*
-------------------------------- --------------- -----------
Cash and term deposits 10,643 12,996*
-------------------------------- --------------- -----------
Basic loss (pence per share)
- continuing operations (4.4) (3.9)
-------------------------------- --------------- -----------
*At 31 December 2021
4. Administrative expenses
Six months Six months
ended 30 June ended 30
2022 June
2021
GBP'000 GBP'000
Administrative expenses include:
* Legal expenses 978 560
* Tax related matters 8 63
986 623
---------------------------------- --------------- -----------
Legal expenses and tax related matters primarily relate to the
costs of legal cases where the Group is the claimant or counter
claimant.
5. Trade and other receivables
30 June 31 December
2022 2021
GBP'000 GBP'000
Other receivables 1,814 1,880
Prepayments 60 30
1,874 1,910
------------------- -------- ------------
6. Trade and other payables
30 June 31 December
2022 2021
GBP'000 GBP'000
Current liabilities
Trade payables 292 46
Payroll and other taxes including social
security 32 47
Accruals 638 1,158
962 1,251
------------------------------------------ -------- ------------
7. Provisions
Legal Onerous
disputes contracts Other Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2021 200 58 - 258
Unused amounts released - (47) - (47)
Used during the period (12) (11) - (23)
At 30 June 2021 188 - - 188
------------------------------- ---------- ------------- -------- ----------
At 1 January 2022 129 - - 129
At 30 June 2022 129 - - 129
------------------------------- ---------- ------------- -------- ----------
Split:
Non-current - - - -
Current 129 - - 129
Legal disputes and regulatory matters
It is the policy of the Group to provide for legal costs in
cases where the Group is (or would be) the defendant. Defence costs
are provided as the Group is committed to defending the actions.
Such costs are provided for at the mid-range of possible
eventualities given the uncertainty of the outcome, this range is
reassessed on a continuous basis.
Provisions at 1 January 2022 and 30 June 2022 relate to the
decision of the First Tier VAT Tribunal which found against the
Group and that Watchstone' s subsidiary WTGIL Limited ("WTGIL") did
not make any supplies of telematics devices or related services in
the VAT periods 07/2014 to 07/2018. Accordingly, WTGIL's appeal was
dismissed. The Group has since appealed this decision.
In legal cases where the Group is the claimant (or counter
claimant), costs are not provided as there is no obligation to
proceed and the Group is not contractually committed to incur
costs. Similarly, in such legal cases where the Group is the
claimant and has indemnified a third party, potential future costs
associated with the indemnification are not provided for.
8. Discontinued operations and disposals
(Loss)/profit for the period from discontinued operations:
2022 2021
GBP'000 GBP'000
Ingenie (16) 65
Hubio (10) 53
(Loss)/profit for the period from discontinued
operations net of tax (26) 118
------------------------------------------------ -------- --------
9. Contingent assets and liabilities
Litigation in relation to the historic activities of the Group
is being pursued including claims against PricewaterhouseCoopers
LLP, KPMG LLP and Aviva Canada Inc. These give rise to contingent
assets, which are not recognised within the Condensed Financial
Statements due to lack of certainty as to the outcome, despite an
inflow of economic benefit being considered probable.
The Group routinely enters into a range of contractual
arrangements in the ordinary course of business which can give rise
to claims or potential litigation against Group companies. It is
the Group's policy to make specific provisions at the Condensed
Statement of Financial Position date for all liabilities which, in
the opinion of the Directors, are expected to result in a loss.
10. Share capital
Number Nominal Nominal Nominal
value fully value unpaid value total
paid
000's GBP'000 GBP'000 GBP'000
at 31 December 2021 and
30 June 2022 46,038 4,593 11 4,604
------------------------- ------- ------------- -------------- -------------
11. Cash flow from operating activities
Six months Six months
ended 30 ended 30
June 2022 June 2021
Loss after tax (2,053) (1,700)
Tax - -
Finance expense - -
Finance income (90) (16)
Operating (loss)/profit (2,143) (1,716)
Operating cash flows before movements in
working capital and provisions (2,143) (1,716)
Decrease in inventories - -
Decrease in trade and other receivables 59 31
(Decrease) in trade and other payables (289) (624)
Cash outflows from operations before exceptional
and non-underlying items, net finance expense
and tax (2,373) (2,309)
-------------------------------------------------- ----------- -----------
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