TIDMWTG
RNS Number : 1381N
Watchstone Group PLC
21 September 2023
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Results for the six months ended 30 June 2023
Watchstone today announces its results for the six months ended
30 June 2023.
-- Operating loss of GBP6.1m (2022: loss of GBP2.1m)
-- Group net assets of GBP7.6m at 30 June 2023 (as at 31 December 2022: GBP13.5m)
-- Group cash and term deposits at 30 June 2023 of GBP8.3m (as at 31 March 2023: GBP11.5m)
-- As at 19 September 2023, the Group had cash and term deposits
of GBP7.6m following final settlement of PwC's costs relating to
litigation
For further information:
Watchstone Group plc Tel: 03333 448048
WH Ireland Limited, Adviser and broker Tel: 020 7220
Chris Hardie/James Bavister 1666
------------------
Update
A full summary of actions and issues was presented in our Annual
Report published in April 2023 and an update is provided below.
Update on outstanding legacy matters
Our claim against PricewaterhouseCoopers LLP ("PwC") was heard
in the High Court during January and February 2023. In May 2023,
the High Court handed down its judgement and, disappointingly,
dismissed the claim. The Group has sought permission to appeal this
decision however, in the meantime, has been required to settle the
legal costs of the defendants, in addition to that of the Group.
This resulted in total legal costs during the six months ended 30
June 2023 of GBP4.9m being recognised within these Condensed
Consolidated Financial Statements. This includes amounts actually
paid to PwC on and before 31 August 2023 in full and final
settlement of such costs.
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. The Group is appealing this decision which is to be
heard in November 2023.
Finally, our Canadian subsidiary's claim against Aviva Canada is
ongoing and the trial is to be heard in January 2024. No other new
claims have been made either for or against the Group and no
further claims are currently envisaged.
Financial update
The costs of pursuing our litigation assets are expensed as
incurred. The costs of litigation are always factored into the
strategic decision to pursue claims and minimising such costs is a
constant challenge. The costs of the HMRC and Canadian claims are
not comparable to the costs of the PwC claim and, accordingly, the
run rate of legal costs going forward will be materially lower than
in the past.
No associated income from settlement, appeal, or otherwise is
recognised until the case is resolved due to the inherent
uncertainty in the outcome and timing of the legal cases. GBP4.9m
of external legal costs were incurred in the six months ended 30
June 2023 primarily in relation to the claim against PwC discussed
above (six months ended 30 June 2022: GBP1.0m) covering both
Watchstone's own costs and those of PwC (GBP2.7m in full and final
settlement).
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 2022 and 30 June
2023.
The Group continues to place a proportion of its cash holding
into short term deposits to take advantage of market interest
rates, but for prudence, these are with household name UK
banks.
The net assets of the Group at 30 June 2023 were GBP7.6m (31
December 2022: GBP13.5m). This primarily comprises cash and term
deposits of GBP8.3m (31 December 2022: GBP13.8m).
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 September 2023, the Group had cash and term deposits of
GBP7.6m.
Board and running costs
Further reductions were made to the ongoing costs of the Group
following the AGM on 30 May 2023 with the resignation of Lord
Howard and David Young. In addition, going forward the finance
function is being carried out via a third-party consultancy
reducing costs by approximately 50%. In the five month period from
1 April to 31 August 2023, the business consumed GBP3.7m of cash
including GBP3.3m in respect of the PwC costs settlement and other
legal costs. As we complete the remaining matters, the Group now
operates remotely with no office costs and only one executive.
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 2022.
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
Chief Executive Officer
On behalf of the Directors
Condensed Consolidated Income Statement
for the period ended 30 June 2023
Six months Six months
ended ended
30 June 30 June
2023 2022
Note GBP'000 GBP'000
Administrative expenses 4 (6,086) (2,117)
Group operating loss (6,086) (2,117)
Finance income 134 90
Loss before taxation 4 (5,952) (2,027)
Taxation - -
Loss after taxation for the period from
continuing operations (5,952) (2,027)
Loss for the period from discontinued operations 8 (8) (26)
Loss after taxation for the period (5,960) (2,053)
Attributable to:
Equity holders of the parent (5,960) (2,053)
Non-controlling interests - -
(5,960) (2,053)
-------------------------------------------------- ----------- -----------
Loss per share (pence):
Basic (12.9) (4.5)
Diluted (12.9) (4.5)
-------------------------------------------------- ----------- -----------
Loss per share from continuing activities
(pence):
Basic (12.9) (4.4)
Diluted (12.9) (4.4)
-------------------------------------------------- ----------- -----------
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2023
Six months Six months
ended 30 ended 30
June 2023 June 2022
GBP'000 GBP'000
Loss after taxation (5,960) (2,053)
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations 11 (47)
Total comprehensive (loss) for the period (5,949) (2,100)
---------------------------------------------------- ----------- -----------
Attributable to:
Equity holders of the parent (5,949) (2,100)
Non-controlling interests - -
(5,949) (2,100)
------------------------------ -------------------- --------
Condensed Consolidated Statement of Financial Position
as at 30 June 2023
At 30 June At 31 December
2023 2022
Note GBP'000 GBP'000
Current assets
Trade and other receivables 5 557 1,711
Term deposits 7,000 12,000
Cash 1,262 1,768
Total current assets 8,819 15,479
------------------------------- ----- ----------- ---------------
Total assets 8,819 15,479
------------------------------- ----- ----------- ---------------
Current liabilities
Trade and other payables 6 (1,092) (1,803)
Provisions 7 (129) (129)
------------------------------- ----- ----------- ---------------
Total current liabilities (1,221) (1,932)
------------------------------- ----- ----------- ---------------
Total liabilities (1,221) (1,932)
------------------------------- ----- ----------- ---------------
Net assets 7,598 13,547
------------------------------- ----- ----------- ---------------
Equity
Share capital 10 4,604 4,604
Other reserves 69,730 69,719
Retained earnings (66,737) (60,777)
------------------------------- ----- ----------- ---------------
Equity attributable to equity
holders of the parent 7,597 13,546
Non-controlling interests 1 1
Total equity 7,598 13,547
------------------------------- ----- ----------- ---------------
Condensed Consolidated Cash Flow Statement
for the period ended 30 June 2023
Six months Six months
ended ended
30 June 30 June
Note 2023 2022
GBP'000 GBP'000
Cash flows from operating activities
Cash used in operations before net finance
expense and tax 11 (5,652) (2,373)
-------------------------------------------- ----- ----------- -----------
Corporation tax paid - -
Net cash used by operating activities (5,652) (2,373)
-------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Investment in term deposits (8,000) (8,000)
Maturity of term deposits 13,000 -
Interest income 148 -
Net cash used by investing activities 5,148 (8,000)
-------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Return of capital - -
Net cash used by financing activities - -
-------------------------------------------- ----- ----------- -----------
Net decrease in cash and cash equivalents (504) (10,373)
Cash and cash equivalents at the beginning
of the period 1,768 12,996
Exchange (losses)/gains on cash and cash
equivalents (2) 7
Cash and cash equivalents at the end
of the period 1,262 2,630
-------------------------------------------- ----- ----------- -----------
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 2023 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 2022, which were prepared in accordance with IFRSs as
adopted for use in the UK.
The comparative figures for the financial year ended 31 December
2022 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 20
September 2023.
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 2022, except for the adoption of new
standards and interpretations as of 1 January 2023. None of these
standards have any significant impact on the accounting policies,
financial position or performance of the Group, as noted below:
-- Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8.
-- Amendment to IAS 12 - deferred tax related to assets and
liabilities arising from a single transaction.
-- IFRS 17, 'Insurance contracts'.
-- Amendment to IFRS 16 - Leases on sale and leaseback.
-- Amendment to IAS 1 - Non-current liabilities with covenants.
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 2023 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 8
and 9 of the 2022 Annual Report and Financial Statements the Chief
Executive Officer is entitled to 5.43% of any distribution over and
above a prescribed distribution 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
Six months Six months
ended 30 June ended 30
2023 June 2022
GBP'000 GBP'000
Cash returned to shareholders - -
------------------------------- --------------- -----------
Group operating loss (6,086) (2,117)
-------------------------------- --------------- -----------
Group net assets 7,598 11,425
-------------------------------- --------------- -----------
Cash and term deposits 8,262 13,768*
-------------------------------- --------------- -----------
Basic loss (pence per share)
- continuing operations (12.9) (4.4)
-------------------------------- --------------- -----------
*At 31 December 2022
4. Administrative expenses
Six months Six months
ended 30 June ended 30
2023 June
2022
GBP'000 GBP'000
Administrative expenses include:
* Legal expenses 4,855 978
* Tax related matters 7 8
4,862 986
---------------------------------- --------------- -----------
Legal expenses during the period ended 30 June 2023 primarily
relate to the costs of the claim against PwC which was found in
favour of the defendants. As a result of the adverse outcome the
settlement of the defendant's legal costs are also included above.
Further details are provided in the Update.
Legal costs during the six months ended 30 June 2022 relate to
the claim against PwC and the claim against KPMG LLP which was
settled in December 2022.
5. Trade and other receivables
30 June 31 December
2023 2022
GBP'000 GBP'000
Other receivables 473 1,652
Prepayments 30 19
Accrued interest 54 40
557 1,711
------------------- -------- ------------
6. Trade and other payables
30 June 31 December
2023 2022
GBP'000 GBP'000
Current liabilities
Trade payables 65 264
Payroll and other taxes including social
security 38 54
Accruals 989 1,485
1,092 1,803
------------------------------------------ -------- ------------
7. Provisions
Legal disputes Total
GBP'000 GBP'000
At 1 January 2022 129 129
At 30 June 2022 129 129
------------------------------ ------------ --------------- ----------
At 1 January 2023 129 129
At 30 June 2023 129 129
------------------------------ ------------ --------------- ----------
Split:
Non-current - -
Current 129 129
Legal disputes and regulatory matters
Provisions at 1 January 2023 and 30 June 2023 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, costs are not
provided as there is no obligation to proceed and the Group is not
contractually committed to incur costs.
8. Discontinued operations and disposals
Loss for the period from discontinued operations:
2023 2022
GBP'000 GBP'000
Ingenie (4) (16)
Hubio (4) (10)
Loss for the period from discontinued
operations net of tax (8) (26)
--------------------------------------- -------- --------
9. Contingent assets and liabilities
Litigation in relation to the historic activities of the Group
is being pursued including claims against 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.
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 2022 and
30 June 2023 46,038 4,593 11 4,604
------------------------- ------- ------------- -------------- -------------
11. Cash flow from operating activities
Six months Six months
ended 30 ended 30
June 2023 June 2022
Loss after tax (5,960) (2,053)
Finance income (134) (90)
Operating loss (6,094) (2,143)
Operating cash flows before movements in
working capital and provisions (6,094) (2,143)
Decrease in trade and other receivables 1,153 59
(Decrease) in trade and other payables (711) (289)
Cash outflows from operations before net
finance expense and tax (5,652) (2,373)
------------------------------------------ ----------- -----------
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