Half-year Report

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 £6.1m (2022: loss of £2.1m)

·    Group net assets of £7.6m at 30 June 2023 (as at 31 December 2022: £13.5m)

·    Group cash and term deposits at 30 June 2023 of £8.3m (as at 31 March 2023: £11.5m)

·    As at 19 September 2023, the Group had cash and term deposits of £7.6m following final settlement of PwC's costs relating to litigation

For further information:

Watchstone Group plc	Tel: [phone]
WH Ireland Limited, Adviser and broker Chris Hardie/James Bavister	Tel: [phone]

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 £4.9m 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. £4.9m 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: £1.0m) covering both Watchstone's own costs and those of PwC (£2.7m 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 £7.6m (31 December 2022: £13.5m).  This primarily comprises cash and term deposits of £8.3m (31 December 2022: £13.8m).

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 £7.6m.

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 £3.7m of cash including £3.3m 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 ended 30 June 2023	Six months ended 30 June 2022
Note		£'000	£'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 ended 30 June 2023	Six months ended 30 June 2022
	£'000	£'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 2023	At 31 December 2022
	Note	£'000	£'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

	Note	Six months ended 30 June 2023	Six months ended 30 June 2022
		£'000	£'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 recognition 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 ended 30 June 2023	Six months ended 30 June 2022
		£'000	£'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 ended 30 June 2023	Six months ended 30 June 2022
	£'000	£'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 2023	31 December 2022
	£'000	£'000
Other receivables	473	1,652
Prepayments	30	19
Accrued interest	54	40
	557	1,711

6. Trade and other payables

	30 June 2023	31 December 2022
	£'000	£'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
						£'000	£'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
	£'000	£'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 value fully paid	Nominal value unpaid	Nominal value total
	000's	£'000	£'000	£'000
at 31 December 2022 and 30 June 2023	46,038	4,593	11	4,604

11. Cash flow from operating activities

	Six months ended 30 June 2023	Six months ended 30 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)

 

END