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Watermark Group PLC (IM31)

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Thursday 27 September, 2007

Watermark Group PLC

Interim Results

Watermark Group PLC
27 September 2007


27 September 2007
Embargoed for 0700

                              WATERMARK GROUP PLC
               INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2007

INTRODUCTION

On 4 June this year, Shareholders voted to refinance the Company and change its
management.

The results for the first six months of the year confirm why this decision was
the correct one and that the Company needed fresh management with new ideas and
who could develop a clear, well defined strategy.

The new management team took control of the business in early June shortly
before the period end, and immediately focused on defining a turnaround plan.
The three key pieces of the turnaround are:

-         Restoring underlying profitability;
-         Resuming growth; and
-         Focusing on cash flow

Although the results for this year will be disappointing given the losses in the
first half, 2007 is a year of transition when we:

-         move from a top down to bottom up management approach thus creating a
          solid foundation from which to build,

-         create two divisions with separate management teams and clear focus,

-         introduce new senior management who will implement the change, define
          and deliver strategic direction,

-         clearly align management and shareholder interests through incentives
          based on shareholder value creation.

These changes, along with the Company's strong, historic reputation in the
market, are the key ingredients a growing, profitable company needs for the
longer term.


RESULTS

Trading in the six months ended 30 June 2007 has been adversely affected by
events, including the integration of International Catering Limited ('ICL') and
the need to refinance the Company, which distracted the previous management's
attention from a focus on operational controls and efficiencies. This has
resulted in a trading performance significantly below the prior year and has
highlighted that performance in the Services division was significantly weaker
than the previous Board's expectations.

In seeking to better understand the performance of the business and the actions
required, the new Board has conducted a review of operational and accounting
systems, processes and internal controls which has identified a number of
matters which are dealt with in this Interim Statement.

Restatement of 2006 results

The controls review identified a number of items which had not been accounted
for appropriately during 2006, primarily within the Services division. Those
items are discussed in more detail in note 3 to the interim financial statements
and result in a reduction in both profit before tax for the year ended 31
December 2006 and in net assets at 31 December 2006 of £0.9 million. In
addition, the review identified certain costs, totalling £0.4 million, which
were classified in 2006 as exceptional items within the Services division and
which the Board considers should have been set against operating profit before
exceptional items.

Accordingly, the results contained in these interim financial statements have
been restated to reflect a reduction in the operating profit before exceptional
items for the first half of 2006 of £0.2 and for the full year of £1.4 million.
None of these changes has any bearing on the Group's cash position.

Summary of results

Against the restated results for 2006, the Interim results can be summarised as
follows:

                                               6 months to 30 June
                                            2006*              2007

                                              £m                £m
Revenue
Group revenue                                41.1              52.4
                                             ----              ----
Profit/(loss)
Operating profit/(loss) before               1.0               (3.1)
exceptional items
Exceptional items                           (1.4)              (3.9)
                                            -----              -----
Operating (loss)                            (0.4)              (7.0)
Net interest payable                        (0.4)              (0.6)
                                            -----              -----
(Loss) before tax                           (0.8)              (7.6)
Tax                                         (0.1)              (0.1)
                                            -----              -----
(Loss) after tax                            (0.9)              (7.7)           
                                            -----              -----
Basic loss per share                         2.1p              17.1p


* Restated


Exceptional items

In addition to an exceptional charge in relation to the Group's Axapta
Enterprise Resource Planning system, the Board has also expensed the first half
costs totalling £1.7 million relating to the restructuring of the Group's
finances and culminating in the issue of £8 million Convertible Bonds, and £0.3
million of redundancy costs relating to the final element of the integration of
ICL.

As part of its review of operational and accounting systems, the new Board has
considered the adequacy of the Axapta system, its effectiveness and the need for
future investment. Whilst this system provides the Group with effective
management of certain aspects of its business, most notably the Asset Management
Programme for Air Canada, the Board considers that other components of the
system provide no future value to the business and that further time and money
will need to be spent to bring them to a position where they generate future
value. Accordingly, where components have been identified as generating no
future value, the Board has retired them, with a resulting exceptional charge of
£1.9 million. The remaining book value of the system of £0.6 million will be
depreciated over a period of four years, the expected useful economic life.


Divisional results

Revenue and operating profit before exceptional items are analysed as follows:

                                            2006*                  2007
                                  First half    Second half     First half
                                      £m             £m             £m

Revenue
Products division                     15.2          18.8           17.9
Services division                     25.9          33.7           35.8
Eliminations                             -          (0.2)          (1.3)
                                      ----          -----          -----
                                      41.1          52.3           52.4
                                      ----          -----          -----
Operating profit/(loss) before
exceptional items
Products division                      0.2           0.2            0.5
Services division
Underlying trading                     1.4             -           (2.7)
Non-recurring benefits                   -           0.8              -
Group eliminations                       -             -           (0.2)
Central costs                         (0.6)         (0.6)          (0.7)
                                      -----         -----          -----
                                       1.0           0.4           (3.1)
                                      -----         -----          -----
* Restated

The above table summarises the divisional trends in revenues and operating
profit before exceptional items during 2006 and the first half of 2007. Central
costs relate to the PLC entity and other Group overhead costs not attributable
to either division. Where such costs were previously reported within divisional
results in 2006, they have been reclassified in the above table onto a basis
consistent with the current year.

During its review of trading within the Services division, the Board identified
a number of benefits, relating to asset sales, the sale of advertising rights
and trade rebates in the second half of 2006, totalling £0.8 million, which have
not recurred in 2007. Whilst their inclusion in operating profit is an
appropriate accounting treatment, they are important to an understanding of the
underlying trend of profits within the Services division. The above table
separately identifies these non-recurring benefits in order to present the
underlying trading result within the Services division and illustrate the
deterioration in profitability in 2006 which has continued into the first half
of 2007.


Products Division

Over the past 12 to 18 months, Watermark Products has lost ground in many
aspects of its business. The new structure, under the leadership of the new
Managing Director, David Young, who will join us in January 2008, is designed to
re-establish the Company as a market leader, delivering value to its customers
and returns to its shareholders by 'putting the extra back in to ordinary'.

Throughout this period, the business has generated profits and will continue
this trend over the remainder of this year, whilst we start the repositioning.
It has gained new business from Gulf Region customers, whilst seeing improving
business from its core customer base.

We, like many in our market, are facing up to the challenges which are arising
on a weekly basis out of China. We are strengthening our purchasing and quality
management, whilst at the same time engaging with our customers on the
commercial realities which arise out of dealing with China in the current
environment.

We believe we can rebuild the market leading position of Watermark. In David
Young we now have in place the right leadership, who, with his dedicated team,
will begin to develop our strategic roadmap which we will outline in March 2008.


Services Division

The significant underperformance in the catering business during the first half
of the year reflected a lack of cost control and accountability for business
performance flowing through from the second half of 2006, principally following
the integration of ICL. This, together with the impact of changes, agreed prior
to 2007, in the terms of certain commercial contracts, accounts for the majority
of the fall in the Group's gross profit.

Two fundamental changes have since been made. A new divisional organisational
structure has been created and we engaged specialist operational advisers in
June. These two actions have allowed us to identify the key missing processes
and controls in the business, have introduced accountability and have
highlighted the need to embrace a 'lean' culture, redefine our core values and
operational excellence through a change and reward culture.

The second half of this year will see a consolidation of the core catering
business creating the foundation for a stable platform for 2008. A number of
specific actions have already been taken which will begin to reduce costs and
improve efficiencies in the second half, and we have identified several other
areas where further efficiencies can be achieved.

The Asset Management Programme ('AMP'), which commenced on 1 March for Air
Canada, has seen a successful start up phase. The second half of 2007 will start
to see the delivery of expected operational efficiencies and change. We continue
to see the AMP as an opportunity for profitable growth in the future.

In the fourth quarter, the new management team will define and scope the
strategic direction for each of the business units which will be shared with you
in March 2008. There remain a number of exciting opportunities both in our home
market and further afield.


Interest

Net interest payable increased to £0.6 million (2006: £0.4 million). This
increase reflects the higher average net debt of the Group prior to its
refinancing on 4 June 2007 and one month's Payment in Kind interest on the
Convertible Bonds (£0.1 million).


Cash flow and balance sheet

The refinancing of the Group, completed in June, raised £6.8 million from the
issue of Convertible Bonds, net of expenses, and £6.5 million from a new bank
loan. As a result, the Group had a net cash inflow of £6.6 million in the
period, resulting in net bank borrowings of £5.6 million at the end of the half
year (2006: £7.2 million).

For the purposes of financial reporting, the Convertible Bonds comprise a
compound financial instrument with embedded derivatives. Under International
Accounting Standard 32, such instruments are required to be accounted for as
comprising a liability component and an equity component, the latter effectively
reflecting the bondholders' equity conversion rights. The accounting
calculations under IAS 32 are complex, and require the Directors to estimate the
fair value of the liability element of the bonds using the prevailing market
interest rate for a similar debt instrument without the equity feature; the
excess of the net proceeds received over the liability component has been
credited to equity. The Directors have estimated the value of the liability
component of the bonds to be £7.7 million and the equity component is therefore
£0.3 million.

Capital expenditure in the first six months of the year totalled £0.7 million,
financed in part by £0.3 million of lease financing. The retirement of certain
components of the Axapta system referred to above reduced the carrying value of
intangible fixed assets by £1.9 million.

In light of losses in the period, the Board has conducted a review of the
carrying value of the Group's goodwill of £30.6 million. As a result of this
review, the Board believes there has been only a temporary reduction in
profitability and cash flow generation and that, as a result of actions taken
and planned, profitability will be restored and enhanced. Accordingly, the Board
believes there is no impairment of goodwill.

In view of the reduced level of earnings, the Board has agreed revised covenant
arrangements with the Company's bankers, Barclays Bank PLC, who remain
supportive of the Group. The Board remains focussed on improving the
cash-generation characteristics of the Group.


BOARD CHANGES

Our AGM Statement on 29 June 2007 explained the new management team and
structure following the Group's refinancing on 4 June, and set out the two
vacancies the Board was seeking to fill.

We are delighted to announce that David Young has agreed to join the Board as
Managing Director of the Products division with effect from January 2008. David
is a seasoned airline industry professional with proven leadership skills, who
is currently General Manager of Inflight Services at Qantas Airways, a position
he has held since 2004. Prior to this, he was Vice President Inflight and
Commercial at Air New Zealand. David is a qualified Chartered Accountant and
holds post graduate qualifications in Tourism and Hospitality Management and a
Masters in Commercial Law. He is also the current President of ITCA
(International Travel Catering Association).

In addition, to strengthen and complement the skill set of the existing
executive and non-executive Board members, David Jennings has been appointed as
the Group's third non-executive Director. David brings with him a wealth of
experience and an accomplished commercial background, having held key positions
in companies in the UK and Europe for the last 20 years. David qualified as a
Chartered Accountant in South Africa, and is also a Certified Management
Consultant.

It is with regret that the Board announces that Peter Fitzwilliam has tendered
his resignation. Peter joined the Group as Chief Financial Officer in May of
this year and has been instrumental in effecting a number of changes over recent
months. However, for personal reasons, Peter has decided to move on and we wish
him well for the future. The Board has commenced a search for his replacement
and Peter is expected to continue in his role until a replacement is found.


SUMMARY AND OUTLOOK

We have made good progress in the last four months, the benefits of which will
be evidenced by a substantially lower operating loss for the second half of this
year.

The renewed focus in the Services division is beginning to deliver improvements
and there is a lot more to go for. Within the Products division, the new
management structure is working well and actions taken are beginning to feed
through to margins.

During the period we have focussed on addressing the cost issues and creating an
organisation which can take advantage of its market reputation and the changing
airline industry needs. As with any business which has experienced a
deterioration in performance, it will take time to fully restore profitability.
Inevitably there is a period during which work is focused on identifying the
problem areas and I believe we now know where the major issues lie. They are
addressable and we have the right plan to deal with them. The market offers some
exciting opportunities for both businesses which I believe we will be well
positioned to take advantage of as they arise.

The team and I look forward to sharing with you our strategic objectives,
focused clearly on sustainable shareholder value when we announce our
Preliminary results in March 2008.


Stephen Yapp
Executive Chairman
27 September 2007


For further information, contact

Stephen Yapp                  Jeremy Carey or Matt Ridsdale
Watermark Group plc           Tavistock Communications Limited
Tel: 0208 606 2071            Tel: 0207 920 3150


Unaudited condensed consolidated income statement
for the 6 months to 30 June 2007
                                                                          Restated         Restated 
                      Note           Before   Exceptional        Total       Total            Total
                                exceptional      items to     6 months    6 months        12 months
                                   items to       30 June   to 30 June  to 30 June   to 31 December
                               30 June 2007          2007         2007        2006             2006
                                      £'000         £'000        £'000       £'000            £'000

Revenue                 4              52.4             -         52.4        41.1             93.4

Cost of sales                         (38.4)            -        (38.4)      (24.3)           (57.8)
                                   -----------------------------------------------------------------
Gross profit                           14.0             -         14.0        16.8             35.6

Operating and                         
administrative
costs (excluding
exceptional items)                    (17.0)            -        (17.0)      (16.2)           (34.7)

Movement in fair                      
value of derivative
financial instruments                  (0.1)            -         (0.1)        0.4              0.5

Write back of                             
provision for
contract losses                           -             -             -           -             1.4

Exceptional                               
restructuring costs                       -          (0.3)         (0.3)      (0.4)           (2.9)

Exceptional bad                           
debt write off                            -             -             -       (1.1)           (1.3)

Exceptional asset                         
retirement                                -          (1.9)         (1.9)          -               -

Exceptional                               
refinancing costs                         -          (1.7)         (1.7)          -               -

Exceptional other costs                   -             -             -           -           (0.7)

Negative goodwill                         -             -             -         0.1            0.1
                                   -----------------------------------------------------------------
Total operating and                   
administrative expenses               (17.1)         (3.9)        (21.0)      (17.2)         (37.6)
                                   -----------------------------------------------------------------
Operating Loss          4              (3.1)         (3.9)         (7.0)       (0.4)          (2.0)
                                   
Finance costs           9              (0.6)            -          (0.6)       (0.4)          (0.7)
                                   -----------------------------------------------------------------
Loss before tax         
attributable to
equity share owners     6              (3.7)         (3.9)         (7.6)       (0.8)          (2.7)

Tax expense                            (0.1)            -          (0.1)       (0.1)          (0.9)
                                   -----------------------------------------------------------------
Loss after tax          
attributable to         
equity share owners     4              (3.8)          (3.9)        (7.7)       (0.9)          (3.6)
                                   =================================================================

Loss per share (pence)

Basic                   7                                         (17.1p)      (2.1p)         (8.2p)
Diluted                 7                                         (17.1p)      (2.1p)         (8.2p)




Unaudited condensed consolidated balance sheet
as at 30 June 2007

                                                         Restated       Restated
                                         6 months to  6 months to   12 months to
                                             30 June      30 June    31 December
                                                2007         2006           2006
                                                 £'m         £'m             £'m    
Assets
Non-current assets
Property, plant and equipment                   9.9        10.5              9.9
Goodwill                                       30.6        30.0             30.6
Intangible assets                   11          0.6         1.7              2.6
                                        ----------------------------------------
                                               41.1        42.2             43.1
Current assets
Inventories                                     6.2         3.4              4.9
Trade and other receivables                    16.3        16.6             18.8
Prepayments                                     2.0         5.0              1.0
Fair value of derivative                        0.2         0.2              0.3
financial instruments
Deferred taxation                                 -         0.4                -
Cash and short-term deposits                    2.0         7.4              9.8
                                        ----------------------------------------
                                               26.7        33.0             34.8
                                        ----------------------------------------
Total assets                                   67.8        75.2             77.9
                                        ========================================

Equity and liabilities
Equity attributable to equity
share owners of the parent
Issued share capital                            0.5         0.4              0.4
Share premium account                          21.6        21.6             21.6
Shares to be issued                               -         2.1              2.1
Merger reserve                                  7.6         5.3              5.3
Equity element of convertible                   0.3           -                -
loan
Foreign currency translation                   (0.7)       (0.1)           (0.4)
reserve
Retained earnings                               1.3        12.5              9.0
                                        ----------------------------------------
Total equity                                   30.6        41.8             38.0

Non-current liabilities
Trade and other payables                       0.4          0.4                -
Interest bearing loans and                     6.5          0.4              0.3
borrowings
Convertible loan                               7.7            -                -
Deferred consideration due after                 -          1.1                -
more than one year
Deferred income tax liabilities                0.1            -              0.2
                                        ----------------------------------------
                                              14.7          1.9              0.5
Current liabilities
Trade and other payables                      20.7         14.0             20.4
Interest bearing loans and                     1.5         14.2             16.0
borrowings
Deferred consideration due                       -          1.0              2.5
within one year
Current income tax                             0.3          0.5              0.5
Fair value of derivative                         -            -                -
financial instruments
Provisions                                       -          1.8                -
                                        ----------------------------------------
                                              22.5         31.5             39.4
                                        ----------------------------------------
Total liabilities                             37.2         33.4             39.9
                                        ----------------------------------------
Total equity and liabilities                  67.8         75.2             77.9
                                        ========================================



Unaudited condensed consolidated cash flow statement
for the 6 months to 30 June 2007

                                                       Restated         Restated
                                            30 June     30 June      31 December
                                               2007        2006             2006
                                                £'m         £'m              £'m    

Net cash flows from operating activities
Loss after tax                                 (7.7)       (0.9)           (3.6)
Tax expense                                     0.1         0.1             0.9
Depreciation and amortisation                   1.0         0.7             1.6
Negative goodwill on acquisition                  -        (0.1)           (0.1)
Exceptional bad debt write off                    -         1.1             1.3
Exceptional asset retirement                    1.9           -               -
Share based payment expense                       -         0.1             0.2
Finance cost                                    0.6         0.4             0.7
Movement in fair value of forward               0.1        (0.4)           (0.5)
exchange rate contracts
Decrease/(increase) in inventories             (1.5)        0.1            (1.4)
Decrease/(increase) in trade and                1.2         2.7             3.3
other receivables
(Decrease)/increase in trade                    0.5         0.1              4.6
payables and provisions                 ----------------------------------------
Cash inflows/(outflows) generated              (3.8)        3.9              7.0
from/absorbed by operations
Interest paid                                  (0.5)       (0.4)           (0.7)

Income taxes paid                              (0.4)       (0.1)           (0.3)
                                        ----------------------------------------
Net cash inflows/(outflows) from               (4.7)        3.4             6.0
operating activities                    ----------------------------------------

Cash flows from investing activities
Proceeds from sale of property,                    -        7.5              7.6
plant and equipment
Purchase of property, plant and                (0.4)       (0.5)           (0.7)
equipment                            
Purchase of intangible assets                  (0.1)       (0.5)           (1.7)
Acquisition of subsidiary, net of              (2.3)       (2.7)           (2.7)
cash acquired                           ----------------------------------------
Net cash flows/(used in) investing             (2.8)        3.8             2.5
activities                              ----------------------------------------

Cash flows from financing activities
Proceeds from issue of shares                      -        0.1              0.1
Proceeds from convertible loan issue             8.0          -                -
Proceeds from borrowings                         6.5          -                -
Payment of hire purchase and                   (0.4)       (0.3)           (0.6)
finance lease obligations
Repayment of borrowings owed to                    -       (6.9)           (6.9)
acquisition vendors
Dividends paid to equity share owners              -       (0.3)           (1.0)
                                        ----------------------------------------
Net cash from/(used in) financing               14.1       (7.4)           (8.4)
activities                              ----------------------------------------

Net increase /(decrease) in cash                 6.6       (0.2)             0.1
and cash equivalents
Net foreign exchange difference                 (0.0)       0.0              0.2
Cash and cash equivalents brought               (5.7)      (6.0)           (6.0)
forward                                 ----------------------------------------
Cash and cash equivalents carried                0.9       (6.2)           (5.7)
forward                                 ========================================




Unaudited condensed consolidated statement of changes in equity
as at 30 June 2007

Consolidated statement of changes in equity for the 6 months to 30 June 2007

                                                         Equity       
                                   Shares                 based    Foreign    
               Issued     Share     to be    Merger    financial  currency   Retained   Total
              capital   premium    issued   reserve  instruments   reserve   earnings  equity   
                 £'m        £'m       £'m       £'m          £'m       £'m        £'m     £'m
                                                   

At 1 January
2007             0.4        21.6       2.1       5.3           -      (0.4)       9.0    38.0

Currency           
translation
differences        -           -         -         -           -      (0.3)         -    (0.3)

Loss for           
the period         -           -         -         -           -         -       (7.7)   (7.7)

Issue of         
share
capital          0.1           -       (2.1)     2.3           -         -          -     0.3

Equity           
element of
convertible
loan               -           -         -         -          0.3        -          -     0.3
                ------------------------------------------------------------------------------
At 30 June 2007  0.5        21.6         -       7.6          0.3     (0.7)       1.3    30.6
                ==============================================================================


Condensed consolidated statement of changes in equity for the 6 months to 30
June 2006 (Restated)

                                                      Unrealised
                                   Shares              gains and    Foreign    
               Issued     Share     to be    Merger       losses   currency   Retained   Total
              capital   premium    issued   reserve      reserve    reserve   earnings  equity   
                 £'m        £'m       £'m       £'m          £'m        £'m        £'m     £'m
                ------------------------------------------------------------------------------
 At 1 January
 2006            0.4       21.5       3.8       3.5         (0.1)       0.3       13.5    42.9

 Currency          
 translation
 differences       -          -         -         -             -      (0.4)         -    (0.4)

 Loss for          
 the period        -          -         -         -             -         -       (0.9)   (0.9)

 Derivative        
 forward
 exchange
 contracts         -          -         -         -           0.1         -          -     0.1

 Cost of    
 shared based                                                                     
 payments          -          -         -         -             -         -        0.1    0.1
                                                                                   ----
                                                                                  (0.8)

 Issue of          
 share
 capital           -          -      (1.7)      1.8             -         -          -    0.1

 Exercise of       
 share
 options           -        0.1         -         -             -         -          -    0.1

 Equity            
 dividends         -          -         -         -             -         -       (0.2)  (0.2)
                ------------------------------------------------------------------------------
 At 30 June 2006  0.4       21.6      2.1       5.3             -      (0.1)      12.5   41.8
                ==============================================================================


Notes to the unaudited condensed consolidated accounts
for the 6 months to 30 June 2007


1. Corporate information

The results for the year to 31 December 2006 do not constitute statutory
accounts. They are an abridged version of the full accounts which received an
unqualified report from the auditors and have been filed with the Registrar of
Companies. The interim results are unaudited.

Watermark Group plc is a public limited company incorporated and domiciled in
England & Wales. The company's shares are publicly traded on the London Stock
Exchange.

The principal activities of the group are described in note 4.


2. Summary of significant accounting policies

i. Basis of preparation

The accounting policies applied in preparing the interim report for the period
ended 30 June 2007 are unchanged from those adopted in the financial statements
for the year ended 31 December 2006 other than the addition of a policy for
compound financial instruments:

Compound instruments comprise both a liability and an equity component. At date
of issue, the fair value of the liability component is estimated using the
prevailing market interest rate for a similar debt instrument without the equity
feature. The liability component is accounted for as a financial liability. The
residual is the difference between the net proceeds of issue and the liability
component (at time of issue). The residual is the equity component, which is
accounted for as an equity instrument. The interest expense on the liability
component is calculated by applying the effective interest rate for the
liability component of the instrument. The difference between this amount and
any repayments is added to the carrying amount of the liability in the balance
sheet.

The financial statements have been prepared on a historical cost basis, except
for derivative financial instruments and financial assets held at fair value
through profit or loss which are all measured at fair value. The consolidated
financial statements are presented in sterling and are rounded to the nearest
million (£'m) except where otherwise indicated.

ii. Statement of compliance

This financial information has been prepared on the basis of the recognition and
measurement requirements of IFRSs in issue that are adopted by the EU and
expected to be effective at 31 December 2007. The group has also complied with
International Accounting Standard 34 'Interim Financial Reporting'.


3. Restatement of prior year results

A review of operational and accounting systems, processes and internal controls
was carried out during the period. This review identified a number of items
which had not been accounted for appropriately during 2006. In accordance with
IAS8 Accounting Policies, Changes in Accounting Estimates and Errors, the nature
of the errors and the impact on each financial line item affected is stated
below:

£0.3 million owed by ICL to the vendor was waived, but the waiver off was
incorrectly recorded as revenue. The debt waiver should have been treated as a
reduction in the net assets of ICL on acquisition, with a consequent reduction
in goodwill and any resultant negative goodwill being reflected in the income
statement.

ICL vendor contributions of £0.1 million toward the purchase cost of assets were
incorrectly included in revenue, rather than being offset against the deposit
paid for the assets.

Supplier contributions of £0.1 million toward the marketing of a new asset
purchase were incorrectly included in revenue, rather than being treated as
deferred income until delivery.

Foreign exchange gains of £0.2 million that should have been payable to the
joint venture partner of a subsidiary company were incorrectly treated as
revenue for the Group.

Stock of £0.1 million that was identified as faulty in 2006 never had its
carrying value adjusted to reflect that it was not saleable.

The liability of £0.1 million arising from a claim over termination of an agency
agreement was not recognised at the time the claim was lodged.

A customer was over-billed but no adjustment was made when the liability of £0.1
million was identified.

£0.1 million of stock write offs and £0.3 million of labour costs within the ICL
business were incorrectly treated as exceptional costs.

The effect of the restatement on the financial statements is summarised below:

                                  6 months to  12 months to
                                 30 June 2006   31 December
                                                       2006
                                          £'m           £'m

Decrease in revenue                       0.1           0.6
Increase in cost of sales                 0.1           0.2
Increase in operating and                 0.1           0.6
administrative costs                      ---           ---
Reduction in pre-exceptional              0.3           1.4
operating profit
Decrease in exceptional                     -         (0.4)
restructuring costs
Increase in negative goodwill           (0.1)         (0.1)
                                        -----         -----
Reduction in pre-tax profit               0.2           0.9
                                        -----         -----

(Decrease) in inventories               (0.1)         (0.1)
(Decrease) in trade and other           (0.1)         (0.1)
receivables
(Decrease) in prepayments                   -         (0.1)
Decrease/(increase) in trade and         0.2          (0.4)
other payables
(Decrease) in goodwill                  (0.2)         (0.2)
                                        -----         -----
Reduction in net assets                 (0.2)         (0.9)
                                        -----         -----


Basic and diluted (loss)/earnings per share calculations set out in the income
statement and in note 7 to the condensed consolidated accounts have been
adjusted to reflect the above restatement items. The effect of the restatements
is summarised below:

(Loss)/earnings per share         6 months to        12 months to
(pence)                          30 June 2006    31 December 2006

Basic                                  (0.3p)               (1.9p)
Diluted                                (0.3p)               (1.9p)

4. Segmental reporting

Watermark Group is organised on a worldwide basis into two primary business
segments, namely the Products and Services divisions. These reportable segments
are the two strategic divisions for which monthly financial information is
provided to the board.

The Products division provides a broad range of travel supplies predominately to
the international travel industry on a global basis. The Services division is
one of the major suppliers of catering, supply chain and media services to the
international travel industry within the United Kingdom and Canada. Canadian
operations commenced in March 2007 and provide outsourced supply chain
management services.

Information on primary reporting by business segment is shown below.

Segment revenue, expenses and results include transfers and transactions between
business segments. Such transactions are accounted for at competitive market
prices which would be charged to unaffiliated clients for similar goods. All
inter-segment transactions are eliminated on consolidation.

Exceptional items relate to significant non-recurring expenditure of an unusual
nature.

4. Segmental reporting (continued)

Segmental information by business segment for 6 months to 30 June 2007

                             Products       Services   Eliminations        Total
                             division       division    6 months to  6 months to
                          6 months to    6 months to        30 June      30 June
                         30 June 2007   30 June 2007           2007         2007
                                  £'m            £'m            £'m          £'m
        
Revenue
Travel supplies,  
catering and media               
services                         17.7           34.7              -         52.4
Net sales to other              
segments                          0.2            1.1           (1.3)           -
                               -------------------------------------------------
Total revenue                    17.9           35.8           (1.3)        52.4
                               =================================================
Result
Segment result before             
exceptional items                 0.5           (2.7)          (0.2)       (2.4)
Exceptional                       
restructuring costs                 -           (0.3)             -        (0.3)
                               -------------------------------------------------
Segment result                    0.5           (3.0)          (0.2)       (2.7)
                               ========================================
Unallocated corporate                                                      (0.7)
expenses
Unallocated corporate                                           
exceptional costs                                                          (3.6)
                                                                       ---------
Operating loss                                                             (7.0)
Interest expense                                                           (0.6)
Income tax                                                                 (0.1)
                                                                       ---------
Loss after tax                                                             (7.7)
                                                                       =========



Segmental information by business segment for 6 months to 30 June 2006

                             Restated       Restated       Restated     Restated
                             Products       Services   Eliminations        Total
                             division       division    6 months to  6 months to
                          6 months to    6 months to        30 June      30 June
                         30 June 2006   30 June 2006           2006         2006
                                  £'m            £'m            £'m          £'m

Revenue
Travel supplies,                 
catering and media
services                         15.2           25.9              -         41.1
                               -------------------------------------------------
Total revenue                    15.2           25.9              -         41.1
                               =================================================
Result
Segment result before          
exceptional items                 0.2            1.4              -          1.6
Exceptional bad debt             (1.1)             -              -        (1.1)
Exceptional                   
restructuring costs              (0.2)          (0.2)             -        (0.4)
                               -------------------------------------------------
Segment result                   (1.1)           1.2              -         0.1
                               =====================================
Unallocated corporate                                            
expenses                                                                   (0.6)
Negative goodwill                                                           0.1
                                                                           -----
Operating loss                                                             (0.4)
Interest expense                                                           (0.4)
Income tax                                                                 (0.1)
                                                                           -----
Loss after tax                                                             (0.9)
                                                                           =====


5. EBITDA (EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION AND AMORTISATION)

Reconciliation of operating (loss)/profit to EBITDA

                                                      Restated          Restated
                                   6 months to     6 months to      12 months to
                                  30 June 2007    30 June 2006  31 December 2006
                                           £'m             £'m               £'m

Operating loss                            (7.0)           (0.4)            (2.0)
Depreciation                               0.7             0.6              1.2
Amortisation                               0.3             0.1              0.4
                                 -----------------------------------------------
EBITDA                                    (6.0)            0.3             (0.4)
                                 ===============================================

Reconciliation of operating (loss)/profit to adjusted EBITDA (earnings before
interest, taxation, depreciation, amortisation and exceptional items)

                                                      Restated          Restated
                                   6 months to     6 months to      12 months to
                                  30 June 2007    30 June 2006  31 December 2006
                                           £'m             £'m               £'m

Operating loss                            (7.0)           (0.4)            (2.0)
Depreciation                               0.7             0.6              1.2
Amortisation                               0.3             0.1              0.4
Exceptional bad debt                         -             1.1              1.3
Exceptional restructuring costs            0.3             0.4              2.9
Exceptional refinancing costs              1.7               -                -
Exceptional asset retirement               1.9               -                -
Exceptional write back of                    -               -             (1.4)
provision for contract losses
Negative goodwill                            -            (0.1)            (0.1)
Exceptional other costs                      -               -              0.7
                                 -----------------------------------------------
Adjusted EBITDA                          (2.1)             1.7              3.0
                                 ===============================================


6. (LOSS)/PROFIT BEFORE TAX ATTRIBUTABLE TO EQUITY SHARE OWNERS

Reconciliation of (loss)/profit before tax attributable to equity share owners
to adjusted profit before tax attributable to equity share owners

                                                      Restated          Restated
                                   6 months to     6 months to      12 months to
                                  30 June 2007    30 June 2006  31 December 2006
                                           £'m             £'m               £'m
Loss before tax attributable to           
equity share owners                       (7.6)           (0.8)            (2.7)
Exceptional bad debt                         -             1.1              1.3
Exceptional restructuring costs            0.3             0.4              2.9
Exceptional refinancing costs              1.7               -                -
Exceptional asset retirement               1.9               -                -
Exceptional write back of                    -               -             (1.4)
provision for contract losses
Negative goodwill                            -            (0.1)            (0.1)
Exceptional other costs                      -               -               0.7
                                  ----------------------------------------------
Adjusted (loss)/profit before tax         (3.7)            0.6               0.7
                                  ==============================================


7. (Loss)/earnings per share

Basic (loss)/earnings per share amounts are calculated by dividing net (loss)/
profit for the period attributable to equity share owners (numerator) of the
parent by the weighted number of ordinary shares in issue during the period
(denominator).

Diluted (loss)/earnings per share amounts are calculated using the same
numerator and denominator adjusted for the dilutive effects of share options and
shares to be issued with regards to past acquisitions. As the Group has made a
loss for the first 6 months of the year, no adjustment is made to the
denominator for the impact of share options and shares to be issued so as to
prevent the loss from being diluted.

Adjusted (loss)/earnings per share, both basic and dilutive, use the denominator
described in the appropriate paragraphs above. For both adjusted basic (loss)/
earnings per share and adjusted diluted (loss)/earnings per share, the numerator
is adjusted to remove the post tax impact of exceptional items from the
calculations.

The following represents (loss)/earnings and share data used to calculate basic,
diluted and adjusted earnings per share:

                                                      Restated          Restated
                              Ref  6 months to     6 months to      12 months to
                                  30 June 2007    30 June 2006  31 December 2006
                                           £'m             £'m               £'m
Net (loss)/profit            
attributable to equity share
owners                         A         (7.7)            (0.9)            (3.6)
- Exceptional items (post                   
tax)                                      3.9              1.4              3.4
                                  ----------------------------------------------
Adjusted net (loss)/profit      
attributable to equity share
owners                         B         (3.8)             0.5             (0.2)
                                  ==============================================

                                       Weighted       Weighted          Weighted
                                 average shares       shares 6      12 months to
                                    6 months to      months to       31 December
                                   30 June 2007   30 June 2006              2006
                              Ref        Number         Number            Number
                                           £'m             £'m               £'m

Weighted average shares for     
basic (loss)/earnings per
share                          C    45,200,604      43,718,241        44,023,354
- Share options                              -       1,894,917           811,245
- Contingent shares to be                    
issued                                       -         847,318         2,669,704
Weighted average shares for     
diluted (loss)/earnings per        ---------------------------------------------
share                          D    45,200,604      46,460,476        47,504,303
                                   =============================================

                                                       Restated         Restated
                                                                           Total
                                           Total          Total  (loss)/earnings
                                (loss)/earnings) (loss)/earnings)      per share
                                    6 months to      6 months to     31 December
                    Calculation    30 June 2007     30 June 2006            2006
                        formula           Pence            Pence           Pence

Basic (loss)/earnings       
per share                   A/C           (17.1)           (2.1)           (8.2)
Diluted (loss)/earnings     
per share                   A/D(1)        (17.1)           (2.1)           (8.2)
Adjusted basic (loss)/          
earnings per share          B/C            (8.4)            0.9            (0.8)
Adjusted diluted (loss)/         
earnings per share          B/D            (8.4)            0.9            (0.8)

Note 1: Where the Group makes a loss for the period, no amendment is made to the
denominator when calculating diluted earnings per share.


8. Dividends paid

                                   6 months to  6 months to        12 months to
                                  30 June 2007  30 June 2006   31 December 2006
                                           £'m           £'m                £'m
Paid during the year
- Interim dividend for 2005 at               
0.56 pence per share                         -           0.2                0.2
- Final dividend for 2005 at                 
1.69 pence per share                         -             -                0.8
                                  ----------------------------------------------

No dividends were proposed or paid in respect of the year ended 31 December 2006
or the 6 months ended 30 June 2007.


9. Finance costs

                                   6 months to     6 months to      12 months to
                                  30 June 2007    30 June 2006  31 December 2006
                                           £'m             £'m               £'m

Bank loans and overdrafts                  0.5             0.4               0.6
Finance charges payable under                
finance leases and hire purchase
contracts                                    -               -               0.1
Interest on convertible loan               0.1               -                 -
                                         -----            -----            -----
Total finance costs                        0.6              0.4              0.7
                                         -----            -----            -----


10. Property, plant and equipment

During the period the group has purchased plant & equipment amounting to £0.7m
(6 months to June 2006: £0.6m).


11. Intangible assets

Intangible assets for the period from 1 January to 30 June 2007

                                                  Software
                                                  products
                                                        £m

At 1 January 2007, net of accumulated                  2.6
amortisation
Additions at cost                                      0.2
Asset retirements                                     (1.9)
Amortisation charge for the period                    (0.3)
                                                   --------
At 30 June 2007, net of accumulated                    0.6 
amortisation                                       ========

At 31 December 2006
Cost                                                   3.0
Accumulated amortisation                              (0.4)
                                                   --------
Net carrying amount                                    2.6
                                                   ========
At 30 June 2007
Cost                                                   1.3
Accumulated amortisation                              (0.7)
                                                   --------
Net carrying amount                                    0.6
                                                   ========

Intangible software costs relate to the licence, set up and implementation costs
of the Group's integrated computerised ERP system. A review of the adequacy of
the Group's ERP system has been carried out, where components of the system that
provide no future value to the business have been identified and retired, with a
resulting exceptional charge of £1.9m for the period. The remaining costs are to
be amortised over the estimated useful economic life of 4 years.


12. Share capital

During the period 2,158,276 ordinary shares of 1p each were allotted under the
terms of sale and purchase agreements for company acquisitions.




INDEPENDENT REVIEW report to Watermark Group PLC


Introduction

We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprises the condensed consolidated
income statement, condensed consolidated balance sheet, condensed consolidated
cash flow statement, condensed consolidated statement of changes in equity and
the related notes 1 to 12. We have read the other information contained in the
interim report which comprises only the Chairman's letter to share owners and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.

This report is made solely to the company in accordance with guidance contained
in APB Bulletin 1999/4 'Review of Interim Financial Information'. Our review
work has been undertaken so that we might state to the company those matters we
are required to state to them in a review report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this report, or for
the conclusion we have formed.


Directors' responsibilities

The interim report including the financial information contained therein is the
responsibility of, and has been approved by, the directors. The Listing Rules of
the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.

This interim report has been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting'.


Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of Interim Financial Information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of management and applying analytical procedures to the financial information
and underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.


Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.





GRANT THORNTON UK LLP
CHARTERED ACCOUNTANTS
London


1 The maintenance and integrity of the company's website www.watermark.co.uk is
  the responsibility of the directors: the interim review does not involve
  consideration of these matters and, accordingly, the company's reporting
  accountants accept no responsibility for any changes that may have occurred to
  the interim report since it was initially presented on the website.

2 Legislation in the United Kingdom governing the preparation and dissemination
  of the interim report differ from legislation in other jurisdictions.






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