Half-year Report

Watchstone Group PLC

16 September 2024

 

Watchstone Group plc

 ("Watchstone" or the "Company" or the "Group")

Results for the six months ended 30 June 2024

Watchstone today announces its results for the six months ended 30 June 2024.

·    Operating loss of £0.8m (2023: loss of £6.1m).

·    Group net assets of £5.8m at 30 June 2024 (as at 31 December 2023: £6.5m).

·    Group cash and term deposits at 30 June 2024 of £6.2m (as at 31 December 2023: £7.3m).

·    As at 11 September 2024, the Group had cash of £1.9m following the return of capital of £3.7m during July 2024.

For further information:

Watchstone Group plc	Tel: [phone]
Zeus Capital Limited, Aquis Corporate Adviser and Broker Antonio Bossi/James Bavister	Tel: [phone]

Update

A full summary of actions and issues was presented in our Annual Report published in April 2024, an update is provided below.

Update on outstanding legacy matters

The appeal of our claim for the recovery of historic VAT paid in the ingenie business ("VAT Reclaim") is ongoing. The Group was informed in March 2024 of the decision of the Upper Tier Tax Tribunal ("UTT") which found in favour of HMRC. The Group has subsequently been granted permission to appeal the decision of the UTT to the Court of Appeal which is expected to be heard in H1 2025.

Financial update

As proposed at the 2024 AGM, the Group undertook the necessary steps during the six months ended 30 June 2024 to gain court approval in July 2024 for the return of £3.7m of cash through a reduction of capital.  As court approval was not granted until July 2024, the results of this reduction and payment are not reflected in the condensed consolidated statement of financial position at 30 June 2024.  Further details are provided in note 11.

The VAT Reclaim as detailed above is now the only litigation asset being pursued by the Group. Legal fees are expensed as incurred and the costs of litigation are always factored into the strategic decision to pursue or continue claims. The incremental legal costs of pursuing this appeal are not expected to materially exceed £0.1m.

Further actions have been taken to minimise the costs of operating the business, the full impact of which will not be realised until 2025.

No associated income from settlement, appeal, or otherwise is recognised until a case is resolved due to the inherent uncertainty in the outcome and timing of the legal cases. Less than £0.1m of external legal fees were incurred in the six months ended 30 June 2024.  For the six months ended 30 June 2023, legal fees were £4.9m and included both Watchstone's own costs and those of PwC, being £2.7m in full and final settlement.

The Group had continued to place a proportion of its cash holding into short term deposits to take advantage of market interest rates.  At 30 June 2024, these had fully matured and were held as cash in advance of the return of capital which was approved in July 2024.  Further details are included in note 11.

The net assets of the Group at 30 June 2024 were £5.8m (31 December 2023: £6.5m).  This primarily comprises cash of £6.2m (31 December 2023: Cash and term deposits of £7.3m).  The effect of the return of capital in July reduced this by £3.7m.

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 11 September 2024, the Group had cash of £1.9m.

Board and running costs

During the six months ended 30 June 2024, contracts with the two remaining board members, and only employees of the Group, were terminated or renegotiated to reduce the ongoing running costs of the business. Notice was given in respect of Stefan Borson's existing contract and the agreement of new terms under which he will continue to manage the final wind down of the Group.  From 1 January 2025, Stefan Borson will receive only contingent fees and bonuses after his notice period expires at the year end. This has been achieved through varying the terms of the Distribution Incentive Scheme. A termination payment of £0.1m to him is included within these results for the period ended 30 June 2024.

The remuneration of the Chairman will also materially reduce to £50,000 per annum from 1 January 2025.

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 2023.

Outlook

We remain focussed on realising the Group's remaining litigation asset 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 2024

		Six months ended 30 June 2024	Six months ended 30 June 2023
		£'000	£'000
Administrative expenses		(757)	(6,086)
Group operating loss		(757)	(6,086)
Net finance income		76	134
Loss before taxation		(681)	(5,952)
Taxation		-	-
Loss after taxation for the period from continuing operations		(681)	(5,952)
Loss for the period from discontinued operations		(6)	(8)
Loss after taxation for the period		(687)	(5,960)
Attributable to:
Equity holders of the parent		(687)	(5,960)
Non-controlling interests		-	-
		(687)	(5,960)
Loss per share (pence):
Basic		(1.5)	(12.9)
Diluted		(1.5)	(12.9)
Loss per share from continuing activities (pence):
Basic		(1.5)	(12.9)
Diluted		(1.5)	(12.9)

Condensed Consolidated Statement of Comprehensive Income

for the period ended 30 June 2024

	Six months ended 30 June 2024	Six months ended 30 June 2023
	£'000	£'000
Loss after taxation	(687)	(5,960)
Items that may be reclassified in the Consolidated Income Statement
Exchange differences on translation of foreign operations	20	11
Total comprehensive loss for the period	(667)	(5,949)

Attributable to:
Equity holders of the parent	(667)	(5,949)
Non-controlling interests	-	-
	(667)	(5,949)

 

Condensed Consolidated Statement of Financial Position

as at 30 June 2024

		At 30 June 2024	At 31 December 2023
		£'000	£'000
Current assets
Trade and other receivables		23	119
Term deposits		-	6,000
Cash		6,154	1,343
Total current assets		6,177	7,462
Total assets		6,177	7,462
Current liabilities
Trade and other payables		(221)	(807)
Provisions		(168)	(200)
Total current liabilities		(389)	(1,007)
Total liabilities		(389)	(1,007)
Net assets		5,788	6,455
Equity
Share capital		4,604	4,604
Other reserves		69,755	69,735
Retained earnings		(68,572)	(67,885)
Equity attributable to equity holders of the parent		5,787	6,454
Non-controlling interests		1	1
Total equity		5,788	6,455

Condensed Consolidated Cash Flow Statement

for the period ended 30 June 2024

		Six months ended 30 June 2024	Six months ended 30 June 2023
		£'000	£'000
Cash flows from operating activities
Cash used in operations before net finance expense and tax		(1,390)	(5,652)
Corporation tax paid		-	-
Net cash used by operating activities		(1,390)	(5,652)
Cash flows from investing activities
Investment in term deposits		-	(8,000)
Maturity of term deposits		6,000	13,000
Interest income		207	148
Net generated by investing activities		6,207	5,148
Cash flows from financing activities
Return of capital		-	-
Net cash used by financing activities		-	-
Net increase/(decrease) in cash and cash equivalents		4,817	(504)
Cash and cash equivalents at the beginning of the period		1,343	1,768
Exchange (losses) on cash and cash equivalents		(6)	(2)
Cash and cash equivalents at the end of the period		6,154	1,262

1.   Preparation of the condensed consolidated financial information

Basis of preparation

The condensed consolidated financial statements for the six months ended 30 June 2024 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 2023, which were prepared in accordance with IFRSs as adopted for use in the UK.

The comparative figures for the financial year ended 31 December 2023 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 11 September 2024.

Going Concern

It is the intention of the Directors to capital to shareholders and to liquidate the Parent Company and the Group when the remaining legal matter, as described in note 7, has been concluded and any value from litigation assets has been achieved. It is not possible to determine the timeframe for this process to be completed as it is contingent upon several external factors including court approval for a capital return.

The Parent Company and the Group remain solvent, with net assets and sufficient cash and term deposits to meet their ongoing need for the foreseeable future up until when they will be liquidated.  Given the intention to liquidate the Parent Company and the Group, the Directors therefore believe that it is not appropriate to prepare these condensed consolidated financial statements on a going concern basis. Accordingly, the Directors have prepared these condensed consolidated financial statements on a basis other than going concern. No adjustment was needed to the amounts recognised in these condensed consolidated financial statements because of this change.

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 2023, except for the adoption of new standards and interpretations as of 1 January 2024.  None of these standards have any significant impact on the accounting policies, financial position or performance of the Group, as noted below:

Effective for the period beginning 1 January 2024 

·      Amendment to IAS 7 and IFRS 7 - Supplier finance arrangements.

·      Amendment to IFRS 16 - Lease liability in a sale and leaseback transaction.

·      Amendments to IAS 1 - Classification of lease liabilities as current or non-current and non-current liabilities with covenants.

 Effective for the period beginning 1 January 2025 

·      Amendment to IAS 21 - Lack of exchangeability.

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 2024 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 legal case which, if successful, could result in material cash inflows to the Group.  The relative merits of the case and the assessment of its 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 2023 Annual Report and Financial Statements the Group Chief Executive Officer is entitled to 5.43% of any distribution over and above a prescribed distribution hurdle ("DIS Hurdle") which was first and permanently exceeded during 2020. As discussed in the Update the percentages to fall due have been revised during the six months ended 30 June 2024, however 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 up to 20% of future amounts distributed after the cash returned to shareholders in July 2024. 

3. Key performance indicators

		Six months ended 30 June 2024	Six months ended 30 June 2023
		£'000	£'000
Cash returned to shareholders		-	-
Group operating loss		(757)	(6,086)
Group net assets		5,788	6,455*
Cash and term deposits		6,154	8,262
Basic loss (pence per share) - continuing operations		(1.5)	(12.9)

*At 31 December 2023

4. Administrative expenses

	Six months ended 30 June 2024	Six months ended 30 June 2023
	£'000	£'000
Administrative expenses include:
-       Legal expenses	2	4,855
-       Tax related matters	30	7
	32	4,862

Tax related matters during the six months ended 30 June 2024 relate to the appeal of the decision of the Upper Tier Tribunal against HMRC.  Further details are provided in note 7.

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.

5. Trade and other receivables

	30 June 2024	31 December 2023
	£'000	£'000
Other receivables	-	4
Prepayments	23	10
Accrued interest	-	105
	23	119

6. Trade and other payables

	30 June 2024	31 December 2023
	£'000	£'000
Current liabilities
Trade payables	65	256
Payroll and other taxes including social security	85	445
Accruals	71	106
	221	807

7. Provisions

						Legal disputes	Total
						£'000	£'000
At 1 January 2023						129	129
At 30 June 2023						129	129
At 1 January 2024						200	200
Payments						(32)	(32
At 30 June 2024						168	168

Split:

Non-current				-	-
Current				168	168

Legal disputes and regulatory matters

Provisions at 30 June 2023 and 30 June 2024 relate to the decision of the First Tier VAT Tribunal ("FTT") 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.  WTGIL's appeal was dismissed by the FTT and during 2023 this decision was appealed and heard by the Upper Tier Tribunal ("UTT"), which also found against WTGIL.   The Group has since appealed the decision of the UTT after being given leave to do so by the UTT.  At 31 December 2023, provisions included the costs of HMRC at the UTT.  These were paid by 30 June 2024.

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:

	2024	2023
	£'000	£'000
Ingenie	-	(4)
Hubio	(6)	(4)
Loss for the period from discontinued operations net of tax	(6)	(8)

9. Share capital

	Number	Nominal value fully paid	Nominal value unpaid	Nominal value total
	000's	£'000	£'000	£'000
at 31 December 2023 and 30 June 2024	46,038	4,593	11	4,604

10. Cash flow from operating activities

	Six months ended 30 June 2024	Six months ended 30 June 2023
Loss after tax	(687)	(5,960)
Finance income	(76)	(134)
Operating loss	(763)	(6,094)
Operating cash flows before movements in working capital and provisions	(763)	(6,094)
(Increase)/decrease in trade and other receivables	(9)	1,153
(Decrease) in trade and other payables	(618)	(711)
Cash outflows from operations before net finance expense and tax	(1,390)	(5,652)

11. Post balance sheet events

In July 2024, the High Court of Justice in England and Wales made an order approving the reduction of the Company's share capital under the Companies Act 2006 which had been proposed to and approved by Shareholders at the AGM held in May 2024.  Accordingly, in July 2024 the Share Premium of the Company was reduced by £3.7m and paid to Shareholders as cash.

As the reduction and Share Premium and related cash outflows were contingent upon court approval being granted, which occurred after the date of these condensed consolidated financial statements, the related entries are not included in the condensed consolidated statement of financial position at 30 June 2024.  The effect of this action was to reduce share premium and cash by £3.7m during July 2024. Furthermore, this action crystallises a payment of £0.2m under the Distribution Incentive Scheme ("DIS") in July 2024.  Details of the DIS are included in the directors' remuneration report on pages 8 and 9 of the consolidated financial statements for the year ended 31 December 2023.

 

END