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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Watchstone Group Plc | LSE:WTG | London | Ordinary Share | GB00BYNBFN51 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 52.10 | 50.00 | 54.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMWTG
RNS Number : 3194M
Watchstone Group PLC
27 April 2018
Watchstone Group plc
("Watchstone" or the "Company" or the "Group")
Preliminary results for the year ended 31 December 2017
Watchstone (AIM:WTG.L) today announces its results for the year ended 31 December 2017.
Financial:
-- Underlying* business revenues increase to GBP44.9m (2016: GBP42.7m). Total revenues of GBP44.9m (2016: GBP43.6m)
-- Underlying* EBITDA loss of GBP3.6m (2016: GBP4.9m) -- Group operating loss of GBP7.4m (2016: GBP4.5m) -- Total loss after tax GBP2.6m (2016: GBP69.1m) -- Group net assets of GBP66.1m representing approximately 144 pence per share -- Group cash and term deposits at 31 December 2017 of GBP62.8m**
-- Continued reduction in Group complexity through closure of the majority of loss making, cash consumptive businesses
-- Successful resolution of a number of legacy tax matters and other obligations resulting in the release of provisions of GBP10.3m (2016: GBP10.7m)
Current trading (unaudited):
-- Underlying* central costs reduced by over 40% in Q1 2018 compared to Q1 2017 -- As at 20 April 2018, Group cash and term deposits (unaudited) of GBP60.3m** -- Cash outflows since 31 December 2017 include:
o typical settlement of outstanding 2017 invoices, staff bonuses and settlement of non-underlying liabilities
o GBP0.4m to redeem pt Preference Share liabilities
-- Unaudited total underlying Group revenue for Q1 2018 is down vs. Q1 2017 (partly due to adverse Canadian $ to GBP currency exchange rate movements)
-- Healthcare Services:
o continued emphasis on clinic optimisation in ptHealth and on InnoCare sales
o Q1 2018 unaudited CDN$ revenue is ahead of Q1 2017
-- ingenie continues to experience difficult market conditions:
o taking measures to address recent insurer pricing changes
o retail market and pricing volatility has led to continued lower revenue in Q1 2018 vs Q1 2017 and Q4 2017
* Underlying comprises Healthcare Services, ingenie and Central. See Note 2 for details on Underlying and Non-Underlying classification.
** Cash excludes escrow monies of GBP50.1m
The Annual Report and Accounts for the year ended 31 December 2017 will be released by 17 May 2018 and posted to registered shareholders. Once published, the Annual Report and Accounts will be available at www.watchstonegroup.com/investors.
The 2018 AGM will be held at 10.30am on 27 June 2018 at the Vauxhall & Lambeth Suite - 2nd Floor, Park Plaza County Hall, 1 Addington St, Lambeth, London SE1 7RY. Notice of the Annual General Meeting ("AGM") and a Form of Proxy will be posted to registered shareholders in due course.
For further information:
Hot Features
Premium
Watchstone Group plc Tel: 03333 448048
investor.relations@watchstonegroup.com
Peel Hunt LLP, Nominated Adviser and broker Tel: 020 7418
Dan Webster, George Sellar 8900
------------------
Notes to editors:
About Watchstone
Watchstone Group plc is a company focused on managing the Group's businesses, cash and other corporate assets and legacy issues in order to achieve maximum shareholder value, whilst ensuring good governance.
The sectors in which the Group operates are within healthcare in Canada and insurance telematics. The markets are addressed through the following businesses:
-- Healthcare Services
o ptHealth is a national healthcare company that owns and operates physical rehabilitation clinics across Canada. From large cities to small communities, ptHealth takes pride in delivering quality services in a compassionate and patient-centred atmosphere that is focused on providing recovery solutions for its patients.
o InnoCare is a proprietary clinic management software platform and call centre and customer service operation alongside ptHealth. InnoCare uses its established industry expertise to enable third-party clinic owners to transform their patients' experience and operate more efficient and productive practices in the growing North American healthcare market.
-- ingenie
is an insurance broker focused on helping young drivers use the road safely and affordably. Using telematics technology, ingenie gives its community discounts, feedback and bespoke advice via its Driver Behaviour Unit to help them improve their driving skills whilst staying safe. It provides its telematics technology to certain third parties as a technology solutions provider.
Chairman's Report
2017 was another year of change for the Group but much has been achieved and we entered 2018 with a clear direction of travel in respect of the outstanding legacy issues and our two remaining operating businesses.
During 2017, we substantially completed the work to simplify and rationalise the Group involving the closure or disposal of loss making businesses and significantly reducing the size and cost of the central overhead. The succession to Stefan Borson as Group Chief Executive Officer has been smooth and the central team now comprises just three full time staff to assist Stefan and Mark Williams, and the Board has been reduced in size. The full benefit of these changes will only be seen in 2018 but are expected to reduce the central costs by approximately half.
We remain on track with the execution of our plan to prepare our businesses for future disposals. These potential divestments will be determined with a view to maximising shareholder value taking all factors into consideration.
With the focus of strengthened management teams in ingenie and ptHealth including a new CEO in ingenie, new Chairmen in both and other senior hires, the businesses will be given the time to develop and grow.
ptHealth and ingenie remain profitable with further opportunities for profit improvement from organic growth and margin enhancement.
We will continue to address the legal and regulatory matters that face the Group with focus and determination. In 2017, and to date in 2018, we have resolved multiple matters but the largest of our litigation and threatened litigation remain outstanding.
Slater & Gordon (UK) 1 Limited's ("Slater & Gordon") claim in respect of the disposal of the Professional Services Division ("PSD") is ongoing and we filed a robust and detailed defence in October 2017. Our position resolutely remains that Slater & Gordon's allegations are wholly without merit and should never have been advanced. During the year, we increased the provision for legal costs in relation to this claim, reflecting our determination to robustly defend the action to trial.
There is still much work to be done, both at the Group level and within our businesses, and I would like to thank our colleagues for their commitment. On behalf of the whole Board, I would also like to thank each of the directors who left the Board in 2017 for their contributions and commitment over the last few years in the challenging and complex situation faced by the Group.
I would also like to thank our shareholders who have been patient and maintained support for the Company as the intense work to deliver the best value from all our assets has continued. The Board remains confident that we will go on to reward that support.
Richard Rose
Non-executive Chairman
Group Chief Executive's Update
I am pleased to present my first update as Group Chief Executive Officer and to lead the Group in this next phase. Our focus remains on resolving all of our legacy matters as efficiently as possible and generating as much value as we can from our remaining businesses, ingenie and ptHealth.
Each business has a clear strategy as well as high quality and ambitious management teams and we are confident that in time they will reward our shareholders' patience.
The Group losses are now stemmed and the central team efficiently run. Until we resolve the Slater & Gordon litigation we will not be able to distribute capital to shareholders but that remains our ultimate aim. We are determined to fight off what we consider an unmeritorious claim. Further, we remain in active dialogue with Slater & Gordon regarding any deferred consideration due from Noise Induced Hearing Loss ("NIHL") cases.
For the year ended 31 December 2017, we were able to show underlying sales growth of approximately 5% and reducing underlying EBITDA loss to GBP3.6m in 2017 vs. GBP4.9m in 2016. The full year benefits of the continued restructuring during 2017 are not fully reflected in the numbers and we would anticipate continued improvement in EBITDA in 2018. Total revenues of GBP44.8m grew by 3%, reflecting the lack of revenues from non-underlying businesses in 2017 and total loss after tax for the year was GBP2.6m (2016: GBP69.1m).
Business Review:
Taking each of the operating businesses in turn:
1. Healthcare Services
Our Healthcare Services activities consist of our ptHealth clinics business as well as InnoCare, which sells software and services to independent clinics in Canada. Healthcare Services performed satisfactorily in 2017, with revenue increasing by 6% and an EBITDA of GBP0.7m
Healthcare Services in 2017 at a glance
-- In 2017, ptHealth and InnoCare treated an average of 3,095 patients a day with over 750,000 visits for the year
-- Of the 4,588 patients surveyed (up from 2,958 from 2016) 97% said they would recommend us (up by 1% vs 2016)
-- Over 1,300 practitioners use InnoCare software, an increase of 8% over 2016 2. ingenie
Whilst revenue for the year increased to GBP14.4m, ingenie had a challenging end to the year. The impact of changes to the Ogden discount rate created instability in motor policy pricing, which particularly affects ingenie's young driver market. Reflecting this and continued investment in its technology platform, profitability was below 2016. The impact of these factors has extended into 2018 and volumes continue to be affected. The team has a detailed plan to address these challenges and to broaden its product range as well as targeting more new B2B business. These market challenges and the consequential impact on volumes and its revenues in the year has been reflected in a reduction of the long-term growth forecast for the business and resulted in an impairment charge of GBP5.6m in the year ended 31 December 2017. The programme supporting our external customer in the Netherlands, ANWB, continues to perform well, endorsing our technology and market leading approach to road safety and motor insurance pricing.
In December 2017, Selim Cavanagh joined ingenie as Chief Executive Officer from LexisNexis Risk Solutions, where he held various senior roles including VP Telematics, VP Motor Insurance and MD of its Wunelli telematics business unit, after a background in consumer insurance at AXA UK. ingenie will benefit from Selim's 20 years of experience in delivering data, IT and research-based motor insurance solutions.
The ingenie Board has also been strengthened by David Young, one of our Group Non-executive Directors taking the Chair at ingenie. The new Board is working well with multiple new initiatives to drive the future value of ingenie and we have a pipeline of exciting new product offerings, features and technologies to launch over the coming months.
ingenie in 2017 at a glance
-- Driving and safety improvements achieved by the combination of technology and psychology:
o 99% ingenie drivers activate their feedback account
o ingenie drivers engages 9x per month via feedback app
o 12% reduction in highly dangerous driving messages generated by customers from 2016 to 2017
o 92% drivers proven to improve after ingenie coaching on driving speed
-- Facebook and Twitter followers exceed 50,000 -- ingenie B2B managed over 170,000 policies in 2017 -- ingenie B2B revenue growth of 107%
Update on legacy matters
Whilst we successfully resolved a number of historic matters in the year (and since the year-end), the Slater & Gordon claim is ongoing, and we filed our defence in October 2017. Our position remains that Slater & Gordon's allegations of deceit and the associated breach of warranty claim are wholly without merit and should never have been advanced.
The SFO investigation continues and we are cooperating fully. It remains the only regulatory inquiry to which the Group is subject.
There have been no further developments at this stage on the threatened (but not commenced) class action litigation first announced in September 2015.
2018 outlook
The Group enters 2018 a far simpler business and we expect this year will be a period of re-focus and development for ptHealth and ingenie. Both will be encouraged to invest ambitiously but prudently.
ptHealth continues to make good progress in operational improvements generating more appointments and treatments from its existing clinics. In addition, more third party clinics are using our services to meet patient needs.
ingenie's current volumes are being addressed in partnership with its underwriting panel and by the development of new product offerings that will launch during 2018.
Central costs will be carefully managed at greatly reduced levels consistent with the unresolved legacy matters and the needs of the organisation.
Stefan Borson
Group Chief Executive Officer
Consolidated Income Statement
for the year ended 31 December 2017
2017 2017 2017 2016 2016 2016
Underlying Non-underlying* Total Underlying Non-underlying* Total*
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 44,880 - 44,880 42,684 961 43,645
Cost of sales (24,582) - (24,582) (23,096) (981) (24,077)
Gross profit 20,298 - 20,298 19,588 (20) 19,568
Administrative
expenses (24,979) (2,737) (27,716) (25,632) 1,591 (24,041)
(
------------------------- ----------- ---------------- --------- ----------- ---------------- ---------
Group operating
(loss)/profit (4,681) (2,737) (7,418) (6,044) 1,571 (4,473)
Finance income 270 - 270 508 833 1,341
Finance expense (22) 2,220 2,198 (271) - (271)
(Loss)/profit
before taxation (4,433) (517) (4,950) (5,807) 2,404 (3,403)
Taxation 754 - 754 (753) 165 (588)
(Loss)/profit
after taxation
for the year
from continuing
operations (3,679) (517) (4,196) (6,560) 2,569 (3,991)
Provision against
escrow receivable - - - - (50,120) (50,120)
Net gain on
disposal of
discontinued
operations - 4,930 4,930 - 323 323
Loss for the
year from discontinued
operations,
net of taxation - (3,378) (3,378) - (15,282) (15,282)
(Loss)/profit
after taxation
for the year (3,679) 1,035 (2,644) (6,560) (62,510) (69,070)
-------------------------- ----------- ---------------- --------- ----------- ---------------- ---------
Attributable
to:
Equity holders
of the parent (3,679) 1,047 (2,632) (6,560) (62,502) (69,062)
Non-controlling
interests - (12) (12) - (8) (8)
(3,679) 1,035 (2,644) (6,560) (62,510) (69,070)
------------------------- ----------- ---------------- --------- ----------- ---------------- ---------
Loss per share
(pence):
Basic (8.0) (5.7) (7.4) (150.0)
Diluted (8.0) (5.7) (7.4) (150.0)
----------------------- ------ ------ ------ --------
Loss per share
from continuing
operations (pence):
Basic (9.1) (8.7)
Diluted (9.1) (8.7)
----------------------- ------ ------ ------ --------
*Non-underlying results have been presented separately to give a better guide to underlying business performance. Where items have become non-underlying in 2017 the comparable amounts in 2016 have been revised to also be classified on the same basis. This does not impact the total 2016 results. 2016 Revenue and Cost of Sales have been revised to reflect amounts that should have been presented gross rather than net. This has no impact upon gross margin.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
2017 2016
GBP'000 GBP'000
Loss after taxation (2,644) (69,070)
Items that may be reclassified in the Consolidated
Income Statement
Exchange differences on translation of foreign
operations 136 50
Total comprehensive loss for the year (2,508) (69,020)
---------------------------------------------------- -------- ---------
Attributable to:
Equity holders of the parent (2,481) (69,012)
Non-controlling interest (27) (8)
(2,508) (69,020)
------------------------------ -------- ---------
Consolidated Statement of Financial Position
as at 31 December 2017
2017 2016
GBP'000 GBP'000
Non-current assets
Goodwill 17,443 23,221
Other intangible assets 4,825 6,259
Property, plant and equipment 3,819 6,293
Other receivables 759 -
26,846 35,773
------------------------------------------ --------- ---------
Current assets
Inventories 1,283 941
Trade and other receivables 6,144 10,228
Corporation tax assets - 355
Term deposits 40,000 37,500
Cash 22,808 43,714
70,235 92,738
Assets of disposal group classified
as held for sale 833 1,300
Total current assets 71,068 94,038
Total assets 97,914 129,811
------------------------------------------- --------- ---------
Current liabilities
Cumulative redeemable preference (2,203) -
shares
Other secured and unsecured loans - (163)
Trade and other payables (11,710) (25,895)
Obligations under finance leases (4) (102)
Provisions (13,024) (27,816)
(26,941) (53,976)
Liabilities of disposal group classified (851) -
as held for sale
Total current liabilities (27,792) (53,976)
------------------------------------------- --------- ---------
Non-current liabilities
Cumulative redeemable preference
shares (3,795) (6,131)
Provisions (87) (425)
Deferred tax liabilities (167) (741)
(4,049) (7,297)
------------------------------------------ --------- ---------
Total liabilities (31,841) (61,273)
------------------------------------------- --------- ---------
Net assets 66,073 68,538
------------------------------------------- --------- ---------
Equity
Share capital 4,604 4,604
Other reserves 136,618 143,179
Retained earnings (76,095) (80,218)
Equity attributable to equity holders
of the parent 65,127 67,565
Non-controlling interests 946 973
Total equity 66,073 68,538
------------------------------------------- --------- ---------
Consolidated Cash Flow Statement
for the year ended 31 December 2017
2017 2016
GBP'000 GBP'000
Cash flows from operating activities
Cash used in operations before exceptional
costs, net finance expense and tax (11,289) (16,411)
Non underlying cash out flows excluding
discontinued operations (5,266) (10,422)
Cash used in operations before net finance
expense and tax (16,555) (26,833)
6
Corporation tax received 622 6,990
Net cash used by operating activities (15,933) (19,843)
------------------------------------------------ --------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (4,417) (5,469)
Purchase of intangible fixed assets (1,816) (1,400)
Proceeds on disposal of property, plant 1,260 -
and equipment
Disposal of subsidiaries net of cash foregone 2,560 4,013
Investment in term deposits (70,000) (82,500)
Maturity of term deposits 67,500 45,000
Interest income 178 97
Disposal of associated undertakings - 86
Repayment of financing loan - (1,255)
Net cash used in investing activities (4,735) (41,428)
------------------------------------------------ --------- ---------
Cash flows from financing activities
Issue of share capital - 8
Finance expense paid (20) (932)
Finance income received - 1,609
Finance lease repayments (94) (103)
Net cash (used in)/generated by financing
activities (114) 582
------------------------------------------------ --------- ---------
Net decrease in cash and cash equivalents (20,782) (60,689)
Cash and cash equivalents at the beginning
of the year 43,714 103,839
Exchange gains on cash and cash equivalents (124) 564
Cash and cash equivalents at the end of
the year 22,808 43,714
------------------------------------------------ --------- ---------
Cash and cash equivalents
Cash 22,808 43,714
22,808 43,714
--------------------------- ------- -------
The above Consolidated Cash Flow Statement includes cash flows from both continuing and discontinued operations.
As at 31 December 2017, the Group had cash and cash equivalents of GBP22,808,000 (2016: GBP43,714,000) and term deposits of GBP40,000,000 (2016: GBP37,500,000).
Notes:
1. Results announcement
The Financial Statements for the year ended 31 December 2017 have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations adopted by the European Union (EU) (adopted IFRS). However, this announcement does not contain sufficient information to comply with adopted IFRS. The Group will publish its Annual Report and Financial Statements by 17 May 2018 and these will appear on the Group's website at www.watchstonegroup.com and be posted to shareholders. The auditors have reported on those accounts; their report was (i) unqualified, (ii) drew attention by way of emphasis without qualifying their report to an uncertain outcome of Slater & Gordon claim; and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The financial information set out in this announcement does not constitute the Group's statutory accounts for the year ended 31 December 2017. Statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies and those for the year ended 31 December 2017 will be delivered following the AGM. This preliminary announcement was approved by the Board of Directors on 26 April 2018 and these preliminary results have been extracted from the audited results for the year ended 31 December 2017.
2. Consolidated Income Statement presentation
The Income Statement is presented in three columns. This presentation is intended to give a better guide to underlying business performance by separately identifying adjustments to Group results which are considered to either be exceptional in size, nature or incidence, relate to businesses which do not form part of the continuing business of the Group, or have potential significant variability year on year in non-cash items which might mask underlying trading performance. The columns extend down the Income Statement to allow the tax and earnings per share impacts of these transactions to be disclosed. Equivalent elements of the Group results arising in different years, including increases in or reversals of items recorded, are disclosed in a consistent manner.
3. Business segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker and represent two divisions supported by a Group cost centre (denoted as Central below). The principal activities of the two segments are as follows:
- ingenie: Telematics based insurance broking and technology solutions provider; and
- Healthcare Services: Comprising ptHealth and InnoCare. ptHealth is a national healthcare company that owns and operates physical rehabilitation clinics across Canada. InnoCare is a proprietary clinic management software platform and call centre and customer service operation, also based in Canada.
During 2017, Business Advisory Service Limited ("BAS"), an energy brokerage and Hubio were reclassified as discontinued operations. Accordingly, the amounts for 2016 have been restated to be presented on a comparable basis.
Segment information about these businesses is presented below.
In previous years, an allocation of central costs to the businesses within the Group has been applied. During 2017, the direction of the Group changed such that the individual businesses move towards operating on an increasingly stand-alone basis. As a consequence of this change an allocation has not been applied within the segmental reporting.
ingenie Healthcare Central Total
Services
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 December
2017
Underlying revenue 14,429 30,451 - 44,880
Underlying cost
of sales (7,983) (16,599) - (24,582)
Underlying gross
profit 6,446 13,852 - 20,298
Underlying administrative
expenses excluding
depreciation and
amortisation* (5,130) (13,145) (5,633) (23,908)
Underlying EBITDA 1,316 707 (5,633) (3,610)
---------------------------- -------- ----------- -------- ---------
Depreciation and
amortisation* (1,071)
Underlying Group
operating loss (4,681)
Net finance income 248
Underlying Group
loss before tax (4,433)
Non-underlying adjustments (517)
Total Group loss
before tax from
continuing operations (4,950)
---------------------------- -------- ----------- -------- ---------
ingenie Healthcare Central Total
Services
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 December 2016 Underlying revenue (restated) 13,927 28,757 - 42,684 Underlying cost of sales (restated) (7,565) (15,531) - (23,096) Underlying gross profit 6,362 13,226 - 19,588 Administrative expenses excluding depreciation and amortisation* (4,949) (12,067) (7,474) (24,490) Underlying EBITDA 1,413 1,159 (7,474) (4,902) Depreciation and amortisation* (1,142) Underlying Group operating loss (6,044) Net finance income 237 Underlying Group loss before tax (5,807) Non-underlying adjustments 2,404 Total Group loss before tax from continuing operations (3,403) ---------------------------- -------- ----------- -------- ---------
* Depreciation added back above when calculating Underlying EBITDA from continuing operations excludes depreciation on telematics devices of GBP3,090,000 (2016: GBP2,998,000) which is included within cost of sales.
In the preparation of the Financial Statements, certain contracts were identified within the Healthcare Services segment which should have been presented gross, rather than as an agent for the year ended 31 December 2016. Accordingly, the revenue and cost of sales for Healthcare Services for the year ended 31 December 2016 have been restated. This has also resulted in a difference in revenues to those announced as part of the trading statement released on 26 January 2018. The impact of this change is GBP830,000 (2016: GBP674,000) to revenue and cost of sales. There is no impact upon gross margin.
4. Non-underlying results
The non-underlying results of the business include the income and expenses of businesses classified as non-underlying by virtue of these not forming part of the long term plans for the Group and as such are being wound down or disposed of. This includes Maine Finance and ingenie Canada. Businesses meeting this criterion which also meet the definition of a discontinued operation under IFRS 5 have been further classified as discontinued operations within the non-underlying results. This includes Hubio, BAS, and additionally in 2016, Quintica Holdings Limited, BE Insulated (UK) Limited and Carbon Reduction Company (UK) Limited. The comparative amounts have been presented to be on a consistent basis.
Items which are considered to be exceptional in size, nature or incidence, or have potential significant variability year on year in non-cash items which might mask underlying trading performance are also included within non-underlying. In 2017, this primarily relates to movements in provisions for legal fees and historic tax matters along with an impairment charge on goodwill. In 2016, this included providing for the Warranty Escrow receivable which was included alongside the discontinued operations to which it relates. The classification of provision releases as underlying or non-underlying are consistent with their initial establishment.
Non-underlying administrative expenses are analysed as follows:
Year ended 31 December 2017 2016
GBP'000 GBP'000
Exceptional items:
* Legal and regulatory 3,517 (1,107)
* Tax related matters (credit) (9,036) (5,795)
5,633 -
* Impairments of non-cash assets
* Restructuring 67 (247)
Total exceptional items 181 (7,149)
----------------------------------------------------- -------- --------
Other adjustments:
* Share based payments 43 145
* Amortisation of acquired intangibles 1,434 1,684
* Other non-underlying administrative expenses 1,079 3,729
----------------------------------------------------- -------- --------
Total other adjustments 2,556 5,558
----------------------------------------------------- -------- --------
Total non-underlying administrative expenses 2,737 (1,591)
----------------------------------------------------- -------- --------
2016 has been restated to remove exceptional items and other adjustments that relate to businesses which are now classified as discontinued.
Other adjustments are not exceptional in size, nature or incidence, however they do not relate to the ongoing future trade of the Group and can vary significantly from year to year. Amortisation represents a non-cash charge relating to acquisition accounting and is not taken into account by management when reviewing operational performance of the Group. Other non-underlying administrative expenses primarily comprises legal fees incurred and do not relate to the underlying, continuing businesses of the Group.
Other non-underlying administrative expenses relate principally to the costs of businesses classified as non-underlying and central costs associated with the same. These are specifically identifiable external costs and do not include allocations of internal amounts.
The legal and regulatory expense includes GBP2,940,000 of additional legal fee provisions in respect of recovery of the Warranty Escrow; and GBP605,000, being a contribution to costs in relation to the judgement on OS3 Distribution Limited litigation. In 2016, the credit of GBP1,107,000 included the release of provisions of GBP2,186,000 relating to legal disputes in the UK and the settlement of the Navseeker claim in the US. This was partially offset by additional legal fees in relation to PSD.
Within the tax related matters credit of GBP9,036,000. GBP7,536,000 arises from the release of unused provisions upon resolution of historic tax matters with HMRC. The remainder of GBP1,500,000 relates to revisions to estimates of the liability for the remaining, unresolved matters in response to the latest information available to the Group. The equivalent amount stated in 2016 is a net amount including GBP5,419,000 in respect of the release of unused provisions upon resolution of historic tax matters with HMRC.
The restructuring expense of GBP67,000 is stated after taking into account the release of unused provisions of GBP353,000. In 2016, this amount included costs in relation to the wind down of ingenie Canada, the closure of Maine Finance and the RAG B2C business and was net of the release of provisions of GBP1,584,000.
Impairments of non-cash assets above relates to:
Year ended 31 December 2017 2016
GBP'000 GBP'000
Goodwill 5,593 6,814
Other intangible assets - 179
Tangible fixed assets 40 -
5,633 6,993
------------------------- -------- --------
5. Goodwill
The movement in goodwill is as follows:
Goodwill
GBP'000
Cost
At 1 January 2016 185,916
Exchange differences 7,978
At 1 January 2017 193,894
Disposals (96,071)
Exchange differences (834)
At 31 December 2017 96,989
---------------------- ---------
Impairment
At 1 January 2016 157,539
Charge 6,814
Exchange differences 6,320
At 1 January 2017 170,673
Disposals (96,071)
Charge 5,593
Exchange differences (649)
At 31 December 2017 79,546
---------------------- ---------
Net book value
31 December 2017 17,443
---------------------- ---------
31 December 2016 23,221
---------------------- ---------
Impairments recognised during 2016 resulted in only two CGUs retaining goodwill at 1 January 2017.
Goodwill is allocated to the Group's CGUs as follows:
2017 2016
GBP'000 GBP'000
ingenie 9,081 14,674
Healthcare Services 8,362 8,547
17,443 23,221
--------------------- -------- --------
Basis of valuation and key assumptions for impairment testing of goodwill and intangible assets
The recoverable amount of goodwill for businesses at the year-end is determined on the basis of Value in Use, using a discounted cash flow ("DCF") appraisal based on explicit forecast periods of 3 to 4 years (2016: 2 to 3 years) to reflect the maturity of the businesses and/or markets they operate in. External market data has been used where possible and the Group has also drawn upon data used in its annual planning cycle, with reference to other market participants. In particular changes in revenues and pre-tax discount rate are key assumptions.
For each of the CGUs with significant amount of goodwill, the key assumptions used in the Value-in-Use calculations and recoverable amounts of goodwill are stated below.
Healthcare
2017 ingenie Services
Long term growth rate 2% 2%
-------- ----------
DCF appraisal period 4 years 3 years
-------- ----------
Annualised revenue growth over DCF appraisal period 3% 4%
-------- ----------
Pre-tax discount rate 13% 11%
-------- ----------
Hubio Hubio Healthcare
2016 Fleet UK ingenie Services BAS
Long term growth rate 2% 2% 2% 2% 2%
-------- -------- -------- ---------- --------
DCF appraisal period 4 years 3 years 3 years 3 years 3 years
-------- -------- -------- ---------- --------
Annualised revenue growth
over DCF appraisal period 11% 7% 8% 5% 5%
-------- -------- -------- ---------- --------
Pre-tax discount rate 19% 13% 13% 15% 11%
-------- -------- -------- ---------- --------
Annualised revenue growth rates vary by operating division depending on the current development to maturity of the CGU. In determining the applicable discount rate, management has applied judgement in respect of several factors, including, inter alia, assessing the risk attached to future cash flows. Pre-tax discount rates have been assessed for each CGU.
Movement in goodwill by CGU
The movement in goodwill by CGU is as follows:
Foreign exchange
2016 movements Impairment 2017
GBP'000 GBP'000 GBP'000 GBP'000
ingenie 14,674 - (5,593) 9,081
Healthcare Services 8,547 (185) - 8,362
Total 23,221 (185) (5,593) 17,443
--------------------- -------- ----------------- ----------- --------
For ingenie, if there was an increase in the pre-tax discount rate of 1 percentage point there would be an additional impairment of GBP1m to the amounts above. Similarly, if there was a decrease of 1 percentage point in the long term growth rate there would be an additional impairment of GBP0.8m.
No reasonably possible changes to assumptions would lead to an impairment of the goodwill for the Healthcare Services CGU.
6. Provisions
Tax related Legal Onerous
matters disputes contracts Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2016 23,543 6,400 3,643 3,424 37,010
Additional provisions 3,231 1,814 525 3,315 8,885
Unused amounts
released (9,181) (1,300) (100) (144) (10,725)
Used during the
year (2,500) (800) (1,349) (2,313) (6,962)
Exchange movements - - - 33 33
At 1 January 2017 15,093 6,114 2,719 4,315 28,241
Additional provisions - 2,927 126 936 3,989
Unused amounts
released (9,086) (46) (227) (973) (10,332)
Used during the
year (2,814) (1,553) (2,092) (2,282) (8,741)
Exchange movements - - (34) (12) (46)
At 31 December
2017 3,193 7,442 492 1,984 13,111
----------------------- ------------ ---------- ----------- -------- ---------
Split:
Non-current - - 87 - 87 Current 3,193 7,442 405 1,984 13,024
Tax related matters
A provision for tax-related matters had been established in previous years with respect to judgemental tax positions primarily in relation to historic PAYE and VAT issues. During the year ended 31 December 2017, the majority of the outstanding PAYE issues were resolved and settled for GBP2,814,000 with GBP7,586,000 of unused provision being released to the income statement as the settlement was less than management's estimate at the time of preparation of the 31 December 2016 Financial Statements. Of the remaining amounts, GBP4,000,000 of the provision at 31 December 2016 related to a disputed and judgemental tax issue. Based upon the latest information available to management, this has been reduced to GBP2,500,000 at 31 December 2017. Key judgements exist around the classification of certain transactions and therefore the related tax treatment. The amount provided represents the Directors' estimate of the likely outcome based upon the information available; however the ultimate settlement may be different. The Group continues to take steps to resolve these outstanding items and believe the majority will be settled within twelve months from the balance sheet date.
Legal disputes and regulatory matters
In legal cases where the Group is (or would be) the defendant, defence costs are provided as the Group is committed to defending the actions. Such costs are provided for at the mid-range of possible eventualities given the uncertainty of the outcome. If the Group is successful in defending such actions, then the final costs may be lower than the total provision recognised above. Additional provisions in the table above relate to expected legal costs to defend these actions. No amounts have been provided for the costs of any settlement, fine or award of damages.
Amounts used during the year represent legal costs incurred to date as a result of the above items. The provisions will be utilised further as the matters progress.
In legal cases where the Group is the claimant (or counter claimant), costs are not provided as there is no obligation to proceed and the Group is not contractually committed to incur costs.
Onerous contracts
Where contracted income is expected to be less than the related expected expenditure the difference is provided in full. The timing and amount of these items can be reasonably determined. The majority of the amount provided at 31 December 2016 related to three onerous property leases. Two of these onerous leases have been settled in the year at amounts less than management's estimate at 31 December 2016 and therefore unused amounts of GBP227,000 have been released. The settlement and costs incurred during the period relate to the GBP2,282,000 utilised during the year. To date it has not been possible to sublet or otherwise resolve the remaining property lease and therefore an additional amount of GBP126,000 has been provided representing the maximum exposure to this onerous lease. The majority of the provision at 31 December 2017 now relates to non-property obligations.
Other
Provisions have been established for expected costs where a commitment has been made at the balance sheet date and for which no future benefit is anticipated. These primarily relate to three areas, commission clawback relating to non-underlying businesses, warranties provided by the Group and outstanding restructuring payments. With the exception of the latter, the exact timing and quantum of the amounts is uncertain, and the provision is based upon historic trends in these businesses. GBP703,000 of the additional provision in the year relates to the normal ongoing business activities of the Group. The amounts of the restructuring provision can be reasonably estimated and are time bound within an upper limit of one year. The commission clawback element of the provision totals GBP562,000 (2016: GBP967,000) of which GBP1,108,000 was used in the year and GBP703,000 was newly created.
7. Post balance sheet events
Settlements with former management and former vendors
In January and March 2018, the Company agreed settlements with former management. The 31 December 2016 Financial Statements referred to an investigation by the Group into expense claims submitted by Mr Robert Terry and payments made to him by the Group during his period of employment and related litigation. In January 2018, Mr Terry (together with his wife and former employee, Mrs Louise Terry) and Watchstone settled certain respective claims arising out of Mr Terry's contract of employment with Watchstone, the settlement agreement entered into when Mr Terry departed Watchstone in November 2014 ("November 2014 Settlement") and a separate agreement relating to works done at Quob Park (the former head office of the Group) ("Terry Settlement"). Under the terms of the Terry Settlement, Mr Terry waived his right to receive GBP280,000 under the November 2014 Settlement and Mr and Mrs Terry paid Watchstone GBP800,000 (in cash). These items, arising after the balance sheet date, have not been included in the results of the Group in the year ended 31 December 2017.
On 9 November 2016, Court proceedings were commenced in the High Court of Justice by the Group against the vendors of the Hubio Solutions Limited (formerly Himex Limited)("HSL") regarding, inter alia, the cost of litigation in respect of Navseeker, Inc, a subsidiary of HSL (Laurence Baker, et al. v. Hassan Sadiq, et al. and NavSeeker, Inc. C.A. No. 9464-VCL, Court of Chancery of the State of Delaware USA) which was settled in June 2016. In March 2018, the parties settled the Court proceedings and the Group received a net payment of GBP315,000 in full and final settlement.
Disposal of businesses
In January 2018, the Group disposed of the non-telematics assets of its Canadian subsidiary and in February 2018 the Group disposed of its Hubio Fleet business.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEMEFMFASELL
(END) Dow Jones Newswires
April 27, 2018 02:00 ET (06:00 GMT)
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