for the year ended 31 December 2019

*Non-underlying results have been presented separately to give a better guide to underlying business performance.

for the year ended 31 December 2019

as at 31 December 2019

for the year ended 31 December 2019

The above Consolidated Cash Flow Statement includes cash flows from both continuing and discontinued operations.

As at 31 December 2019, the Group had cash and cash equivalents of £57,176,000 (2018: £10,113,000) of which £565,000 (2018: £nil) is included within assets held for sale.  The Group also has term deposits of £15,000,000 (2018: £40,000,000).

Notes:

1.   Results announcement

The Financial Statements for the year ended 31 December 2019 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 31 May 2020 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; and (ii) 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 2019. Statutory accounts for the year ended 31 December 2018 have been delivered to the Registrar of Companies and those for the year ended 31 December 2019 will be delivered following the AGM. This preliminary announcement was approved by the Board of Directors on 12 May 2020 and these preliminary results have been extracted from the audited results for the year ended 31 December 2019.

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 (the Board).  The Group historically operated two segments, being Healthcare Services and ingenie. 

During the year ended 31 December 2019, Healthcare Services was classified as discontinued and therefore no longer forms a reportable segment.  The continuing business at 31 December 2019 consequently represents a single division, ingenie supported by a Group cost centre (“Central” below). The principal activities of ingenie is telematics based insurance broking and technology solutions provider.  Central is a cost centre carrying the administrative expenses of running the Group.

Segment information about these businesses is presented below.

* Depreciation added back above when calculating Underlying EBITDA from continuing operations excludes depreciation on telematics devices of £782,000 (2018: £1,497,000) which is included within cost of sales.  The depreciation of telematics devices is included within cost of sales since they directly generate revenue for the business and are therefore included in gross margin.

4.   Non-underlying results

Non-underlying administrative expenses are analysed as follows:

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.

The legal expense includes £3,701,000 of additional legal fee provisions in respect of legal claims, £3,412,000 of which was utilised during the year in achieving settlement with S&G.  The settlement resulted in £2,797,000 of provision releases which are netted off of the expense.

The legal settlement credit of £1,026,000 relates to a settlement with former management.

The credit for the period ended 31 December 2018 of £160,000 includes credits of £1,328,000, being two settlements with former management.  This is partially offset by an expense of £1,168,000, also relating to a settlement with former management.

Tax related matters in 2018 mainly comprises the release of unused provisions which were created in previous periods.

The restructuring expense of £123,000 is stated after taking into account the release of unused provisions of £211,000.

Net impairments of non-cash assets above relates to:

5.   Goodwill

The movement in goodwill is as follows:

At 31 December 2019, goodwill relating to Healthcare Services was included within assets held for sale.  This was assessed as being fully recoverable based upon the pending disposal of the business at a surplus over the carrying value of the net assets.  The disposal was subsequently completed in February 2020.

The goodwill of ingenie was fully impaired at 31 December 2018.

6.   Provisions

Split:

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 historical PAYE and VAT issues.  During the year ended 31 December 2018, the outstanding PAYE issues were resolved and resulted in £693,000 of provision being released to the income statement.  Further information also become available during the year allowing an improved estimate to be made of the liability, resulting in £800,000 of the provision being released to the income statement.

As part of the settlement announced on 19 October 2019 with S&G, S&G assumed the liability for historical disputed VAT amounts against which S&G had previously been indemnified for by the Group in respect of the disposal of the PSD.  Consequently, the remaining provision was reversed.

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, this range is reassessed on a continuous basis.  If the Group is successful in defending such actions, then the final costs may be lower than the total provision recognised above. Additional provisions and amounts used during the year in the table above primarily relate to higher than expected legal costs in the defence of the claim from S&G settled during the year.

The remaining provision at 31 December 2019 represents the costs of additional legal fees in respect of the Group’s defence against any proposed class action and in respect of the ongoing investigation by the SFO (albeit the Company has been informed it will not be prosecuted and is not a suspect in the investigation).  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.  At 31 December 2018 the provision related exclusively to the maximum exposure remaining under a single onerous property lease, the timing of which may be reliably determined.  During the year ended 31 December 2019 a further, non-property contract has been identified as onerous and has been provided for in full.  The latter item is expected to be resolved during the next twelve months.

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 policy cancellations which are based upon historic experience within the business and is limited to one year from policy inception.  Additional amounts relate to commission clawback within non-underlying businesses and warranties provided by the Group.  Unused amounts reversed and amounts used represents the result of legal settlements for less than the amount provided at 31 December 2018.  The majority of the remaining balance relating to non-underlying businesses at 31 December 2019 was settled in January 2020.

7.   SFO investigation

On 5 August 2015, the SFO informed the Group that it had opened an investigation, which relates to past business and accounting practices at the Group. At 31 December 2019 the Group was unable to reliably estimate the amount or timing of any potential penalty or settlement and therefore, having taken external advice, had not established a provision.  The Group had however established a provision for legal costs associated with the ongoing investigation.

On 27 April 2020, the SFO informed the Company of its decision not proceed to prosecute the Company for criminal offences in respect of those matters which were the subject of the investigation.  The investigation continues and the Group continues to co-operate fully.