Watchstone Group plc

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

Preliminary results for the year ended 31 December 2022

Watchstone Group plc (WTG.L) today announces its results for the year ended 31 December 2022.

·    Total profit after tax £nil (2021: Loss of £3.6m).

·    Group operating loss of £0.2m (2021: Loss of £3.7m).

·    Group net assets of £13.5m representing approximately 29 pence per share (2021: 29 pence per share).

·    Group cash and term deposits at 31 December 2022 of £13.8m (31 December 2021: £13.0m).

·    Group cash and term deposits at 31 March 2023 of £11.5m.

The Annual Report and Accounts for the year ended 31 December 2022 will be released in due course and posted (where applicable) to registered shareholders. Once published, the Annual Report and Accounts will be available at www.watchstonegroup.com/investors.

The 2023 Annual General Meeting ("AGM") will be held on 30 May 2023 at 2.30 pm in London.

The Notice of the AGM will be published on the Company's website at https://www.watchstonegroup.com/investors/shareholder-information/.

For further information:

Chairman and CEO's Report

During the year, the Group significantly progressed the realisation of its litigation assets including the settlement of its claim against its former auditors, KPMG LLP ("KPMG").  This is in addition to the preparations for trial which took place in early 2023 against PricewaterhouseCoopers LLP ("PwC") and other claims against Aviva Canada Inc. ("Aviva Canada") and HMRC.

Now all trading businesses have been disposed of, our plan remains to achieve the optimum resolution of legacy matters and then to return cash to shareholders. As part of the ongoing rationalisation of costs, Lord Howard (Senior Non-executive Director) and David Young (Non-executive Director) will step down from the Board following the 2023 Annual General Meeting ("AGM") and will not be replaced.

The Board thanks Lord Howard and Mr Young for their commitment and assistance in dealing with an extraordinarily complex array of operational, legal, regulatory and accounting matters over many years.

Update on outstanding legacy matters

Our claim against PwC was heard in the High Court in January and February 2023 with the judgement being awaited.

Our appeal in respect of the recovery of historic VAT paid in the ingenie business was heard by the First Tier VAT Tribunal in December 2021 and the appeal to the Upper Tribunal will take place in November 2023. Finally, our Canadian subsidiary's claim against Aviva Canada is ongoing and is expected to go to trial in January 2024.

2023 outlook

We will look to prosecute our remaining litigation assets for the optimal return for shareholders.  Central costs will continue to be carefully managed at reduced levels consistent with the needs of the organisation.

Once again, we would like to thank our shareholders for their continuing patience whilst we work to realise maximum value from our remaining assets.

for the year ended 31 December 2022

for the year ended 31 December 2022

as at 31 December 2022

for the year ended 31 December 2022

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

Notes:

1.  Results announcement

The Financial Statements for the year ended 31 December 2022 have been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006.  However, this announcement does not contain sufficient information to comply with adopted IFRS. The Group will publish its Annual Report and Financial Statements in due course 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 2022. Statutory accounts for the year ended 31 December 2021 have been delivered to the Registrar of Companies and those for the year ended 31 December 2022 will be delivered by 30 June 2023. This preliminary announcement was approved by the Board of Directors on 12 April 2023 and these preliminary results have been extracted from the audited results for the year ended 31 December 2022.

2. Administrative expenses

Legal fees incurred during 2022 primarily relate to the litigation undertaken by the Company against PwC and KPMG. 

Since the Group is the Claimant, no provisions are made in respect of the costs of such actions since the Group is not obliged to continue to pursue them. 

The net release of provisions for legal fees in 2021 relates to the discontinued SFO investigation into former management of the Company. This is partially offset by additional provisions in respect of the First Tier VAT Tribunal hearing.

3. Provisions

Split:

Legal disputes and regulatory matters

It is the policy of the Group to provide for legal costs in cases where the Group is (or would be) the defendant, defence costs are provided as the Group is committed to defending the actions.  There are no such actions outstanding against the Group at 31 December 2022.

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.  Similarly, in such legal cases where the Group is the claimant and has indemnified a third party, potential future costs associated with the indemnification are not provided for.

Following a hearing held in December 2021, on 12 April 2022, Watchstone was informed of the decision of the First Tier Tribunal which found in favour of HMRC and that the Group had not made any supplies of telematics devices or related services in the VAT periods 07/2014 to 07/2018. Accordingly, the appeal was dismissed and the Group has provided for the costs incurred by HMRC.  This represents the entirety of the provisions held by the Group at 31 December 2021 and 31 December 2022. The Group has appealed to the Upper Tax Tribunal and a hearing is scheduled for the second half of 2023.

4. Contingent assets and liabilities

Litigation in relation to the historic activities of the Group is being pursued including claims against PwC and Aviva Canada. These give rise to contingent assets, which are not recognised within the Financial Statements due to lack of certainty as to the outcome, despite an inflow of economic benefit being considered probable.

The Group routinely enters into a range of contractual arrangements in the ordinary course of business which can give rise to claims or potential litigation against Group companies.  It is the Group's policy to make specific provisions at the Statement of Financial Position date for all liabilities which, in the opinion of the Directors, are expected to result in a loss.