27th Sep 2007 07:03
Watermark Group PLC27 September 2007 27 September 2007Embargoed 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 itsmanagement. The results for the first six months of the year confirm why this decision wasthe correct one and that the Company needed fresh management with new ideas andwho could develop a clear, well defined strategy. The new management team took control of the business in early June shortlybefore 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 thefirst 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 themarket, are the key ingredients a growing, profitable company needs for thelonger term. RESULTS Trading in the six months ended 30 June 2007 has been adversely affected byevents, including the integration of International Catering Limited ("ICL") andthe need to refinance the Company, which distracted the previous management'sattention from a focus on operational controls and efficiencies. This hasresulted in a trading performance significantly below the prior year and hashighlighted that performance in the Services division was significantly weakerthan the previous Board's expectations. In seeking to better understand the performance of the business and the actionsrequired, the new Board has conducted a review of operational and accountingsystems, processes and internal controls which has identified a number ofmatters which are dealt with in this Interim Statement. Restatement of 2006 results The controls review identified a number of items which had not been accountedfor appropriately during 2006, primarily within the Services division. Thoseitems are discussed in more detail in note 3 to the interim financial statementsand result in a reduction in both profit before tax for the year ended 31December 2006 and in net assets at 31 December 2006 of £0.9 million. Inaddition, the review identified certain costs, totalling £0.4 million, whichwere classified in 2006 as exceptional items within the Services division andwhich the Board considers should have been set against operating profit beforeexceptional items. Accordingly, the results contained in these interim financial statements havebeen restated to reflect a reduction in the operating profit before exceptionalitems 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 asfollows: 6 months to 30 June 2006* 2007 £m £mRevenueGroup revenue 41.1 52.4 ---- ----Profit/(loss)Operating profit/(loss) before 1.0 (3.1)exceptional itemsExceptional 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 AxaptaEnterprise Resource Planning system, the Board has also expensed the first halfcosts totalling £1.7 million relating to the restructuring of the Group'sfinances and culminating in the issue of £8 million Convertible Bonds, and £0.3million of redundancy costs relating to the final element of the integration ofICL. As part of its review of operational and accounting systems, the new Board hasconsidered the adequacy of the Axapta system, its effectiveness and the need forfuture investment. Whilst this system provides the Group with effectivemanagement of certain aspects of its business, most notably the Asset ManagementProgramme for Air Canada, the Board considers that other components of thesystem provide no future value to the business and that further time and moneywill need to be spent to bring them to a position where they generate futurevalue. Accordingly, where components have been identified as generating nofuture 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 bedepreciated 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 RevenueProducts division 15.2 18.8 17.9Services division 25.9 33.7 35.8Eliminations - (0.2) (1.3) ---- ----- ----- 41.1 52.3 52.4 ---- ----- -----Operating profit/(loss) beforeexceptional itemsProducts division 0.2 0.2 0.5Services divisionUnderlying 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 operatingprofit before exceptional items during 2006 and the first half of 2007. Centralcosts relate to the PLC entity and other Group overhead costs not attributableto either division. Where such costs were previously reported within divisionalresults in 2006, they have been reclassified in the above table onto a basisconsistent with the current year. During its review of trading within the Services division, the Board identifieda number of benefits, relating to asset sales, the sale of advertising rightsand trade rebates in the second half of 2006, totalling £0.8 million, which havenot recurred in 2007. Whilst their inclusion in operating profit is anappropriate accounting treatment, they are important to an understanding of theunderlying trend of profits within the Services division. The above tableseparately identifies these non-recurring benefits in order to present theunderlying trading result within the Services division and illustrate thedeterioration in profitability in 2006 which has continued into the first halfof 2007. Products Division Over the past 12 to 18 months, Watermark Products has lost ground in manyaspects of its business. The new structure, under the leadership of the newManaging Director, David Young, who will join us in January 2008, is designed tore-establish the Company as a market leader, delivering value to its customersand returns to its shareholders by "putting the extra back in to ordinary". Throughout this period, the business has generated profits and will continuethis trend over the remainder of this year, whilst we start the repositioning.It has gained new business from Gulf Region customers, whilst seeing improvingbusiness from its core customer base. We, like many in our market, are facing up to the challenges which are arisingon a weekly basis out of China. We are strengthening our purchasing and qualitymanagement, whilst at the same time engaging with our customers on thecommercial realities which arise out of dealing with China in the currentenvironment. We believe we can rebuild the market leading position of Watermark. In DavidYoung 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 halfof the year reflected a lack of cost control and accountability for businessperformance flowing through from the second half of 2006, principally followingthe integration of ICL. This, together with the impact of changes, agreed priorto 2007, in the terms of certain commercial contracts, accounts for the majorityof the fall in the Group's gross profit. Two fundamental changes have since been made. A new divisional organisationalstructure has been created and we engaged specialist operational advisers inJune. These two actions have allowed us to identify the key missing processesand controls in the business, have introduced accountability and havehighlighted the need to embrace a "lean" culture, redefine our core values andoperational excellence through a change and reward culture. The second half of this year will see a consolidation of the core cateringbusiness creating the foundation for a stable platform for 2008. A number ofspecific actions have already been taken which will begin to reduce costs andimprove efficiencies in the second half, and we have identified several otherareas where further efficiencies can be achieved. The Asset Management Programme ("AMP"), which commenced on 1 March for AirCanada, has seen a successful start up phase. The second half of 2007 will startto see the delivery of expected operational efficiencies and change. We continueto see the AMP as an opportunity for profitable growth in the future. In the fourth quarter, the new management team will define and scope thestrategic direction for each of the business units which will be shared with youin March 2008. There remain a number of exciting opportunities both in our homemarket and further afield. Interest Net interest payable increased to £0.6 million (2006: £0.4 million). Thisincrease reflects the higher average net debt of the Group prior to itsrefinancing on 4 June 2007 and one month's Payment in Kind interest on theConvertible Bonds (£0.1 million). Cash flow and balance sheet The refinancing of the Group, completed in June, raised £6.8 million from theissue of Convertible Bonds, net of expenses, and £6.5 million from a new bankloan. As a result, the Group had a net cash inflow of £6.6 million in theperiod, resulting in net bank borrowings of £5.6 million at the end of the halfyear (2006: £7.2 million). For the purposes of financial reporting, the Convertible Bonds comprise acompound financial instrument with embedded derivatives. Under InternationalAccounting Standard 32, such instruments are required to be accounted for ascomprising a liability component and an equity component, the latter effectivelyreflecting the bondholders' equity conversion rights. The accountingcalculations under IAS 32 are complex, and require the Directors to estimate thefair value of the liability element of the bonds using the prevailing marketinterest rate for a similar debt instrument without the equity feature; theexcess of the net proceeds received over the liability component has beencredited to equity. The Directors have estimated the value of the liabilitycomponent 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 certaincomponents of the Axapta system referred to above reduced the carrying value ofintangible fixed assets by £1.9 million. In light of losses in the period, the Board has conducted a review of thecarrying value of the Group's goodwill of £30.6 million. As a result of thisreview, the Board believes there has been only a temporary reduction inprofitability and cash flow generation and that, as a result of actions takenand planned, profitability will be restored and enhanced. Accordingly, the Boardbelieves there is no impairment of goodwill. In view of the reduced level of earnings, the Board has agreed revised covenantarrangements with the Company's bankers, Barclays Bank PLC, who remainsupportive of the Group. The Board remains focussed on improving thecash-generation characteristics of the Group. BOARD CHANGES Our AGM Statement on 29 June 2007 explained the new management team andstructure following the Group's refinancing on 4 June, and set out the twovacancies the Board was seeking to fill. We are delighted to announce that David Young has agreed to join the Board asManaging Director of the Products division with effect from January 2008. Davidis a seasoned airline industry professional with proven leadership skills, whois currently General Manager of Inflight Services at Qantas Airways, a positionhe has held since 2004. Prior to this, he was Vice President Inflight andCommercial at Air New Zealand. David is a qualified Chartered Accountant andholds post graduate qualifications in Tourism and Hospitality Management and aMasters 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 existingexecutive and non-executive Board members, David Jennings has been appointed asthe Group's third non-executive Director. David brings with him a wealth ofexperience and an accomplished commercial background, having held key positionsin companies in the UK and Europe for the last 20 years. David qualified as aChartered Accountant in South Africa, and is also a Certified ManagementConsultant. It is with regret that the Board announces that Peter Fitzwilliam has tenderedhis resignation. Peter joined the Group as Chief Financial Officer in May ofthis year and has been instrumental in effecting a number of changes over recentmonths. However, for personal reasons, Peter has decided to move on and we wishhim well for the future. The Board has commenced a search for his replacementand 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 willbe evidenced by a substantially lower operating loss for the second half of thisyear. The renewed focus in the Services division is beginning to deliver improvementsand there is a lot more to go for. Within the Products division, the newmanagement structure is working well and actions taken are beginning to feedthrough to margins. During the period we have focussed on addressing the cost issues and creating anorganisation which can take advantage of its market reputation and the changingairline industry needs. As with any business which has experienced adeterioration in performance, it will take time to fully restore profitability.Inevitably there is a period during which work is focused on identifying theproblem areas and I believe we now know where the major issues lie. They areaddressable and we have the right plan to deal with them. The market offers someexciting opportunities for both businesses which I believe we will be wellpositioned 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 ourPreliminary results in March 2008. Stephen YappExecutive Chairman27 September 2007 For further information, contact Stephen Yapp Jeremy Carey or Matt RidsdaleWatermark Group plc Tavistock Communications LimitedTel: 0208 606 2071 Tel: 0207 920 3150 Unaudited condensed consolidated income statementfor 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 administrativecosts (excludingexceptional items) (17.0) - (17.0) (16.2) (34.7) Movement in fair value of derivativefinancial instruments (0.1) - (0.1) 0.4 0.5 Write back of provision forcontract 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 toequity 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 sheetas 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 AssetsNon-current assetsProperty, plant and equipment 9.9 10.5 9.9Goodwill 30.6 30.0 30.6Intangible assets 11 0.6 1.7 2.6 ---------------------------------------- 41.1 42.2 43.1Current assetsInventories 6.2 3.4 4.9Trade and other receivables 16.3 16.6 18.8Prepayments 2.0 5.0 1.0Fair value of derivative 0.2 0.2 0.3financial instrumentsDeferred 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 liabilitiesEquity attributable to equityshare owners of the parentIssued share capital 0.5 0.4 0.4Share premium account 21.6 21.6 21.6Shares to be issued - 2.1 2.1Merger reserve 7.6 5.3 5.3Equity element of convertible 0.3 - -loanForeign currency translation (0.7) (0.1) (0.4)reserveRetained earnings 1.3 12.5 9.0 ----------------------------------------Total equity 30.6 41.8 38.0 Non-current liabilitiesTrade and other payables 0.4 0.4 -Interest bearing loans and 6.5 0.4 0.3borrowingsConvertible loan 7.7 - -Deferred consideration due after - 1.1 -more than one yearDeferred income tax liabilities 0.1 - 0.2 ---------------------------------------- 14.7 1.9 0.5Current liabilitiesTrade and other payables 20.7 14.0 20.4Interest bearing loans and 1.5 14.2 16.0borrowingsDeferred consideration due - 1.0 2.5within one yearCurrent income tax 0.3 0.5 0.5Fair value of derivative - - -financial instrumentsProvisions - 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 statementfor 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 activitiesLoss after tax (7.7) (0.9) (3.6)Tax expense 0.1 0.1 0.9Depreciation and amortisation 1.0 0.7 1.6Negative goodwill on acquisition - (0.1) (0.1)Exceptional bad debt write off - 1.1 1.3Exceptional asset retirement 1.9 - -Share based payment expense - 0.1 0.2Finance cost 0.6 0.4 0.7Movement in fair value of forward 0.1 (0.4) (0.5)exchange rate contractsDecrease/(increase) in inventories (1.5) 0.1 (1.4)Decrease/(increase) in trade and 1.2 2.7 3.3other receivables(Decrease)/increase in trade 0.5 0.1 4.6payables and provisions ----------------------------------------Cash inflows/(outflows) generated (3.8) 3.9 7.0from/absorbed by operationsInterest 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 6.0operating activities ---------------------------------------- Cash flows from investing activitiesProceeds from sale of property, - 7.5 7.6plant and equipmentPurchase 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 2.5activities ---------------------------------------- Cash flows from financing activitiesProceeds from issue of shares - 0.1 0.1Proceeds from convertible loan issue 8.0 - -Proceeds from borrowings 6.5 - -Payment of hire purchase and (0.4) (0.3) (0.6)finance lease obligationsRepayment of borrowings owed to - (6.9) (6.9)acquisition vendorsDividends 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) 0.1and cash equivalentsNet foreign exchange difference (0.0) 0.0 0.2Cash 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 equityas 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 January2007 0.4 21.6 2.1 5.3 - (0.4) 9.0 38.0 Currency translationdifferences - - - - - (0.3) - (0.3) Loss for the period - - - - - - (7.7) (7.7) Issue of sharecapital 0.1 - (2.1) 2.3 - - - 0.3 Equity element ofconvertibleloan - - - - 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 30June 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 accountsfor the 6 months to 30 June 2007 1. Corporate information The results for the year to 31 December 2006 do not constitute statutoryaccounts. They are an abridged version of the full accounts which received anunqualified report from the auditors and have been filed with the Registrar ofCompanies. The interim results are unaudited. Watermark Group plc is a public limited company incorporated and domiciled inEngland & Wales. The company's shares are publicly traded on the London StockExchange. 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 periodended 30 June 2007 are unchanged from those adopted in the financial statementsfor the year ended 31 December 2006 other than the addition of a policy forcompound financial instruments: Compound instruments comprise both a liability and an equity component. At dateof issue, the fair value of the liability component is estimated using theprevailing market interest rate for a similar debt instrument without the equityfeature. The liability component is accounted for as a financial liability. Theresidual is the difference between the net proceeds of issue and the liabilitycomponent (at time of issue). The residual is the equity component, which isaccounted for as an equity instrument. The interest expense on the liabilitycomponent is calculated by applying the effective interest rate for theliability component of the instrument. The difference between this amount andany repayments is added to the carrying amount of the liability in the balancesheet. The financial statements have been prepared on a historical cost basis, exceptfor derivative financial instruments and financial assets held at fair valuethrough profit or loss which are all measured at fair value. The consolidatedfinancial statements are presented in sterling and are rounded to the nearestmillion (£'m) except where otherwise indicated. ii. Statement of compliance This financial information has been prepared on the basis of the recognition andmeasurement requirements of IFRSs in issue that are adopted by the EU andexpected to be effective at 31 December 2007. The group has also complied withInternational Accounting Standard 34 "Interim Financial Reporting". 3. Restatement of prior year results A review of operational and accounting systems, processes and internal controlswas carried out during the period. This review identified a number of itemswhich had not been accounted for appropriately during 2006. In accordance withIAS8 Accounting Policies, Changes in Accounting Estimates and Errors, the natureof the errors and the impact on each financial line item affected is statedbelow: £0.3 million owed by ICL to the vendor was waived, but the waiver off wasincorrectly recorded as revenue. The debt waiver should have been treated as areduction in the net assets of ICL on acquisition, with a consequent reductionin goodwill and any resultant negative goodwill being reflected in the incomestatement. ICL vendor contributions of £0.1 million toward the purchase cost of assets wereincorrectly included in revenue, rather than being offset against the depositpaid for the assets. Supplier contributions of £0.1 million toward the marketing of a new assetpurchase were incorrectly included in revenue, rather than being treated asdeferred income until delivery. Foreign exchange gains of £0.2 million that should have been payable to thejoint venture partner of a subsidiary company were incorrectly treated asrevenue for the Group. Stock of £0.1 million that was identified as faulty in 2006 never had itscarrying value adjusted to reflect that it was not saleable. The liability of £0.1 million arising from a claim over termination of an agencyagreement was not recognised at the time the claim was lodged. A customer was over-billed but no adjustment was made when the liability of £0.1million was identified. £0.1 million of stock write offs and £0.3 million of labour costs within the ICLbusiness 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 0.6Increase in cost of sales 0.1 0.2Increase in operating and 0.1 0.6administrative costs --- ---Reduction in pre-exceptional 0.3 1.4operating profitDecrease in exceptional - (0.4)restructuring costsIncrease 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 incomestatement and in note 7 to the condensed consolidated accounts have beenadjusted to reflect the above restatement items. The effect of the restatementsis 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 businesssegments, namely the Products and Services divisions. These reportable segmentsare the two strategic divisions for which monthly financial information isprovided to the board. The Products division provides a broad range of travel supplies predominately tothe international travel industry on a global basis. The Services division isone of the major suppliers of catering, supply chain and media services to theinternational travel industry within the United Kingdom and Canada. Canadianoperations commenced in March 2007 and provide outsourced supply chainmanagement services. Information on primary reporting by business segment is shown below. Segment revenue, expenses and results include transfers and transactions betweenbusiness segments. Such transactions are accounted for at competitive marketprices which would be charged to unaffiliated clients for similar goods. Allinter-segment transactions are eliminated on consolidation. Exceptional items relate to significant non-recurring expenditure of an unusualnature. 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 RevenueTravel supplies, catering and media services 17.7 34.7 - 52.4Net sales to other segments 0.2 1.1 (1.3) - -------------------------------------------------Total revenue 17.9 35.8 (1.3) 52.4 =================================================ResultSegment 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)expensesUnallocated 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 RevenueTravel supplies, catering and mediaservices 15.2 25.9 - 41.1 -------------------------------------------------Total revenue 15.2 25.9 - 41.1 =================================================ResultSegment result before exceptional items 0.2 1.4 - 1.6Exceptional 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 1.2Amortisation 0.3 0.1 0.4 -----------------------------------------------EBITDA (6.0) 0.3 (0.4) =============================================== Reconciliation of operating (loss)/profit to adjusted EBITDA (earnings beforeinterest, 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 1.2Amortisation 0.3 0.1 0.4Exceptional bad debt - 1.1 1.3Exceptional restructuring costs 0.3 0.4 2.9Exceptional refinancing costs 1.7 - -Exceptional asset retirement 1.9 - -Exceptional write back of - - (1.4)provision for contract lossesNegative 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 ownersto 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 £'mLoss before tax attributable to equity share owners (7.6) (0.8) (2.7)Exceptional bad debt - 1.1 1.3Exceptional restructuring costs 0.3 0.4 2.9Exceptional refinancing costs 1.7 - -Exceptional asset retirement 1.9 - -Exceptional write back of - - (1.4)provision for contract lossesNegative 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 theparent by the weighted number of ordinary shares in issue during the period(denominator). Diluted (loss)/earnings per share amounts are calculated using the samenumerator and denominator adjusted for the dilutive effects of share options andshares to be issued with regards to past acquisitions. As the Group has made aloss for the first 6 months of the year, no adjustment is made to thedenominator for the impact of share options and shares to be issued so as toprevent the loss from being diluted. Adjusted (loss)/earnings per share, both basic and dilutive, use the denominatordescribed in the appropriate paragraphs above. For both adjusted basic (loss)/earnings per share and adjusted diluted (loss)/earnings per share, the numeratoris adjusted to remove the post tax impact of exceptional items from thecalculations. 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 £'mNet (loss)/profit attributable to equity shareowners A (7.7) (0.9) (3.6)- Exceptional items (post tax) 3.9 1.4 3.4 ----------------------------------------------Adjusted net (loss)/profit attributable to equity shareowners 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 pershare C 45,200,604 43,718,241 44,023,354- Share options - 1,894,917 811,245- Contingent shares to be issued - 847,318 2,669,704Weighted 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 thedenominator 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 £'mPaid 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 2006or 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 0.6Finance charges payable under finance leases and hire purchasecontracts - - 0.1Interest 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 2.6amortisationAdditions at cost 0.2Asset retirements (1.9)Amortisation charge for the period (0.3) --------At 30 June 2007, net of accumulated 0.6 amortisation ======== At 31 December 2006Cost 3.0Accumulated amortisation (0.4) --------Net carrying amount 2.6 ========At 30 June 2007Cost 1.3Accumulated amortisation (0.7) --------Net carrying amount 0.6 ======== Intangible software costs relate to the licence, set up and implementation costsof the Group's integrated computerised ERP system. A review of the adequacy ofthe Group's ERP system has been carried out, where components of the system thatprovide no future value to the business have been identified and retired, with aresulting exceptional charge of £1.9m for the period. The remaining costs are tobe 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 theterms 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 forthe six months ended 30 June 2007 which comprises the condensed consolidatedincome statement, condensed consolidated balance sheet, condensed consolidatedcash flow statement, condensed consolidated statement of changes in equity andthe related notes 1 to 12. We have read the other information contained in theinterim report which comprises only the Chairman's letter to share owners andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with guidance containedin APB Bulletin 1999/4 "Review of Interim Financial Information". Our reviewwork has been undertaken so that we might state to the company those matters weare required to state to them in a review report and for no other purpose. Tothe fullest extent permitted by law, we do not accept or assume responsibilityto anyone other than the company, for our review work, for this report, or forthe conclusion we have formed. Directors' responsibilities The interim report including the financial information contained therein is theresponsibility of, and has been approved by, the directors. The Listing Rules ofthe Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with InternationalAccounting 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 Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data and, based thereon, assessing whether theaccounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. GRANT THORNTON UK LLPCHARTERED ACCOUNTANTSLondon 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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