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Water hall group plc

Announcement of preliminary results for the year ended 31 December 2008

Water Hall Group plc is pleased to announce its preliminary results for the year ended 31 December 2008. 

For further information please contact:

Raschid Abdullah, Executive Chairman Water Hall Group Plc	01483 452 333 07768 905 004
Emily Morgan, Blomfield Corporate Finance Limited	0207 489 4500

 

Chairman's Statement and Review of Activities

Overview

After the progress made during the past five years in restoring the Company's health, it is disappointing to report that the trend has not continued through 2008. While the trading result for the year reflects the board's concerns expressed in last year's Report & Accounts, at the 2008 AGM, in the Interim Statement for 2008 and again in the trading statement made in January 2009, the year has not quite been the year of transition that the board had anticipated.

The 'credit crunch' has severely impacted the construction industry served by the Company, in particular the house building sub-sector with many housebuilders deferring development of new sites and extensions of existing sites. This has served to reduce both volumes and gate prices received at Bunkers inert landfill.

On a positive front, it has also served to reduce vendors' expectations of the value of their businesses. For some years, the board has been seeking to diversify from its existing activities but has considered many of the businesses offered as being overvalued or of unsuitable quality. I am pleased to report that the situation would appear to be changing with vendor expectations for good quality businesses reflecting a realism not apparent over the past few years. However the risks arising from their present position within their business cycles and the timing of recovery become issues for the board to evaluate.  

It is disappointing to report on the consequence of our investment in Lloyds Banking Group plc ('Lloyds'). The trading update issued on 8 January 2009 provided information on the investment and its impact on the Company's finances. Given the strength of Lloyds interim results announced in July 2008, the encouraging statements from both the chairman and chief executive and the small rise in the dividend, your board felt justified in making the investment in September 2008 to provide long term support for the escrow account. This was not to prove the case as the banking sector started to falter and the impact of the unexpected acquisition of HBOS plc adversely affected the Lloyds share price. Given the benefit of hindsight, the investment was poorly timed with the result that at the year end the market value had fallen by £733,000. Since the year end the Lloyds share price has continued to fall, although in the past few weeks there has been a significant recovery from its low point, resulting in a further net fall in the market value of £96,000 (based on the closing middle market share price of 103.5p as at 29 April 2009).

On a more positive note, and as reported in my interim statement, after considerable, and in the board's view, unnecessary delays on the part of Hertfordshire County Council ( 'HCC'), planning consent was eventually granted in September 2008, shortly before the appeal date set by the Secretary of State, for the life of the materials recycling facility ('MRF') to be decoupled from the life of Southfield Wood and linked instead to that of Bunkers landfill site where the planning consent runs until 2014 or earlier if the site is filled before. The delays caused the cost of the planning application to run considerably over budget and created uncertainty, which contributed to the decision to cease certain operations with the resultant loss of permanent jobs. 

The board has given considerable thought to the future of the business and assets of the Water Hall Complex (the 'Complex') and whether or not shareholders' interests are best served by retaining and developing the assets further. The board concluded that shareholders' interests would be best served through a sale and accordingly has instructed agents to commence a marketing process.

In the absence of an acquisition, a sale of the Complex would be subject to shareholder approval and the resulting company would be classified under the AIM rules as an investing company. Since there can be no guarantee of a sale, the board continues to pursue planning and development opportunities for the Complex. These include promoting the remaining mineral deposits and waste potential for inclusion in the Local Minerals Development Framework ('LMDF') and the Local Waste Development Framework ('LWDF') and exploring with specialist advisers and HCC the potential for establishing a significant Energy from Waste ('EfW') facility utilising waste as a renewable fuel source. Should an EfW be consented and built, it would be capable of producing significant quantities of sustainable combined heat and power ('CHP'), in the form of thermal energy which could be used by HCC, and electricity for transmission to the grid. HCC has advised that it plans to have completed its work in respect of the LMDF and the LWDF by the end of 2009 following which the proposals will be subjected to a Public Inquiry expected to take place in the first half of 2010. 

Of the other planning issues outstanding with HCC, the most significant relates to your Company seeking a variation to an existing planning consent to permit a revised and improved restoration scheme for Southfield Wood, in turn improving its agricultural quality. The revised restoration scheme is presently with the Environment Agency undergoing technical review, following which it is intended to submit it to HCC for further review ahead of a planning application. 

The Company retains its 7.3% investment in Petards Group plc ('Petards'). Petards' shares had been suspended on 25 June 2008 because the 2007 accounts had not been published within six months of the year end. I am pleased to report that in December 2008, following agreement of new terms of borrowing with its bank, it was in a position to release unqualified accounts for the year to 31 December 2007. At the half year, in view of Petards shares being suspended, an impairment loss of £168,000 was charged in the Group's income statement. After the shares were relisted the market value improved and the increase in the second half of £35,000 has been credited direct to reserves. Since 31 December 2008 there has been a further increase of £188,000 (based on the closing middle market share price of 0.63p per share as at 29 April 2009) in the market value of the Company's investment in Petards.  

Results for 2008

While sales in respect of continuing operations for the year were broadly similar at £1.838m (2007 - £1.839m), margins were under significant pressure resulting in gross profit for the year of £825,000 representing 44.9% on sales compared with £1.366m representing 74.3% for 2007.

After slightly higher administrative expenses of £1.343m (2007 - £1.215m), reflecting mainly increased professional costs, the operating trading loss for the year was £518,000 (2007 - profit £151,000). Other operating losses of £878,000 (2007 - profit £669,000) include the recognition of an impairment loss of £168,000 on the value of the Petards investment, referred to above, and the reduction in market value of £733,000 in the Lloyds investment, offset by a gain on the disposal of plant and equipment, whereas 2007 benefitted from an investment gain of £669,000. The resultant operating loss for 2008 was £1.396 million (2007 - profit £820,000). 

After finance income arising from interest receivable on the Group's cash balances of £170,000 (2007 - £95,000), the loss before tax from continuing operations was £1.226m compared with a profit before tax of £915,000 for 2007.

There was a loss for the year of £60,000 (2007 - £245,000) from discontinued activities, principally reflecting trading losses and redundancy costs arising from the closure of the skip collections business and activities at the MRF offset by the gain arising from the disposal of surplus plant and equipment.

No tax is payable in respect of the year (2007 - nil).

The loss for the year was £1.286m equating to a basic loss per share of 2.27p (fully diluted 2.13p per share) compared with a profit in 2007 of £670,000 equating to a basic earnings per share of 1.19p (fully diluted 1.12p per share).  

At 31 December 2008 Group total equity, previously referred to as Shareholders' Funds, was £3.578m (2007 - £4.800m) equating to an undiluted 6.3p per ordinary issued share (at 31 December 2007 - 8.5p per share), the reduction resulting from the trading losses and the reduced value of investments.

The Group had cash balances and investments in Petards and Lloyds at 31 December 2008 amounting to £2.477m (2007 - £4.141m) with no debt. While the additional cash held in escrow accounts totalling £1.326m at 31 December 2008 (2007 - £1.255m) is effectively the Group's funds, as it exists to fund long term 'after care' liabilities, the board does not consider it to be free cash and does not include it when calculating free cash balances.

For the year, the Group experienced a net operating cash outflow of £2.095m (2007 - inflow £1.191m) mainly attributable to operating losses and the purchase of the investment in Lloyds. 

As the Company is in a period of transition it is not the board's intention to recommend the payment of a dividend to shareholders for the year (2007 - £nil). 

Future

The trading difficulties experienced during 2008 have continued into 2009. The budget for 2009 has been set to reflect anticipated volumes at lower gate prices than the average for 2008. While volumes and gate prices for the first two months of the year were broadly in line with the budget, activity in March and April has proved to be more difficult. 

The board believes that, having already downsized the business in line with current levels of activity, there is little room for manoeuvre given that the business is very much confined to its local geographic area and is therefore dependent upon inert waste that arises from within an economic transport distance. It also believes that the returns for shareholders from continuing to own and operate the present business are limited with little or no defence against market conditions. Additionally, the cost of pursuing a planning application in respect of an EfW and the subsequent build costs, along with the skills and risks associated with the planning consents required for this, the LMDF and the LWDF, further convince the board that a disposal of the business and its assets would be in the best interests of shareholders.

While the planning history and waste management licences for the Complex are not straightforward and the well documented difficulties with credit markets suggest the market for a sale might be slow, the board believes that the strategic location of the Complex will make it attractive to industry purchasers. The nature of the business and its assets and the potential attraction to a variety of parties make it difficult for the board to assess whether the sale of the business and its assets will be to a single or multiple purchasers. The board is, however, open minded as to how a sale is achieved, its objective being to seek a comprehensive sale thereby removing as many, if not all, the long term liabilities from the Group's balance sheet.

GVA Grimley, the Company's valuation adviser, has commenced the sale process. Should an acceptable offer be received the sale would require shareholder consent at General Meeting, with full details of the sale and its impact being provided in a circular to shareholders.

In regard to the two investments presently held, your board continues to monitor the performance of Petards where it believes there might be merit in seeking to become further involved with the business. It is the board's present intention to retain the investment in Lloyds because of the potential for its business model following its acquisition of HBOS plc and also on the grounds that investor sentiment appears to be returning to the banking sector. 

Conclusion

While 2009 presents a number of challenges for your board, the Company is well placed to take advantage of the acquisition opportunities that now exist and fully intends that, during the course of the year, its transition referred to last year and reiterated in this statement will become reality. 

The strategy is for one of development and growth intended to widen investor support based upon the quality of the acquired businesses and their underlying financial performance.

In closing, I would like to thank all the Group's employees who have continued to work hard and provide their support for the business, often against the background of difficult trading conditions.

On behalf of the board, I extend a welcome to those shareholders who are able to attend the AGM, which this year is being held on 17 June 2009 at 12 noon at The County Club, 158 High Street, Guildford, Surrey, GU1 3HU, to discuss the Company's affairs.

Raschid Abdullah

Chairman

Consolidated Income Statement

For the year ended 31 December 2008

				2008		2007
		Note		£000		£000
Continuing operations
Revenue		1		1,838		1,839
Cost of sales				(1,013)		(473)
Gross profit				825		1,366
Administrative expenses				(1,343)		(1,215)
Other (losses)/gains		3		(878)		669
Operating (loss)/profit				(1,396)		820
Finance income				170		95
(Loss)/profit before income tax		1		(1,226)		915
Income tax expense				-		-
(Loss)/profit for the year from continuing operations				(1,226)		915
Discontinued operations
Loss for the year from discontinued operations		1		(60)		(245)
(Loss)/profit for the year		1,2		(1,286)		670
(Loss)/earnings per share		4
From continuing and discontinued operations
basic				(2.27) p		1.19 p
diluted				(2.13) p		1.12 p
From continuing operations
basic				(2.16) p		1.62 p
diluted				(2.03) p		1.52 p

  CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 

For the year ended 31 December 2008

		Note		2008		2007
Fair value gains/(losses) net of tax:				£000		£000
on available-for-sale financial assets		6		64		(29)
reversal of previously recognised fair value gain following  disposal of available-for-sale financial assets		9		-		(279)
Net income/(charge) recognised directly in equity				64		(308)
(Loss)/profit for the year				(1,286)		670
Total recognised (loss)/income for the year				(1,222)		362

All attributable to equity shareholders of the Company.

  CONSOLIDATED BALANCE SHEET

as at 31 December 2008

				2008		2007
		Note		£000		£000
Assets
Non-current assets
Property, plant & equipment		5		1,073		1,084
Available-for-sale financial assets		6		105		209
				1,178		1,293
Current assets
Trade and other receivables				1,120		986
Financial assets at fair value through profit or loss		7		535		-
Cash - escrow deposits				1,326		1,255
Cash and cash equivalents				1,837		3,932
				4,818		6,173
Non-current assets held-for-sale				-		63
				4,818		6,236
Total assets				5,996		7,529
Equity and liabilities
Share capital		8		567		567
Share premium		8		8		8
Other reserves		9		141		77
Retained earnings		9		2,862		4,148
Total equity				3,578		4,800
Liabilities
Non-current liabilities
Provisions for liabilities and charges				1,536		1,749
				1,536		1,749
Current liabilities
Trade and other payables				457		641
Provisions for liabilities and charges				425		339
				882		980
Total liabilities				2,418		2,729
Total equity and liabilities				5,996		7,529

  CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2008

				2008		2007
		Notes		£000		£000
Cash flows from operating activities
(Loss)/profit from operations - continuing operations				(1,396)		820
Loss from operations - discontinued operations				(60)		(245)
(Loss)/profit from operations				(1,456)		575
Adjustments for:
Depreciation of property, plant & equipment		5		207		104
Share-based payment		10		-		27
Gain on disposal of property, plant & equipment				(454)		(100)
Loss/(gain) on investments				901		(669)
Decrease in provisions				(191)		(260)
Operating cash outflows before movements in working capital				(993)		(323)
Decrease in inventories				-		56
(Increase)/decrease in receivables				(134)		423
Decrease in payables				(184)		(589)
Cash used in operations				(1,311)		(433)
Cash flows from investing activities
Purchase of property, plant and equipment		5		(213)		(75)
Proceeds from sale of property, plant and equipment				534		100
Purchase of investments		6,7		(1,268)		(1,959)
Proceeds from sale of available-for-sale financial assets		6		-		3,388
Interest received				234		228
Amounts added to Environment Agency escrow accounts				(71)		(70)
Net cash (used in)/from investing activities				(784)		1,612
Cash flows from financing activities
Proceeds from issue of equity shares		8		-		12
Net cash from financing activities				-		12
Net (decrease)/increase in cash and cash equivalents				(2,095)		1,191
Cash and cash equivalents at beginning of year				3,932		2,741
Cash and cash equivalents at end of year				1,837		3,932

 

NOTES:

1.    Turnover and segmental analysis

The Group currently has one continuing activity and business segment; this is waste management. Until 2007 the Group had been engaged in two business segments, namely waste management and quarry products. The primary reporting format is thus business segments. 

During the fourth quarter of 2007 the supply of consented aggregates was exhausted and quarry sales ceased. The skip collections business and the processing of waste at the materials recycling facility ceased during the first half of 2008.   

The segment results are as follows:

		Revenue				Segment  profit/(loss)
		2008		2007		2008		2007
Continuing operations		£000		£000		£000		£000
Waste management		1,838		1,839		236		718
Corporate expenses						(754)		(567)
Other (losses)/gains (note 3)						(878)		669
Finance income						170		95
(Loss)/profit before tax - continuing operations						(1,226)		915
Discontinued operations
Waste management		183		1,134		(475)		(514)
Quarry products		5		512		(16)		169
		188		1,646		(491)		(345)
Other gains (note 3)						431		100
(Loss) / profit before tax - discontinued operations						(60)		(245)
Group revenue and (loss)/profit for the year		2,026		3,485		(1,286)		670

All revenue, profits and losses arise from activities within the United Kingdom.

The Group has adopted IFRS8 Operating Segments in advance of its effective date. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Group's reportable segments are and waste management and quarry products, the continuing segment of which is waste management as described above. The discontinued operations comprise quarry products, skip collections and the materials recycling facility.

Segment results represent the result of each segment without allocation of corporate costs (central administration including directors salaries), other gains and finance income

  

The segmental assets and liabilities at 31 December 2008, depreciation and capital expenditure for the year then ended are as follows: 

Segmental assets and liabilities						2008		2007
Continuing operations						£000		£000
Waste management assets						3,470		3,228
Waste management liabilities and provisions						(2,205)		(2,517)
						1,265		711
Corporate unallocated assets						2,523		4,238
Corporate unallocated liabilities						(210)		(212)
						2,313		4,026
Discontinued operations
Waste management assets						-		63
						-		63
Consolidated net assets						3,578		4,800

		Depreciation				Capital expenditure
		2008		2007		2008		2007
		£000		£000		£000		£000
Continuing operations
Waste management		152		59		211		35
Corporate		19		43		2		11
Discontinued operations
Waste management		36		2		-		29
		207		104		213		75

All net assets are held in the United Kingdom. Corporate unallocated assets and liabilities comprise those assets and liabilities not directly attributable to the operating segments.

  2.     (Loss)/profit for the year is stated after charging 

		2008		2007
		£000		£000
Employee costs		1,069		1,693
Depreciation of property, plant and equipment - owned assets (note 5)		207		104
Operating lease payments :
plant and equipment (including short time hire)		271		267
other		10		8
		281		275
Services provided by the Group's auditor
Audit services
Fees payable to Company's auditor for the audit of parent company and  consolidated financial statements		15		15
Other services
Fees payable to Company's auditor for other services:
The audit of Company's principal subsidiary pursuant to legislation		16		22
Tax services		10		10
Corporate finance services		19		-
		60		47

3. Other (losses)/gains

				2008		2007
Continuing operations				£000		£000
Gain on disposal of plant and equipment				23		-
Gain on disposal of available-for-sale financial assets, net of related expenses (see note 6)				-		669
Impairment loss on available-for-sale financial asset (see note 6)				(168)		-
Loss on financial assets at fair value through profit or loss (see note 7)				(733)		-
				(878)		669
Discontinued operations
Gain on disposal of plant and equipment				431		100

4.    Earnings per ordinary share

		2008		2007
The calculation of earnings per ordinary share is based on:
The basic number (2007 -  weighted average) of Ordinary shares in issue during the year		56,691,102		56,325,546
Dilutive effect of share options		3,643,413		4,877,793
The diluted number (2007 -  weighted average) of Ordinary shares in issue during the year		60,334,515		61,203,339
		£000		£000
The (loss)/profit for the year - continuing operations		(1,226)		915
The loss for the year - discontinued operations		(60)		(245)
The (loss)/profit for the year		(1,286)		670
Interest on share option receipts - continuing operations		3		14
(Loss)/profit for the purpose of diluted earnings per share		(1,283)		684

  

5.    Property, plant and equipment

		Landfill		Land and		Plant and
		Resources		Buildings		Equipment		Total
Cost		£000		£000		£000		£000
At 1 January 2007		10,735		564		4,180		15,479
Additions		-		26		49		75
Reclassified as held for sale		-		-		(1,206)		(1,206)
Elimination on completion of landfill		(4,819)		-		-		(4,819)
Disposals		-		-		(342)		(342)
At 31 December 2007		5,916		590		2,681		9,187
Additions		-		211		2		213
Disposals		-		-		(402)		(402)
At 31 December 2008		5,916		801		2,281		8,998
Depreciation and impairment
At 1 January 2007		10,091		198		4,014		14,303
Depreciation charge		34		-		70		104
Reclassified as held for sale		-		-		(1,143)		(1,143)
Elimination on completion of landfill		(4,819)		-		-		(4,819)
Disposals		-		-		(342)		(342)
At 31 December 2007		5,306		198		2,599		8,103
Depreciation charge		130		10		67		207
Disposals		-		-		(385)		(385)
At 31 December 2008		5,436		208		2,281		7,925
Net book value 2008		480		593		-		1,073
Net book value 2007		610		392		82		1,084

Landfill resources includes costs of £1,438,000 (2007 - £1,438,000) and accumulated depreciation of £1,286,000 (2007 - £1,245,000) arising from the capitalisation of the IAS37 asset being the unexpended portions of the Group's future restoration costs. 

The Group's landfill resources and land and buildings are all freehold and include the net book value of options amounting to £26,000 (2007 - £26,000) to acquire, or to secure mineral and / or operating rights over land adjacent to the Water Hall Complex subject, where applicable, to planning permission being granted for the extraction of minerals. These options expire between 2012 and 2019. 

 

		2008		2007
		£000		£000
At 1 January		209		1,277
Additions		-		1,959
Disposals		-		(3,388)
Impairment loss charged to income statement (note 3)		(168)		-
Net gain/(loss) transferred to equity (note 9)		64		(29)
Realised gain credited to income statement		-		390
At 31 December		105		209
Available-for-sale financial assets include the following :
Listed equity securities - UK		105		209
Trade investment and long term loans - Egypt		-		-
		105		209

Listed equity securities - UK    

The fair value of available-for-sale financial assets traded in an active market is based on quoted mid-market prices at the balance sheet date.

At 31 December 2008 and 2007 the available-for-sale investment represents the Company's holding of 46,500,000 ordinary shares in Petards Group plc ('Petards') an AIM listed company. Petards' principal activities are the development, supply and maintenance of technologies used in security and surveillance systems. The shares represent 7.3 % of Petards' issued ordinary share capital and were acquired at an average cost per share of 0.51p. At the year end the mid-market price was 0.225p per share (2007 - 0.45p per share).

The Group's interim results for the half year to 30 June 2008 included a charge of £168,000 for the estimated impairment loss in respect of this investment, Petards shares having been suspended at that time in accordance with AIM rules. The suspension was lifted in December 2008 following publication of Petards Report and Accounts for the year ended 31 December 2007 and the Interim Report for the six months to 30 June 2008. The impairment loss at 30 June 2008 is charged in the income statement and the change in market value since that date is recognised in reserves. 

     

At the beginning of 2007 the Group held 600,000 ordinary shares in Premier Asset Management plc ('Premier'), an AIM listed company. Additional purchases were made during the year and the entire holding was sold for £3.39m in September 2007 when an unconditional offer for the entire issued ordinary share capital of Premier was accepted. A gain on disposal, net of related expenses, of £669,000 is included in the income for the year ended 31 December 2007 of which £279,000 had been recognised as an unrealised gain within reserves at 31 December 2006.

Trade investment and long term loans - Egypt

The investment is a 19.5% (2007 - 19.5%) holding in the ordinary shares of Tanzifco International SAE ('Tanzifco') incorporated in Egypt together with certain related long term loans. Tanzifco holds a 15 year contract for the provision of city cleaning services to the Governorate of Suez ('the Governorate') which commenced on 1 March 2002. The Group is not actively involved in the direction of the operating and financial policies of Tanzifco and, therefore, the investment is treated as a trade investment.

Since activities commenced in Suez in March 2002 the main customer, the Governorate, has withheld substantial payments due under the terms of the contract to Tanzifco without proper explanation. Despite attempts to resolve this dispute through the Egyptian courts no resolution has been achieved. In 2004 the Board considered the investment and related long term loans the Company holds in Tanzifco and decided that it should terminate its involvement and dispose of its interest in Tanzifco. Full provision was then made to reduce the carrying value of the investment and related long term loans, which had a cost value of £205,000, to nil.

The audited Financial Statements of Tanzifco for 2007 (the latest figures available) show an aggregate capital and reserves of £454,000 (2006 - £299,000) and a profit for the year of £41,000 (2006 - loss £14,000) translated at prevailing exchange rates. The auditors' report of Tanzifco for 2007 is qualified in respect of amounts due but not paid by the Governorate.

7.    Financial assets at fair value through profit or loss

								2008				2007
								£000				£000
At 1 January							-				-
Additions							1,268				-
Fair value loss charged to income statement (note 3)							(733)				-
At 31 December							535				-
Investments in financial assets at fair value through profit or loss comprise :
Listed equity securities - UK							535				-

During September 2008 the Company purchased 425,000 ordinary shares of 25p each in Lloyds Banking Group plc at an average cost of £2.99 per share and the investment has been designated as a financial asset at fair value through profit or loss. At the year end the mid-market price was £1.26 per share.

8.    Share capital and share premium

		Number of shares		Ordinary shares		Share premium		Total
		(thousands)		£000		£000		£000
At 31 December 2006		56,291		563		-		563
Executive share option scheme:
Proceeds from shares issued in November 2007		400		4		8		12
At 31 December 2007 and 2008		56,691		567		8		575

The total authorised number of ordinary shares is 155,001,961 shares (2007 - 155,001,961 shares) with a par value of 1p per share (2007 - 1 p per share). All issued shares are fully paid. 400,000 ordinary shares were issued in November 2007 at a price of 3p per share on the exercise of options pursuant to the rules of the Water Hall Group plc Executive Share Option Scheme 2004.

  9.    Other reserves and retained earnings

		Available-for-sale investments reserve		Employee share-based payment reserve		Total - Other reserves		Retained earnings
		£000		£000		£000		£000
At 1 January 2007		279		79		358		3,478
Reversal of previously recognised fair value gain following disposal of available-for-sale financial assets		(279)		-		(279)		-
Loss in year		(29)		-		(29)		-
Profit for the year		-		-		-		670
Recognition of share based payment		-		27		27		-
At 31 December 2007		(29)		106		77		4,148
Loss for the year						-		(1,286)
Gain in year		64		-		64		-
At 31 December 2008		35		106		141		2,862

The available-for-sale investments reserve includes the cumulative net change, excluding impairment losses recognised through profit and loss, in the fair value of available-for-sale financial assets until the investment is derecognised.

10.     Share based payments

The Group operates a share-based (equity settled) remuneration scheme for directors and senior management, the Water Hall Group plc Executive Share Option Scheme 2004. Details of the share option changes during the year are as follows:

				2008				2007
Share options		Number of shares		Exercise price (p)		Number of shares		Exercise price(p)
Outstanding at the beginning of the period		8,000,000		3.00		8,400,000		3.00
Exercised during the period		-		-		(400,000)		3.00
As at 31 December		8,000,000		3.00		8,000,000		3.00

The share price at the date of exercise in 2007 was 7p. All options were exercisable at 31 December 2008 and 2007. Share options outstanding at 31 December 2008 had an exercise price of 3p and a weighted average remaining contractual life of 5 years 10 months. There was no charge to the income statement for share-based payments for the year ended 31 December 2008 (2007 - £27,000)

The Group has used the Black-Scholes model for the purposes of valuing options to arrive at the share-based payment charge. The Black-Scholes model arrives at a fair value per option that takes into account the effect of financial assumptions, including the future share price volatility, dividend yield and risk-free interest rates. The expected volatility was determined based on both the volatility of the Group's share price during the last 5 years and the volatility of other similar quoted groups. Employee exit rates and the expected period from vesting to exercise are also considered, based on historical experience. The principal assumptions are:

 

Share price at grant date		3.00p
Exercise price		3.00p
Expected volatility		55%
Expected life		3 years
Risk free rate		5.75%
Fair value per option		1.26p

11. The financial information set out above does not constitute the Company's financial statements for the years ended 31 December 2008 or 2007. The financial information for 2007 is derived from the financial statements for 2007 which have been delivered to the Registrar of Companies. The auditors have reported on the 2007 statements; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The financial statements for 2008 have been audited and will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 17 June 2009. The auditors have reported on the 2008 statements; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

 

The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the year ended 31 December 2008.

 

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The company expects to publish full financial statements that comply with IFRSs in May 2008.

 

12. A copy of the Company's annual report and accounts for 2008 will be available on the Company's website, www.waterhallgroupplc.com, by 26 May 2009. It will be mailed to those shareholders who requested to continue to receive paper copies and will also be available for collection from the Company's registered office, Parallel House, 32 London Road, Guildford, Surrey GU1 2AB.

1 May 2009

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