TIDMWATR
RNS Number : 0934B
Water Intelligence PLC
08 June 2021
Water Intelligence plc
Audited Results For Year Ended 31 December 2020
Trading Update Through 30 April 2021
Water Intelligence plc (AIM: WATR.L) (the "Company" or "Group")
a leading multinational provider of precision, minimally-invasive
leak detection and remediation solutions for both potable and
non-potable water, is pleased to present its full, audited results
for the year ended 31 December 2020 and unaudited Trading Update
through 30 April 2021.
For full year 2020 : Compared with 2019, Group revenue grew by
17% and statutory profits before tax by 78%. The Company
demonstrated market leadership in providing solutions for failing
water infrastructure as an "essential service provider" for a
Covid-affected marketplace. Results reinforce the Group's
reputation for delivery as a growth company. Compounded annual
growth ("CAGR") since 2016 has been 33% in terms of revenue and 53%
in terms of statutory profits before tax.
Trading through 30 April 2021 : 2021 has started with an even
higher growth trajectory than its five year CAGR. Through 30 April,
revenues have grown by 47% and statutory profits before tax by 154%
against the same period in 2020, despite the Group's markets being
adversely affected by the pandemic during both periods.
2020-21 Corporate Development : Beyond strong results, the Group
continues to reinvest in new technologies to reinforce its brand
leadership as a technology-enabled solutions provider for the Green
Economy; a provider that has strong national channels, such as
insurance, that are demanding more minimally-invasive technology
solutions for water conservation. During 2020, the Group was
pleased to be recognized with the Green Economy Mark from the
London Stock Exchange and addition to various MSCI market
indexes.
Copies of the Annual Report will be made available to view on
the Company's website at www.waterintelligence.co.uk
Highlights from the Group's 2020 Audited Results:
-- Revenue growth once again strong at 17% reaching $37.9 million (2019: $32.4 million)
o Total franchise System-wide sales (franchisee gross sales from
which royalty income is derived) and corporate-operated sales
surpassed $140 million
o Sales footprint across the United States and in UK, Australia,
and Canada creates distribution platform for matrix of residential,
commercial, and municipal products and solutions
-- Statutory Profits Before Tax growth at 78% reaching $4.2 million (2019: $2.4 million)
o Profit Before Tax Adjusted (adjusting for non-cash expenses -
amortization and share-based payments - and non-recurring costs
such as transactions fees) grows 50% to $5.1 million (2019: $3.4
million)
-- EPS (fully diluted) grows 69% to 18.8 cents (2019: 11.1 cents)
-- Balance sheet strong at 31 December 2020
o Cash: $6.8 million
o Cash Net of Bank Borrowings: Breakeven with bank amortization
spread through 2025
Core business units - American Leak Detection (ALD) (residential
and commercial markets) and UK-based Water Intelligence
International (WII) (municipal market) each grows strongly
o ALD revenue grows 15% to $33.6 million (2019: $29.1
million)
-- Royalty income from franchisees still grows by 3% to $6.7
million (2019: $6.5 million) despite eight franchise reacquisitions
during 2020 reducing the pool of royalty income
-- Equipment sales grow 11% to approximately $1 million (2019:
$0.9 million) showing franchisee reinvestment in brand despite
Covid-19 disruptions
-- Insurance channel revenue grows by 20% to $8.5 million (2019:
$7.1 million)
-- U.S. Corporate-operated sales grow by 21% to $17.4 million
(2019: $14.4 million) with profit margins expanding to 22% (2019:
14%)
o WII revenue grows 27% to $4.3 million (2019: $3.4 million)
Trading Update Through 30 April
-- All financial KPIs show acceleration
-- Revenue grows 47% to $15.6 million (30 April 2020: $10.7 million)
o Royalty income grows 6% to $2.5 million (30 April 2020: $2.3
million) despite franchise reacquisitions during 2020
o Insurance B-to-B Channel revenue grows 25% to $3.1 million (30
April 2020: $2.5 million)
o U.S. Corporate-operated sales grow 76% to $8.1 million (30
April 2020: $4.6 million)
o WII revenue grows 71% to $1.7 million (30 April 2020: $1
million)
-- Statutory Profits Before Tax grow $154% to $2.2 million (30 April 2020: $0.9 million)
Corporate Development Highlights
-- 2020 Corporate Development
o Corporate finance transactions in October to fuel growth:
approximately $2.7 million net from equity placement and an
additional $6 million available from expanded credit facilities
o Franchise reacquisitions: 8 strategic locations - in United
States executed in each region for greater operational control:
Maryland and Melbourne, Fla (East); Minneapolis (Midwest); New
Orleans (South): San Jose and Seattle (West); in Australia:
Melbourne and Brisbane
o National accounts: three new national insurance companies
o Technology investments: (i) Sewer diagnostic product launched
in the UK with pilots in the US; (ii) Salesforce.com CRM
integration to drive field service automation creating improved
operating efficiencies, security and standardisation
o Appointment of Silicon Valley veteran Daniel McDonald to the
management team as Chief Innovation Officer to accelerate our
deployments and investments in water and wastewater related
technology
-- Corporate Development through May 2021
o Credit facility expansion by $3.2 million on the same terms as
2020 refinancing
o 3 national insurance contract wins
o 3 transactions: 2 strategic reacquisitions of franchises -
Central Florida and Reno, Nevada - as well as PlumbRight Services,
Inc. to extend the plumbing services capabilities of the Group's
fast-growing, multimillion dollar Louisville, Kentucky location
o Acquisition of IP assets from FastDitch, Inc. for stormwater
runoff and irrigation
o Appointment of C. Daniel Ewell to the board as Independent
Non-Executive Director adding significant capital markets
experience
o Appointment of industry leader John Spenard to management team
as Chief People Officer to accelerate organizational build-out of
execution teams for market capture
Dr. Patrick DeSouza, Executive Chairman of Water Intelligence,
commented: "Despite Covid-19 disruptions, we delivered a
breakthrough 2020 and an even more remarkable first third of 2021
with strong advances in every part of our business: financial
results, operating KPIs, technology reinvestment to keep
differentiating our brand, new business lines to address market
demand and experienced leaders to strengthen both board and
management as we move to the next level of corporate development.
Our business is scaling rapidly.
Ironically, the pandemic only served to reaffirm our sense of
mission and the value of our enterprise. Our team worked very hard
to deliver for our customers as an "essential service" provider for
water and wastewater infrastructure needs while communities had to
"shelter in place."
We aspire to lead the technological transformation of the
industry and, in so doing, both conserve the world's most precious
resource and provide solutions for collateral public health issues
from wastewater overflow. We have been gratified to be recognized
during 2020 with the Green Economy Mark from the London Stock
Exchange and by communities, such as Flint, Michigan, that have
suffered from water and wastewater infrastructure issues. With the
public visibility of $100 billion in investment in water
infrastructure sought by the American Jobs Plan, market demand for
our technology-based solutions will continue to grow rapidly."
The information communicated within this announcement is deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
Enquiries:
Water Intelligence plc
Patrick DeSouza, Executive Chairman Tel: +1 203 654 5426
WH Ireland Limited - NOMAD and Broker Tel: +44 (0)20 7220 1666
Adrian Hadden
James Sinclair-Ford
Matthew Chan
Dowgate Capital Limited - Joint Broker Tel: +44 (0)7920 599
Stephen Norcross 793
Chairman's Statement
Overview .
Despite the marketplace disruptions produced by Covid-19, our
strong financial and operating performance for full year 2020 and
further acceleration during 1H 2021, point to the importance of
water infrastructure services for consumers and our ability to
execute, even during challenging times, to meet inelastic market
demand.
Our team showed resilience, navigating the pandemic using
rigorous health and safety protocols for the benefit of our
customers and our technicians. Throughout the crisis, we delivered
our matrix of solutions covering the entire range of residential,
commercial and municipal pipes to address both clean water and
wastewater problems. Moreover, not only did we manage through the
crisis successfully, we also reinvested in field service automation
technology to make our business even more scalable as we emerge
from the pandemic. Undeterred by the challenges, we are delivering
rapidly on our vision of technology-enabled services and a "One
Stop Shop" for water infrastructure solutions. Given the strength
of our Green Economy brand across 150 locations in the U.S. and our
sales footprint in the UK, Australia and Canada, we are also
creating a distribution platform for new product offerings from
third parties seeking market access to our 200,000+ annual
customers.
Our message for this coming year is simple: Full steam ahead.
Because of our strong outcomes, even during Covid, we are updating
our five-year growth plan for 2H 2021 and beyond. We are lifting
our sights in more ambitious fashion. Because of our range of
technology-based solutions, we seek to contribute private sector
leadership to the shaping of the Green Economy. Last summer, we
were pleased to receive from the London Stock Exchange its Green
Economy Mark.
Core Commitments .
Two commitments will continue to drive our ambitious growth
plan. The pandemic tested each of these commitments and we
surpassed expectations. First, we are building a multinational
growth company. Since 2016, we have delivered strong compounded
annual growth in terms of both revenue and profits. Despite public
health lockdowns in all of our operating geographies, we continue
to deliver results because water infrastructure is considered by
regulators to involve an "essential service". Given growing market
demand, we plan to increase our pace of market capture in our
current operating geographies as public health restrictions ease.
Moreover, because the addressable market for failing water
infrastructure is global, we plan to selectively add new
geographies adjacent to current operations. The Biden
Administration's American Jobs Plan seeks over $100 billion for
water infrastructure repair underscoring a global need to preserve
and distribute the world's most precious resource.
Second, our brand is differentiable because of our use of
technology (proprietary and third party) to pinpoint water leaks
and remediate such leaks in minimally-invasive fashion. Our
solutions-based approach has always been akin to that of precision
medicine. Here as well, the pandemic tested our resolve to reinvest
in our technology leadership. Because of the continued growth of
profits from our core business and our confidence in our value as
an "essential service", we reinvested during the pandemic to become
a true "technology-enabled" service with greater operating
efficiencies.
We have implemented Salesforce.com's field service automation
software, together with a range of other technology-based
applications from web forms to video e-commerce. Now we have not
only more efficient delivery of our solutions to customers but also
a leading-edge, cloud-based system with the highest level of data
security for personal data and payments. This latter dimension is a
very attractive attribute for our national business accounts, such
as insurance companies, and for consumers. Moreover, during the
pandemic, we reinvested in new technology-driven service offerings
for our customers. During 2H, we will release in the US a
proprietary sewer diagnostic product for homeowners that was first
pioneered in the UK in 2020 with utilities such as Thames Water.
The Group has now adapted the device for the U.S. residential
market. During the pandemic, as consumers disposed of sanitary
wipes, collateral public health issues surrounding sewer backups
became more visible. Further, in 1Q 2021, we invested in new
technology for the lining of open water channels. Open channel
conveyance, typically designed with concrete structures, is used
around the world for irrigation and stormwater run-off but highly
susceptible to leakage. These investments during the pandemic will
reinforce our leadership role in transforming water infrastructure
services through technology.
Financial Performance
We produced a set of results for 2020 that were ahead of market
expectations. We maintained strong revenue growth and also
reinvested to drive future market capture. Much like pre-pandemic
2018 and 2019, our statutory profits before tax grew even faster
than revenue growth displaying various efficiencies from scaling
operations. For full year 2020, Group revenue increased 17% to
approximately $37.9 million while statutory profits before tax grew
78% to approximately $4.2 million. Our compounded annual growth
rate (CAGR) since 2016 is now 33% in terms of revenue and 53% in
terms of profits before tax. Especially given the disruptions of
Covid, our 2020 results underscore the Group's consistent delivery
and point to a sustainable growth trajectory.
1Q 2021 reinforced and accelerated this already strong
trajectory. Covid-19 marked the first quarters of both 2020 and
2021 making comparisons straight forward. Group revenue grew 38% to
$11.4 million (1Q 2020: $8.3 million). Statutory profit before tax
grew an outstanding 152% to $1.66 million (1Q 2020: $0.66 million)
indicating continued scaling of operations.
Our overall market presence has passed $140 million in gross
sales to customers which includes indirect sales by our franchisees
from which franchise royalty income is derived plus direct sales
from corporate operations. Such critical mass of gross sales to
third parties alongside our reinvestment in technology positions us
well for the next level of brand development. And we are now
raising our profile in the market. Not only did we receive the
Green Economy Mark from the London Stock Exchange during 3Q 2020,
we were also added to various MSCI indices during 4Q.
Operating KPIs .
Water Intelligence KPIs are explained more fully in the
Strategic Report. Our 2020 KPI results show the underlying
components that are leading to the acceleration of our growth
trajectory. First, royalty growth from the American Leak Detection
("ALD") franchise System remains strong. During 2020, ALD royalty
income grew by 3% in absolute terms to $6.7 million (2019: $6.5
million). This absolute growth is noteworthy because the Group
doubled 2019's rate of franchise reacquisitions thus removing
royalty income faster from the pool of potential 2020 royalty
income. Eight strategic reacquisitions were executed during 2020.
Despite this pace of corporate activity, the increase in royalty
shows the health of the franchise System and demand for our
solutions. As discussed below, the franchise System offers the
Group an opportunity for additional leverage in selling and
delivering solutions to national accounts, such as insurance
companies, across the US. Moreover, the recurring monthly income
from franchise royalties leads to efficient capital formation for
equityholders by enabling a mix of non-dilutive bank debt.
Second, our franchise-related activities reinforce the continued
growth of royalty income. Franchise-related activities include: (i)
national accounts such as insurance; (ii) franchisee purchases of
equipment; and (iii) sales of franchise territory. Our national
account channel which feeds jobs to both franchisees and corporate
locations continues to grow rapidly. During 2020, our insurance
channel grew by 20% to $8.5 million (2019: $7.1 million). We added
three more national insurance accounts during 2020 which will fuel
continued growth in 2021 and beyond. In addition, franchisee
purchases of equipment grew 11% in absolute terms to $0.95 million
(2019: $0.85 million), despite the reacquisitions. Such growth
shows continued franchisee commitment to reinvesting in the growth
of the ALD brand. This positive KPI feature is remarkable given
that Covid generally had a negative impact on reinvestment in the
broader marketplace.
Third, U.S. corporate-run operations complement our franchise
system by adding to the critical mass of sales presence and
execution across our operating geographies. During 2020,
corporate-run operations grew 21% to $17.4 million (2019: $14.5
million). These fast-growing locations reinforce franchise
operations with increased regional marketing presence. During 2020,
the Group completed reacquisitions in each region of the United
States: Southeast, South, Upper Midwest and Northwest. In
particular, the Northwest set of transactions - combining 2
locations in Silicon Valley and reacquiring Seattle in order to
link existing Portland operations and a greenfield target of
Vancouver - is expected to yield collateral strategic benefits. A
sales corridor between Silicon Valley and Seattle will accelerate
technology sourcing thus reinforcing our brand differentiation.
Further, the critical mass of existing municipal operations in
Seattle will support the establishment of a US headquarters for our
UK-based Water Intelligence International ("WII") subsidiary to
cross-sell its municipal solutions in the US.
The Group has efficiently executed the transition to corporate
operations after franchise reacquisitions thus unlocking profits
for our shareholders. Profit before tax for corporate locations
grew by an outstanding 87% reaching $3.8 million (2019: 2.0
million). Moreover, corporate-run operations have been continually
increasing profit margins, while still reinvesting in growth.
Profit margins for corporate-run locations reached 22% as compared
to 14% in 2019. Such margin expansion contributed to the jump in
Water Intelligence profits during 2020. As a result, reacquisitions
are unlocking significant shareholder value because the net profits
that they produce are significantly higher than foregone net
royalty income for doing the same execution activity in the same
location under the same brand.
Fourth, our WII business continues to grow steadily. During
2020, WII grew revenue by 27% to $4.3 million (2019: $3.4 million).
WII complements ALD's residential and business-to-business focus
with larger scale municipal solutions; moreover, given the team's
professional experience globally, WII leads the Group's
multinational growth efforts. For example, WII productized and
introduced a new sewer diagnostic product in the UK and conducted
field trials in the US with ALD franchisees. In addition, WII
continues to expand in Australia. Franchise reacquisitions during
2020 in Melbourne and Brisbane, combined with WII's Sydney
operations, now give WII a critical mass of corporate operations in
the 3 largest population centres in Australia. Because of its
climate and water scarcity issues, Australia is anticipated to be a
strong growth geography for integrating all of the Group's
offerings from municipal to residential given its initial base of
ALD franchisees and now WII expansion.
Strategic Direction .
Given the success of our business plan and our strong capital
base, our next steps are very straight forward. We plan to do more
of the same in executing our core business offerings only more
aggressively given our traction. Two tactics - one organic-based
and one acquisition-based - would be the drivers for us to reach
the next level of market capture.
First, we have plenty of customer demand for our
minimally-invasive solutions whether residential, commercial or
municipal. We can feed organic growth simply by deploying more
trained execution staff and service vehicles. To be sure, our
Salesforce implementation will make our execution more efficient.
Importantly, we recently recruited and hired a Chief People Officer
with significant experience in our industry. Such appointment will
provide leadership and additional organizational structure for
hiring, training, deploying and retaining solutions
professionals.
Second, we will continue to execute selective franchise
reacquisitions that integrate regional operations and convert more
franchisee royalty income into Group revenue and profits.
Currently, there is approximately $110 million of highly profitable
sales to third parties by our franchisees that is recorded as $6.7
million of royalty income. Reacquisitions are strongly accretive
financially for the Group and its shareholders. Yet is it important
to reiterate that we still seek to grow and maintain the vitality
of the entire franchise System so that the brand continues to grow
and add to the $140 million "gross sales pie" from which
reacquisitions may be strategically selected.
Beyond these two tactics, we will continue to invest in
technology solutions that distinguish our brand with respect to
water infrastructure problems. During 2020, we added a Chief
Innovation Officer to the management team who had significant
Silicon Valley experience. Such appointment produced immediate
benefits: we adapted our new sewer diagnostic product for the
residential market and we acquired patents for irrigation and
storm-water run-off products that we are now manufacturing. Our
ability to source and drive additional technology solutions for
water infrastructure problems continues to differentiate our brand
from traditional water infrastructure service providers.
We are confident about our ability to fuel a strong growth
trajectory for 2021 and beyond. Our investment in a Chief People
Officer and Chief Innovation Officer during the pandemic
underscores that we will be relentless in building a management
team and organization that can drive and sustain a significant
multinational growth company with a differentiated technology brand
- an aspiration a decade ago that has now fast becoming a
reality.
Dr. Patrick DeSouza
Executive Chairman
7 June 2021
Strategic Report
Business Review and Key Performance Indicators
The Chairman's Statement, on pages 3 to 6, provides an overview
of the year and the Outlook for Water Intelligence plc and its
subsidiaries, referred to as the "Group". The business indicators
offered below are meant to capture for the Board not only the state
of performance but also the evolution of our business model to a
platform company that is a "One-stop Shop" for our growing base of
customers through additional cross-sales of solutions from across
our business units and also the up-sales of technology products to
fulfil more of the needs of our customers.
The Water Intelligence platform has two wholly-owned
subsidiaries: American Leak Detection (ALD) and Water Intelligence
International (WII). These business units generate approximately
$140 million of sales to third-parties. The two subsidiaries are
distinguished by the degree of franchise-operated and
corporate-operated locations and their respective priorities with
respect to residential, business-to-business and municipal
customers.
ALD, our core business, is largely a franchise business with
strategic corporate-operated locations. ALD is a leader in using
technology to pinpoint and repair water leaks without destruction.
Solutions target both residential and business-to-business
customers, such as insurance companies, which value our "minimally
invasive" value proposition. ALD generates approximately $135
million of sales to end-users. That critical mass of sales is
derived from direct sales via corporate-operated locations and
indirect sales measured by royalty income from franchisees, which,
in turn, is based on franchisee gross sales to end-users. With its
installed and growing base of residential customers, ALD can also
upsell technology home services products to meet growing consumer
demand for solutions to water loss and water quality.
WII, our UK-based operation, focuses on municipal solutions
given the world-wide problem of failing water infrastructure. WII
has approximately $5 million of sales to customers. WII's solutions
are also technology-based. It is exclusively a corporate-run unit
that leads the Group's international expansion. WII does have the
capability to execute ALD service offerings and is currently doing
so at our corporate-operated locations in Australia. WII also
cross-sells complementary municipal offerings and residential
wastewater solutions to ALD for municipal customers in the US.
The Group's growth strategy is evaluated through key performance
indicators (KPIs) and incorporates both corporate-operated and
franchise-operated organic growth from ALD and WII solutions, as
well as, unlocking additional sales growth and shareholder value
through acquisition, especially by selectively converting ALD
franchises to corporate-operated locations. Such re-acquisitions of
franchisee operations enable some amount of the approximately $110
million in highly profitable franchisee sales to end-users of our
solutions, currently recorded as royalty income, to be converted to
the Group's direct P&L. As a byproduct of such acquisition-led
P&L growth, it is also important to separate continuing
operating costs from non-core costs related to transactions that
are executed as part of the Group's growth plan. Finally, because
of the recurring and growing nature of monthly recurring royalty
income from the franchise business, the Group is able to be
efficient in its capital formation using both equity and bank debt.
As a result, it is important that the Group manage to the right
balance in capital formation by monitoring the level of net
borrowings.
Six key performance indicators (KPIs) are used by the Board to
monitor the above described business model: (i) growth in ALD
franchise royalty income, (ii) growth in ALD franchise-related
activities that include both business to business sales and sales
of parts and equipment, (iii) growth in ALD corporate-operated
locations in the United States, (iv) growth in WII corporate
activities located outside the United States, (v) non-core costs
and (vi) net borrowings from banks which are subject to financial
covenants. These six indicators are reported to the Board and used
to assist the Board in the management of the business.
2020 Conclusions Drawn From 6 KPIs:
i. ALD Franchise System is expanding its sales and brand
presence across the United States as indicated by royalty growth
which furthers our evolution as a "One-Stop Shop" distribution
platform. Royalty growth continues given market demand despite
franchisee reacquisitions which remove some royalty from the pool
of eligible royalty income.
ii. ALD Business-to-Business Channel takes advantage of our
national execution presence under one brand and, led by the growth
of insurance company channel, is fuelling expansion in both
franchise-operated and corporate-operated locations.
iii. ALD Corporate-operated locations add to critical mass of
Group revenue and profits and through selective reacquisitions from
our expanding franchise System further unlocks the Group's equity
value
iv. WII complements our ALD brand and contributes complementary
municipal sales to the Group's overall sales presence in the US and
international geographies
v. Non-core costs, largely legal transactions costs, are an
acceptable trade-off relative to the operating P&L benefits of
adding critical mass to the Group's revenue and profits
vi. Net-borrowing position with respect to banks is favourable
for Group's continued growth and business plan especially given the
consistent growth of monthly recurring income and low interest rate
environment.
(i) Franchise Royalty Income.
The continued growth of the core ALD franchise business is the
foundation for the business strategy of the Group. ALD is the
centrepiece of the Group's distribution strategy as a "One-Stop
Shop" platform because of its sales footprint in 46 states of the
US and multiple locations in Australia and Canada. Moreover,
because of the recurring nature of its royalty stream, the Group is
able to increase shareholder value in its capital formation with a
mix of debt and equity. As System-wide franchisee gross sales
increase, the Board can decide whether to selectively reacquire
franchises and convert them to corporate-operated locations adding
critical mass of revenue and profits to the Group or to keep adding
high margin royalty income to the Group. Royalty income in 2020
grew in absolute terms by 3% compared with 2019 despite a
significant number of reacquisitions during 2020 which had the
effect of reducing the eligible pool of royalty income. Such
royalty growth is attributable in part to the benefits arising from
the Group's insurance channel which expands the franchise System.
Profits before tax from this business line grew by 10% as the
franchise System has continued to scale. The Group has 94
franchises at the end of 2020 which represents a decrease of 9
franchises (2019: 103). The net decrease was the result of the
reacquisition and conversion of 9 franchises into corporate-run
locations. Performance from royalty income is as follows:
Year ended Year ended
31 December 31 December
2020 2019 Change
$'000 $'000 %
----------------------------- -------------- -------------- -------
Total USA 6,572 6,356 3%
International 119 143 (17)%
----------------------------- -------------- -------------- -------
Total Group Royalty Income 6,691 6,499 3%
----------------------------- -------------- -------------- -------
Profit before tax (see note
4) 1,771 1,603 10%
----------------------------- -------------- -------------- -------
(ii) Franchise-related Activities.
US franchise-related activities provide supporting evidence for
the strength of the core ALD business. Parts and equipment sales
are one indication of franchisee reinvestment in growth of their
respective operations. Business-to-Business channels, such as
insurance and property management represent national customers and
are an indication that these customers value ALD's nationwide brand
and sales footprint - an important aspect of competitive strategy.
Jobs for franchisees are sourced by Corporate headquarters from
insurance companies using a centralized processing system. The jobs
are then dispatched to franchisees from corporate administration
with corporate administration taking liability and payment risk.
Finally, sales of franchise units represent the decision to develop
a new territory through a franchisee. This line item conveys the
Group's current priority with respect to adding corporate-operated
locations as opposed to franchisee-operated locations in order to
develop and grow a territory. Revenue from franchise-related
activities in 2020 grew by 18% compared to 2019 largely because of
the growth of the Group's business-to-business channel. Profits
before tax grew 14% in 2020 compared with 2019. Performance from
franchise-related activities are as follows:
Year ended Year ended
31 December 31 December
2020 2019 Change
$'000 $'000 %
------------------------------------ -------------- -------------- -------
Parts and equipment sales 950 854 11%
Business-to-Business sales 8,536 7,106 20%
Sales of Franchise Units 27 90 (70)%
------------------------------------ -------------- -------------- -------
Total Revenue Franchise Activities 9,513 8,050 18%
------------------------------------ -------------- -------------- -------
Profit before tax (see note
4) 683 601 14%
------------------------------------ -------------- -------------- -------
(iii) US Corporate Operated Locations (ALD).
Corporate-run locations both greenfield and initiated after
reacquisition of franchise locations contribute revenue and profits
to the Group. In addition, such operations also support the
franchise System with strategy, marketing and execution support in
further developing territories. Performance of the US corporate-run
locations post-reacquisition is also an indication of the success
of the Group's strategy to selectively reacquire ALD franchises to
meet increasing market demand for our minimally invasive leak
detection and repair solutions. The Group directly operates 27
territories, an increase of 9 territories (2019: 18).
As set forth below, ALD Corporate-operated revenue grew 21% to
$17.4 million (2019: $14.4 million). Meanwhile profits before tax
grew strongly by 87% to a $3.8 million (2019: $2.0 million). We
have begun to measure the difference between near-term corporate
growth through reacquisitions of franchisees and longer-run
corporate-operated organic growth post reacquisition. We have
included a line item for corporate locations owned during the
comparison years. Not counting the 2019 and 2020 franchise
reacquisitions, revenue was flat but profits before tax grew 27% to
$2.3 million (2019: $1.8 million).
Nonetheless, Table (iii) also enables us to assess the trade-off
between franchise royalty growth and corporate-operated growth by
examining yield in terms of Group profit before tax. Corporate
store profit before tax amount to $3.8 million. If the Group was a
"franchise-only" business and the same $17.4 million of sales to
the same customers under the same ALD brand were executed by
franchisees, the Group would only receive approximately $0.27
million of the profit before taxes. ($17.4 million of sales
multiplied by 6% royalty fee equals approximately $1.04 million of
royalty income; and $1.04 million is then multiplied by 26% profit
margin of royalty income - see KPI #1 - to yield $0.27 million of
profits before tax to the Group).
Performance from corporate-operated locations is as follows:
Year ended Year ended
31 December 31 December
2020 2019 Change
$'000 $'000 %
----------------------------- -------------- --- -------------- -------
Revenue 17,434 14,446 21%
Locations owned prior to
1 January 2019 12,936 12,969 0%
Profit before tax (see note
4) 3,796 2,025 87%
Locations owned prior to
1 January 2019 2,260 1,781 27%
----------------------------- -------------- --- -------------- -------
(iv) International Corporate Operated Locations (WII)
The Group continues to strengthen its multinational presence
through its UK-based WII subsidiary. WII focuses largely on
municipal solutions while maintaining core residential and
commercial offerings. WII has expanded its multinational operating
scope by managing corporate locations established in Australia and
Ontario, Canada after ALD franchisee reacquisitions.
UK-based WII leads the Group's international expansion. Sales
have grown 27% during 2020 to $4.3 million. (2019: $3.4 million).
Most importantly, profits grew strongly by 38%. (2020: $0.31
million; 2019: $0.23 million). Performance from Water Intelligence
International is as follows:
Year ended Year ended
31 December 31 December
2020 2019 Change
$'000 $'000 %
---------------------------------- -------------- -------------- -------
UK 1,591 1,386 15%
Australia 1,889 1,421 33%
Canada 814 562 45%
Total Revenue from International
Corporate Activities 4,295 3,369 27%
---------------------------------- -------------- -------------- -------
Profit before tax (see note
4) 312 226 38%
---------------------------------- -------------- -------------- -------
(v) Non-Core Costs.
During 2020, the Group incurred what are considered to be
non-core costs relating to transactions executed for the future
growth of the business. As discussed herein, understanding non-core
costs, as distinct from continuing operating costs, enables the
Board to evaluate capital allocation choices made to accelerate
operations organically and to scale through acquisition. In 2020,
there were $101,000 of non-core costs. During 2019, there were
$493,000 of non-core costs. Please see table below for details:
Year ended Year ended
31 December 2020 31 December 2019
$'000 $'000
----------------------------------- ----------------- -----------------
Technology product write-off - 93
Plumbing unit write-off related to
acquisition - 187
Transaction-related employee costs - 82
Transaction-related legal costs 101 131
Total 101 493
----------------------------------- ----------------- -----------------
(vi) Net Bank Borrowings.
Management of financial resources is important for making
various decisions regarding the reinvestment rate in the growth of
operations. As noted herein, the recurring income from franchise
royalty provides the Group with attractive attributes for using
bank debt to complement equity sources of capital. In the current
macroeconomic environment, bank debt is a relatively cheaper cost
of capital than equity. The Group's objective for risk management
purposes is to be prudent with respect to bank financial covenants.
Net cash after Bank Borrowings is approximately neutral and
amortization of such debt extends through 2025.
Group
Year ended Year ended
31 December 31 December
2020 2019
$'000 $'000
----------------------------------- ---- ---- -------------- --------------
Lines of credit: acquisition and
working capital 227 1,264
Term loan 6,555 2,047
----------------------------------- --------- -------------- --------------
6,782 3,311
Less: Cash
Held in US Dollars 5,662 4,127
Held in GBP Sterling 652 633
Held in CDN Dollars 250 121
Held in AU Dollars 255 400
----------------------------------------- ---- -------------- --------------
6,819 5,281
---------------------------------------- ---- -------------- --------------
Total Net Bank Borrowings/(Cash) (37) (1,970)
----------------------------------------- ---- -------------- --------------
Principal Risks and Uncertainties
The Group's objectives, policies and processes for measuring and
managing risk are described in note 23. The principal risks and
uncertainties to which the Group is exposed include:
Market Risk
The Group's activities expose it to the financial risk of
changes in foreign currency exchange rates as it undertakes certain
transactions denominated in foreign currencies. There has been no
change to the Group's exposure to market risks. The Group monitors
exposure to foreign exchange rate changes on a daily basis by a
daily review of the Group's cash balances in the US, UK, Canada and
Australia.
Interest Rate Risk
The Group's interest rate risk arises from its short and term
loan borrowings.
Whilst borrowing issued at variable rates would expose the Group
to cash flow risks, as at year-end, the Company does not have any
variable rate borrowings.
Credit Risk
The Group's credit risk is primarily attributable to its cash
and cash equivalents and trade receivables. The credit risk on
other classes of financial assets is considered insignificant.
Liquidity Risk
The Group manages its liquidity risk primarily through the
monitoring of forecasts and actual cash flows.
Covid-19 Risk
The Group delivers water and wastewater services and is
considered a supplier of "essential services" under governmental
policies covering shelter-in-place. As such the Group has continued
to operate during the pandemic. During 2Q there was some slowing,
as homeowners evaluated the risks of residential delivery of
solutions and the Group evaluated health and safety protocols for
our technicians. Continued consumer demand for water and wastewater
solutions enabled the Group to return to executing its operating
plan as an "essential service provider." The Group has sufficient
cash to execute its plan and balance work protocols for the health
and safety of all our stakeholders, especially our technicians and
our customers.
Other Risks
There is a risk that existing and new customer relationships and
R&D will not lead to the sales growth and increased profits.
The Group is reliant on a small number of skilled managers. The
Group is reliant on effective relationships with its franchisees,
especially in the US.
Corporate Governance statement S172 of the UK's Companies
Act
Each director must act in a way that, in good faith, would most
likely promote the success of the Group for the benefit of its
stakeholders. The Board of Directors consider, both individually
and together, that they have acted in the way they consider, in
good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole (having regard to
the stakeholders and matters indicated in S172) in the decisions
taken during the year ended 31 December 2020. Following is an
overview of how the Board performed its duties during 2020.
Shareholders and Banking Relationships
The Executive Chairman, Chief Financial Officer, members of the
Board and senior executives on the management team have regular
contact with major shareholders and banking relationships. The
Board receives regular updates on the views of shareholders which
are taken into account when the Board makes its decisions. During
October 2020, the Company raised capital from largely its current
shareholders and refinanced its credit facilities. The Group
received feedback during that process.
Employees
The Board recognizes the importance of advanced human capital to
a technology and services-led business. The Board works through its
human resources director to provide on-going training and benefits.
It also provides advancement opportunities in its various
corporate-operated locations. As noted in the Directors' Report,
the Group has taken a variety of steps to address the COVID-19
pandemic in terms of its employees and stakeholders.
Franchisees
The Group holds an annual convention for its franchisees which
includes education and training sessions. Franchisees have an
Advisory Committee that provides input to the Board with quarterly
meetings. One of our Board members, Bobby Knell, successfully
developed the Dallas franchise and retired as one of our leading
franchisees. He provides an additional channel for input from the
franchise System. Throughout the year, the Group shared best
practices with franchisees in responding to Covid-19
circumstances.
Customers
ALD has a reputation for high quality service delivery across
the United States for over thirty years. Given the importance of
our reputation with customers, especially insurance companies, the
Board pays significant levels of attention to the quality of our
service delivery. Management gathers data that it shares with the
Board on customer satisfaction.
Community and Environment
The Group's brand stands for the conservation of water and the
importance of providing solutions to potable and non-potable water
leaks. Through our advertising and marketing the Group seeks to
communicate to the public both the importance of sustainability,
particularly with respect to water loss through leakage, and the
importance for public health of remediating sewer blockages as
consumers dispose of sanitary wipes in toilets during Covid-19. The
Group took an active role not only in providing leak detection
services to local government in Flint, Michigan - a community known
for its lead in the water crisis - but also in working to educate
community members on the importance of on-going water monitoring.
The Board has sought to be active with respect to education and
water. During 2019 and 2020, members of the Board have worked with
Columbia University to contribute to its "Year of Water" education
campaign. During 2020 the Group was pleased to receive the Green
Economy Mark from the London Stock Exchange.
By order of the Board
Patrick DeSouza
Executive Chairman
7 June 2021
Directors' Report
The Directors present their report on the affairs of Water
Intelligence plc (the "Company") and its subsidiaries, referred to
as the Group, together with the audited Financial Statements and
Independent Auditors' report for the year ended 31 December
2020.
Principal Activities
The Group is a leading provider of minimally-invasive leak
detection and remediation services. The Group's strategy is to be a
"One-stop Shop" for solutions (including products) for residential,
commercial and municipal customers.
Results
The financial performance for the year, including the Group's
Statement of Comprehensive Income and the Group's financial
position at the end of the year, is shown in the Financial
Statements on pages 30 to 36.
2020 was marked by sustained and balanced multinational growth
for both ALD and WII. Total revenue grew 17% to $37.9 million and
profits before tax grew 78% to $4.2 million when compared with
2019. Our ALD subsidiary grew revenue 16% to $33.6 million and
profits before tax 118% to $5.00 million when compared with 2019.
Our WII subsidiary grew revenue 27% to $4.3 million and grew profit
before taxes by 38% to $0.31 million. More generally, Water
Intelligence 2020 results contributed to a compounded annual growth
rate from 2016-2020 of 33% sales growth and 53% profits before tax
growth. The splits between ALD and WII revenue remained consistent
during 2020 with approximately 90% of total revenue attributable to
ALD and 10% of total sales attributable to WII contributing to
balanced growth.
Going Concern
The Directors have prepared a business plan and cash flow
forecast for the period to April 2022. The forecast contains
certain assumptions about the level of future sales and the level
of margins achievable. These assumptions are the Directors' best
estimate of the future development of the business. The Group
generates increasing levels of cash driven by its profitable and
growing US-based business, ALD. The Directors also note that the
Group has diversified its operations further with growth in WII.
Moreover, after an oversubscribed capital raise and expansion of
its credit facilities in October 2020, the Directors believe that
funding will be available on a case-by-case basis for different
additional initiatives. The Directors conclude that the Group will
have adequate cash resources both to pursue its growth plan and to
accelerate execution if it so chooses. The Directors are satisfied
that the Group has adequate resources to continue in operational
existence for the foreseeable future and accordingly, continue to
adopt the going concern basis in preparing the financial
statements.
Research & Development; Commercialization
The Group's focus is currently on reinvestment for
commercialization of products not pure R&D. Expenditure on pure
research, all of which was undertaken by third parties not related
to the Group, was $3,034 (2019: $10,152). The Group remains
committed to anticipate market demands and has spent money on new
product development during the year which has been capitalised.
Dividends
The Directors do not recommend the payment of a dividend (2019:
$nil).
Share Price
On 31 December 2020, the closing market price of Water
Intelligence plc ordinary shares was 500.0 pence. The highest and
lowest prices of these shares during the year to 31 December 2020
were 526.0 pence and 255.0 pence respectively.
Capital Structure
Details of the authorised and issued share capital are shown in
Note 21. No person has any special rights of control over the
Company's share capital and all issued shares are fully paid.
Future Developments
Future developments are outlined throughout the Chairman's
Statement on pages 3-6.
Financial Risk Management
Financial risk management is outlined in the principal risks and
uncertainties section of the Strategic Report on page 11.
Subsequent Events
On 4 February 2021, the Group completed an extension of its
credit facilities by $3.2 million, on the same terms as the
refinancing completed in October 2020 and referenced in note
23.
On 30 March 2021, the Group completed the reacquisition of its
Central Florida (Clermont) franchise territory within the Group's
ALD franchise business. Strategically, the Central Florida
reacquisition will enable ALD to link operations along the eastern
part of Florida from its Central Florida location to fast-growing
corporate operations in Orlando, to the east, and sizeable
Melbourne and Miami operations, to the south. As noted above,
demand is high for ALD water leak detection and repair offerings in
this geography because of various factors ranging from the number
of swimming pools to level of disposable income to rainy weather.
In linking the above four eastern Florida operations, ALD expects
to achieve even faster growth through fulfilling pent-up demand and
creating operating efficiencies from scale.
The provisional fair values of the acquisitions subsequent to
year end are detailed below:
Clermont
--------------------------------------
$
-------------------------------------- ---------
Fair value of assets and liabilities
acquired
Equipment 26,250
Vehicles 54,868
Other 30,000
Net assets acquired 111,118
-------------------------------------- ---------
Consideration
Cash 330,000
Deferred consideration - discounted
to present value 330,000
-------------------------------------- ---------
Total consideration 660,000
-------------------------------------- ---------
Intangible asset arising on
acquisition 548,882
-------------------------------------- ---------
On 23 April 2021, the Group announced the acquisition of
intellectual property assets ("IP") from FastDitch, Inc., a US
corporation. The IP Assets will be used to launch a new subsidiary
of the Group's core American Leak Detection business dedicated to
providing water infrastructure solutions. The subsidiary will
operate under the tradename IntelliDitch. As set forth in a recent
market communication, the Group is accelerating its growth plan
given the anticipated increase in market demand for water
infrastructure solutions stimulated by the Biden Administration's
American Jobs Plan. No provisional fair values are provided.
On 2 June 2021, the Group announced the reacquisition of its
Reno, Nevada franchise territory within its ALD franchise business.
The acquisition strengthens corporate presence in the western part
of the United States and links its ALD innovation centers in
Silicon Valley and Seattle. The purchase price of $0.25 million is
based on $0.25 million of sales during 2020. It is believed that
strong growth will occur in this location with the end of Covid
restrictions. The purchase price allocation for the Reno
acquisition will be completed in due course.
On 2 June 2021, the Group announced the acquisition of
PlumbRight Services, Inc. PlumbRight extends the plumbing services
capabilities of the Group's fast-growing, multimillion dollar
Louisville, Kentucky location. The PlumbRight team will enable the
Louisville office to take on larger scale repair jobs as
follow-through sales beyond current pinpoint leak detection
solutions for its existing business and municipal customers. The
purchase price of $0.7 million is based on 2020 sales of
approximately $1 million. The purchase price allocation for the
PlumbRight Services acquisition will be completed in due
course.
COVID-19
PPP Program - The Paycheck Protection Program (PPP) brings much
needed relief to business owners affected by the coronavirus. Not
only does this loan program provide funding to help cover payroll
and other expenses, but if used for qualifying purposes, part or
all of the loan can be forgiven. ALD applied for and received
funding of $1,869,800 under this program in April 2020. The Group
received notification from the SBA on March 31, 2021 that the full
advance of $1,869,800 was forgiven.
Work Protocols and PPE - The Group reviewed all applicable
Shelter-in-Place Orders and determined that our operations qualify
as services related to essential/critical infrastructure with
respect to water and wastewater and that we can continue to operate
under those Orders. The Group has taken health and safety measures
with respect to all personnel and significantly increased its
inventory of Personal Protective Equipment (PPE). The Group has
issued work protocols with respect to our service technicians who
are essential to the delivery of our water and wastewater solutions
to customers. All non-essential personnel have been notified to
work remotely until further notice. All employees have been
instructed to comply with social distancing rules/requirements in
their jurisdictions, as well as other safety and health precautions
including use of PPE, frequent handwashing and sanitizing of all
equipment.
Directors
The Directors who served the Company during the year and up to
the date of this report were as follows:
Executive Directors
Patrick DeSouza - Executive Chairman
Laura Hills
Non-Executive Directors
Bobby Knell
Michael Reisman
David Silverstone (Resigned 17, September 2020)
C. Daniel Ewell (Appointed 8, April 2021)
On 7 June 2021, Laura Hills and Bobby Knell swapped roles as
executive and non-executive directors respectively, reflecting
their ongoing roles within the Group. The biographical details of
the Directors of the Company are set out on the Corporate
Governance section of the report and on the Company's website
www.waterintelligence.co.uk
Directors' emoluments
2020 Salary, Fees
& Bonus Benefits Redundancy Total
-------------------------
$ $ $ $
------------------------- ------------- --------- ----------- --------
Executive Directors
P DeSouza 581,203 25,312 - 606,515
L Hills 92,458 - - 92,458
------------------------- ------------- --------- ----------- --------
Non-Executive Directors
D Silverstone 20,500 - - 20,500
B Knell 60,000 - - 60,000
M Reisman 20,304 - - 20,304
774,465 25,312 - 799,777
------------------------- ------------- --------- ----------- --------
2019 Salary, Fees
& Bonus Benefits Redundancy Total
-------------------------
$ $ $ $
------------------------- ------------- --------- ----------- --------
Executive Directors
P DeSouza 517,346 20,034 - 537,380
B Knell 40,000 40,000
J Weigold 41,250 41,250
------------------------- ------------- --------- ----------- --------
Non-Executive Directors
D Silverstone 21,000 - - 21,000
M Reisman 20,000 - - 20,000
L Hills 20,000 - - 20,000
------------------------- ------------- --------- ----------- --------
659,596 20,034 - 679,630
------------------------- ------------- --------- ----------- --------
Directors' interests
The Directors who held office at 31 December 2020 and subsequent
to year end had the following direct interest in the voting rights
of the Company at 31 December 2020 and at the date of this report,
excluding the shares held by Plain Sight Systems, Inc.
Number of shares % held at
at 31 December 31 December Number of shares % held at
2020 2020 at 7 June 2021 7 June 2021
Patrick DeSouza*/** 4,987,110 28.20 4,987,110 28.19
Michael Reisman* 184,126 1.04 184,126 1.04
Laura Hills 120,757 0.68 120,757 0.68
Bobby Knell 20,500 0.12 27,000 0.15
Dan Ewell - - 22,659 0.13
---------------------- ---------- ------------- ----------------- -------------
*Included in the total above, Patrick DeSouza received (i)
600,000 Partly Paid Shares during 2016, of which 300,000 have been
fully paid and converted into Ordinary Shares (ii) 750,000 in March
2018 (iii) 850,000 in May 2019 and (iv) 300,000 Partly Paid Shares
in October 2020. These will not be admitted to trading or carry any
economic rights until fully paid.
*Patrick DeSouza and Michael Reisman are directors and
shareholders in Plain Sight Systems, Inc.
**Patrick DeSouza's interests include 1,800,000 shares held by
The Patrick J. DeSouza 2020 Irrevocable Trust U/A Dtd 11/23/2020
and 810,000 shares held in The Patrick J. DeSouza GRAT #1 U/T/A Dtd
11/23/2020
Share option schemes
To provide incentive for the management and key employees of the
Group, the Directors award stock options. Details of the current
scheme are set out in Note 7.
Substantial Shareholders
As well as the Directors' interests reported above, the
following interests of 3.0% and above as at the date of this report
were as follows:
Number of shares % held
------------------------------ ---------------- ------
Plain Sight Systems, Inc. 2,430,410 13.74
Canaccord Genuity Group Inc. 1,620,000 9.16
State Street Nominees Limited 1,095,500 6.19
George D. Yancopoulos 841,595 4.76
Amati AIM VCT 814,660 4.60
Herald Investment Trust 608,152 3.44
------------------------------ ---------------- ------
Corporate Responsibility
The Board recognises its employment, environmental and health
and safety responsibilities. It devotes appropriate resources
towards monitoring and improving compliance with existing
standards. An Executive Director has responsibility for these areas
at Board level, ensuring that the Group's policies are upheld and
providing the necessary resources.
Employees
The Board recognises that the Group's employees are its most
important asset.
The Group is committed to achieving equal opportunities and to
complying with relevant anti-discrimination legislation. It is
established Group policy to offer employees and job applicants the
opportunity to benefit from fair employment, without regard to
their sex, sexual orientation, marital status, race, religion or
belief, age or disability. Employees are encouraged to train and
develop their careers.
The Group has continued its policy of informing all employees of
matters of concern to them as employees, both in their immediate
work situation and in the wider context of the Group's well-being.
Communication with employees is effected through the Board, the
Group's management briefings structure, formal and informal
meetings and through the Group's information systems.
Independent Auditors
Crowe UK LLP has expressed their willingness to continue in
office. In accordance with section 489 of the Companies Act 2006,
resolutions for their re-appointment and to authorise the Directors
to determine the Independent Auditors' remuneration will be
proposed at the forthcoming Annual General Meeting.
Statement of disclosure to the Independent Auditor
Each of the persons who are directors at the time when this
Directors' report is approved has confirmed that:
-- so far as that Director is aware, there is no relevant audit
information of which the Company and the Group's auditor is
unaware; and
-- that Director has taken all the steps that ought to have been
taken as a director in order to be aware of any relevant audit
information and to establish that the Company and the Group's
auditor is aware of that information.
By order of the Board
Patrick DeSouza
Executive Chairman
7 June 2021
Corporate Governance Statement
As a Board, we believe that practicing good Corporate Governance
is essential for building a successful and sustainable business in
the long-term interests of all stakeholders. Water Intelligence's
shares are listed on AIM, a market operated by the London Stock
Exchange.
IFRS 15 (Revenue from Contracts with Customers) came into effect
1 January 2018 replacing IAS 18 (Revenue and Related
Interpretations). We have expanded our discussion in footnote 3 to
cover each type of customer: residential, business-to-business,
municipal and franchise.
With effect from September 2018, Water Intelligence has adopted
the QCA Corporate Governance Code. The Company has adopted a share
dealing code for the Board and employees of the Company which is in
conformity with the requirements of Rule 21 of the AIM Rules for
Companies. The Company takes steps to ensure compliance by the
Board and applicable employees with the terms of such code.
The following pages outline the structures, processes and
procedures by which the Board ensures that high standards of
corporate governance are maintained throughout the Group.
Further details can be found on our website at
www.waterintelligence.co.uk/corporate-Board-and-governance.
Takeovers and Mergers
The Company is subject to The City Code on Takeovers and
Mergers.
Board
The Board, chaired by Patrick DeSouza, comprises two executive
and three non-executive directors and it oversees and implements
the Company's corporate governance program. As Chairman, Dr.
DeSouza is responsible for the Company's approach to corporate
governance and the application of the principles of the QCA Code.
Michael Reisman and Dan Ewell are the Company's independent
directors. The Board is supported by two committees: audit and
remuneration. The Board does not consider that it is of a size at
present to require a separate nominations committee, and all
members of the Board are involved in the appointment of new
directors.
Each Board member commits sufficient time to fulfil their duties
and obligations to the Board and the Company. They are required to
attend at least 4 Board meetings annually and join regular Board
calls that take place between formal meetings and offer
availability for consultation when needed.
Board papers are sent out to all directors in advance of each
Board meeting including management accounts and accompanying
reports from those responsible.
Meetings held during the period between 1 January 2020 and 31
December 2020 and the attendance of directors is summarized
below:
Board meetings Audit committee Remuneration committee
Possible (attended) Possible (attended) Possible (attended)
------------------- -------------------- -------------------- -----------------------
Patrick DeSouza 6/6
Bobby Knell 6/6
Michael Reisman 6/6 2/2 2/2
David Silverstone 4/4 2/2
Laura Hills 6/6 2/2
Board Committees
The Board has established an Audit Committee and a Remuneration
Committee with delegated duties and responsibilities.
(a) Audit Committee
Dan Ewell, Non-Executive Director, is Chairman of the Audit
Committee. The other member of the Committee is Michael Reisman.
The Audit Committee is responsible for ensuring that the financial
performance, position and prospects for the Company are properly
monitored, controlled and reported on and for meeting the auditors
and reviewing their reports relating to accounts and internal
controls.
(b) Remuneration Committee
Michael Reisman, Non-Executive Director, is Chairman of the
Remuneration Committee. The other member of the Committee is Bobby
Knell. The Remuneration Committee is responsible for reviewing
performance of Executive Directors and determining the remuneration
and basis of service agreement with due regard for the Combined
Code. The Remuneration Committee also determines the payment of any
bonuses to Executive Directors and the grant of options.
The Company has adopted and operates a share dealing code for
directors and senior employees on the same terms as the Model Code
appended to the Listing Rules of the UKLA.
Board Experience
All five members of the Board bring complementary skill sets to
the Board. One director is female and four are male. The Board
believes that its blend of relevant experience, skills and personal
qualities and capabilities is sufficient to enable it to
successfully execute its strategy. In addition, the Board receives
regular updates from, amongst others, its nominated adviser, legal
counsel and company secretary in relation to key rule changes and
corporate governance requirements, as well as regular liaison with
audit firms both in the UK and the US in respect of key disclosure
and accounting requirements for the Group, especially as accounting
standards evolve. In addition, each new director appointment is
required to receive AIM rule training from the Company's nominated
adviser at the time of their appointment.
Patrick J. DeSouza, Executive Chairman
Term of office: Appointed as Executive Chairman in July
2010.
Background and suitability for the role: Dr. DeSouza has been
Chairman of American Leak Detection since 2006 and Executive
Chairman since its reverse merger to create Water Intelligence plc
in 2010. He has 25 years of operating and advisory leadership
experience with both public and private companies in the defence,
software/Internet and asset management industries. Over the course
of his career, Dr. DeSouza has had significant experience in
corporate finance and cross-border mergers and acquisition
transactions. He has practised corporate and securities law as a
member of the New York and California bars. Dr. DeSouza has also
worked at the White House as Director for Inter-American Affairs on
the National Security Council. He is the author of Economic
Strategy and National Security (2000) and has been a visiting
lecturer at Yale Law School. He is a graduate of Columbia College,
the Yale Law School and Stanford Graduate School.
Laura Hills, Executive Director
Term of office: Appointed 7 June 2021, having previously been a
non-executive director since 6 February 2018.
Background and suitability for the role: Laura has more than 30
years' experience as a legal professional, having spent 10 years
working for Overseas Private Investment Corporation (OPIC), where
she served as Associate General for the agency's finance program,
supervising a team of lawyers on all finance transactions ranging
from micro-lending and small business to multi-creditor
infrastructure project financing in emerging market countries. In
2002, Ms. Hills founded Hills, Stern & Morley LLP, an emerging
markets legal firm based in Washington D.C. Laura sits on the Board
of the Gerald Ford Presidential Foundation. Given her background in
finance and transactions, Laura heads the Audit Committee. Laura
brings considerable expertise in negotiating on infrastructure and
renewables related transactions globally. Moreover, Ms. Hills
experience with non-profits assists the Board in fulfilling its
responsibility to advance the mission of Water Intelligence to
support underserved communities globally. Laura holds
undergraduate, graduate and law degrees from Stanford
University.
Bobby Knell, Non-Executive Director
Term of office: Appointed 7 June 2021, having previously been an
executive director since 17 January 2019.
Background and suitability for the role: The ALD franchise
business is central to the operations and value proposition of
Water Intelligence. Bobby has been serving as a managing director
at Water Intelligence responsible for franchise relations for the
last four years. Prior to this role, Bobby founded and grew the
Dallas franchise of American Leak Detection into a multi-million
dollar operation, an operation now run by his son. His appointment
furthers the alignment of strategy and interests between corporate
operations and the core American Leak Detection franchise
business.
Michael Reisman, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 30 July
2010.
Background and suitability for the role: Professor Reisman
currently serves as Myres S. McDougal Professor of International
Law at the Yale Law School, where he has been on the faculty since
1965 and has previously been a visiting professor in Tokyo, Berlin,
Basel, Paris, Geneva and Hong Kong Professor Reisman is the
President of the Arbitration Tribunal of the Bank for International
Settlements and a member of the Advisory Committee on International
Law of the Department of State. He has served as arbitrator and
counsel in many international cases. He was also President of the
Inter-American Commission on Human Rights of the Organization of
American States. Because of his international legal experience and
the growing multinational character of the Company, Professor
Reisman leads matters of governance, corporate responsibility and
remuneration. He is a graduate of Yale Law School.
C. Daniel Ewell, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 8 April
2021
Background and suitability for the role: Dan Ewell is currently
a Senior Advisor at Morgan Stanley, where he has worked as an
investment banker for over 33 years. Prior to assuming his current
role, Mr. Ewell served as Vice Chairman and Head of Western Region
Investment Banking for Morgan Stanley. Dan has extensive experience
in advising companies and helping them grow through capital raising
and strategic transactions. His experience spans a range of sectors
including consumer/retails, industrial, healthcare and
media/technology, and included companies with franchised business
models. As the Group continues to scale its operations
internationally, it has a need to broaden its institutional and
strategic activity in capital markets. Mr. Ewell brings
considerable expertise in this area. He is a graduate of University
of California, Berkeley, Yale Law School and Yale School of
Management.
The Group has a non-Board Chief Financial Officer, Pat Lamarco,
who attends all Board meetings and reports regularly to the Board
and assists in the preparation of Board materials and in reviewing
the budget and ongoing performance. Mr. Lamarco has significant tax
and audit experience. Mr. Lamarco was formerly a partner with RSM,
a global accounting firm.
The Company Secretary is responsible for ensuring that Board
procedures are followed and that all applicable rules and
regulations are complied with. Adrian Hargrave currently performs
the role of Company Secretary, providing an advisory role to the
Board. The Company Secretary is supported and guided in this role
by the Company's legal advisors.
The Directors have access to the Company's CFO, NOMAD, Company
Secretary, lawyers and auditors as and when required and are able
to obtain advice from other external bodies when necessary.
Board Performance and Effectiveness
The performance and effectiveness of the Board, its committees
and individual Directors is reviewed by the Chairman and the Board
an ongoing basis. Training is available should a Director request
it, or if the Chairman feels it is necessary. The performance of
the Board is measured by the Chairman and Michael Reisman, one of
the non-executive directors, with reference to the Company's
achievement of its strategic goals.
Risk Management
The Directors recognise their responsibility for the Group's
system of internal control and have established systems to ensure
that an appropriate and reasonable level of oversight and control
is provided. The Group's systems of internal control are designed
to help the Group meet its business objectives by appropriately
managing, rather than eliminating, the risks to those objectives.
The controls can only provide reasonable, not absolute, assurance
against material misstatement or loss.
The Executive Chairman with the assistance of the Company
Secretary and the Chief Financial Officer manages a risk register
for the Group that identifies key risks in the areas of corporate
strategy, financial, clients, staff, environmental and the
investment community. The Governance Committee of the Board are
provided with a copy of the register. The register is reviewed
periodically and is updated as and when necessary.
Within the scope of the annual audit, specific financial risks
are also evaluated in detail, including in relation to foreign
currency, interest rates, debt covenants, taxation and
liquidity.
The annual budget is reviewed and approved by the Board.
Financial results, with comparisons to budget and latest forecasts
are reported on a monthly basis to the Board together with a report
on operational achievements, objectives and issues encountered.
Significant variances from plan are discussed at Board meetings and
actions set in place to address them.
Approval levels for authorisation of expenditure are at set
levels throughout the management structure with any expenditure in
excess of pre-defined levels requiring approval from the Executive
Chairman and the Chief Financial Officer.
Measures continue to be taken to review and embed internal
controls and risk management procedures into the business processes
of the organisation and to deal with areas of improvement which
come to the management's and the Board's attention. We expect the
internal controls for the business to change as the business
expands both geographically and in terms of product
development.
The Company's auditors are encouraged to raise comments on
internal control in their management letter following their audit,
and the points raised and actions arising are monitored through to
completion by the Audit Committee.
Corporate Culture
Corporate Responsibility
The Board recognises its employment, environmental and health
and safety responsibilities. It devotes appropriate resources
towards monitoring and improving compliance with existing
standards. There is a professional Human Resources Director. Laura
Hills is responsible at the Board level. The Human Resources
Director reports directly to Ms. Hills. Laura Hills ensures that
the Group's policies are upheld and providing the necessary
resources. All members of the Board have significant experience in
matters of public policy.
Employees
The Board recognises that the Group's employees are its most
important asset.
The Group is committed to achieving equal opportunities and to
complying with relevant anti-discrimination legislation. It is
established Group policy to offer employees and job applicants the
opportunity to benefit from fair employment, without regard to
their sex, sexual orientation, marital status, race, religion or
belief, age or disability. Employees are encouraged to train and
develop their careers. The Group has an employee handbook that is
provided to all employees upon starting their employment within the
Group.
The Group has continued its policy of informing all employees of
matters of concern to them as employees, both in their immediate
work situation and in the wider context of the Group's
well-being.
In addition, all directors and senior employees are required to
abide by the Group's share dealing code, which was updated in 2016
to reflect changes made to legislation following the introduction
of the Market Abuse Regulation.
Audit Committee Annual Review
The role of the Audit Committee is to monitor the quality of
internal controls and check that the financial performance of the
Group is properly assessed and reported on. It receives and reviews
reports from the Chief Financial Officer, other members of
management and external auditors relating to the interim and annual
accounts and the accounting and internal control systems in use
throughout the Group. The members of the Audit Committee are Dan
Ewell (Chairman) and Michael Reisman.
The Executive Chairman and Chief Financial Officer are invited
to attend parts of meetings, with other senior financial managers
required to attend when necessary. The external auditors attend
meetings to discuss the planning and conclusions of their work and
meet with the members of the Committee. The Committee is able to
call for information from management and consults with the external
auditors directly as required.
The objectivity and independence of the external auditors is
safeguarded by reviewing the auditors' formal declarations,
monitoring relationships between key audit staff and the Company
and tracking the level of non-audit fees payable to the
auditors.
The Committee met twice during the year, to review the 2019
annual accounts and the interim accounts to 30 June 2020. The
Committee reviewed with the independent auditor its judgements as
to the acceptability of the Company's accounting principles.
In particular, the Committee discussed the application of the
new accounting standard, IFRS16. The Committee reviewed and
discussed the auditor's comments on improvements which could be
made to the internal controls. In addition, the Committee monitors
the auditor firm's independence from Company management and the
Company.
Remuneration Committee Annual Review
The Remuneration Committee convenes not less than once a year
and during the year it met on two occasions. The Committee
comprises Michael Reisman and Bobby Knell, with Michael Reisman as
Chairman. The Remuneration Committee is responsible for reviewing
the performance of Executive Directors and determining the
remuneration and basis of service agreement. The Remuneration
Committee also determines the payment of any bonuses to Executive
Directors and the grant of options. Where appropriate the Committee
consults the Executive Chairman regarding its proposals. No
Director plays a part in any discussion regarding his or her own
remuneration.
Relations with Shareholders
The Company is available to hold meetings with its shareholders
to discuss objectives and to keep them updated on the Company's
strategy, Board membership and management.
The Board also welcome shareholders' enquiries, which may be
sent via the Company's website www.waterintelligence.co.uk .
Statement of Directors' Responsibilities
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with the Companies Act
2006 and for being satisfied that the Financial Statements give a
true and fair view. The Directors are also responsible for
preparing the Financial Statements in accordance with International
Financial Reporting Standards ("IFRSs") as adopted by the European
Union.
Company law requires the Directors to prepare Financial
Statements for each financial period which give a true and fair
view of the state of affairs of the Company and the Group and of
the profit or loss of the Company and the Group for that period. In
preparing those Financial Statements, the Directors are required
to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company and the
Group will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements. The Directors
are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions, disclose
with reasonable accuracy at any time the financial position of the
Company and the Group, and to enable them to ensure that the
Financial Statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the Annual Report and
Financial Statements are made available on a website. Financial
Statements are published on the Group's website (
www.waterintelligence.co.uk ) in accordance with legislation in the
United Kingdom governing the preparation and dissemination of
Financial Statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Group's website
is the responsibility of the Directors - the work carried out by
the auditors does not involve the consideration of these matters
and, accordingly, and the auditors accept no responsibly for any
changes that may have occurred in the accounts since they were
initially presented on the website. The Directors' responsibility
also extends to the ongoing integrity of the Financial Statements
contained therein.
Independent Auditors' report to the members of Water
Intelligence plc
Opinion
We have audited the financial statements of Water Intelligence
plc (the "Parent Company") and its subsidiaries (the "Group") for
the year ended 31 December 2020, which comprise:
-- the Group statement of comprehensive income for the year ended 31 December 2020;
-- the Group and parent company statements of financial position as at 31 December 2020;
-- the Group and parent company statements of changes in equity for the year then ended;
-- the Group and parent company statements of cash flows for the year then ended; and
-- the notes to the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as at 31
December 2020 and of the Group's profit for the year then
ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union ;
-- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Group
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
director's use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors assessment of the group and the
company's ability to continue to adopt the going concern basis of
accounting included the following:
-- reviewed and challenged management's going concern assessment
and assumptions used covering a minimum of 12 months from the date
of approval of these financial statements;
-- tested mathematical accuracy of the models used by management in their assessment;
-- discussed with management and evaluated their assessment of
the group and the company's liquidity requirement; and
-- assessed the reasonableness of management's budget/forecasts,
including comparison to actual results achieved in the year and the
evaluation of downside sensitivities.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
group and the parent company's ability to continue as a going
concern for a period of at least twelve months from when the
financial statements ate authorised for issue.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described on the relevant
sections of this report.
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept of
materiality. An item is considered material if it could reasonably
be expected to change the economic decisions of a user of the
financial statements. We used the concept of materiality to both
focus our testing and to evaluate the impact of misstatements
identified.
Based on our professional judgement, we determined overall
materiality for the Group financial statements as a whole to be
$321,000 (2019: $190,000) based on a measure of 8% of profit before
taxation using the financial information obtained during our
planning procedures. We use a different level of materiality
('performance materiality') to determine the extent of our testing
for the audit of the financial statements. Performance materiality
was initially set at $200,000 based on the overall audit
materiality and is adjusted for the judgements made as to the
entity risk and our evaluation of the specific risk of each audit
area having regard to the internal control environment.
Where considered appropriate performance materiality may be
reduced to a lower level, such as, for related party transactions
and directors' remuneration.
We agreed with management to report all identified errors in
excess of $5,000. Errors below that threshold would also be
reported to it if, in our opinion as auditor, disclosure was
required on qualitative grounds.
Overview of the scope of our audit
The Group and its UK subsidiaries are accounted for from a
location in the UK, whilst its material US subsidiaries and
Australian subsidiary are accounted for from the US. Our audit was
conducted from the main operating location in the UK and component
auditors were used to perform the audit work in the US. We have
planned, controlled and directed the group audit under our
direction. Due to the current pandemic restrictions, we have
reviewed remotely the US work to carry out our review of component
auditor working papers and have meet with group and local
management virtually.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
This is not a complete list of all risks identified by our
audit.
Key audit matter How the scope of our audit addressed
the key audit matter
================================== ============================================================
Revenue recognition Our audit procedures consisted of:
Revenue is recognised Validating that revenue is recognised
in accordance with the in accordance with the accounting
accounting policy set policies for appropriateness in accordance
out in the financial statements. with International Financial Reporting
The group has a number Standard 15 'Revenue from Contract
of different revenue streams, with Customers' and performed audit
some of which contain procedures to provide evidence that
judgements, particularly revenue was accounted for in accordance
in recognising when a with the policy.
purchase order has been Testing a sample of revenue transaction
satisfied and have passed across the operating companies of
to the buyer. This is the Group to ensure through testing
determined with reference an appropriate sample of income from
to the underlying contract each revenue stream by agreeing amounts
with the purchaser and to contracted amounts, cash receipt
the nature of the service and/or when a purchase order has
provided. been satisfied.
Assessing the appropriateness of
the related disclosures in the financial
statements.
================================== ============================================================
Impairment of intangible We reviewed management's assessment
assets of the carrying value of the group's
The carrying value of intangible assets. In considering
intangible assets relates this assessment, we evaluated:
to trademarks, franchisor * The discounted cash-flow forecasts for the group and
activities, goodwill on the relevant cash generating units. This assessment
acquisitions and owned included consideration of the key assumptions, which
stores goodwill and indefinite principally included discount rate and growth rates.
life intangible assets.
There is a risk that the
carrying value could be * We have checked the arithmetic accuracy of the
impaired as a result of forecast.
reduced activity. Any
significant future downturn
in performance or activity * Board minutes, budgets and other operational plans
could also result in an
impairment of these assets.
* Discussion with management over plans and intentions
for the group.
================================== ============================================================
Our audit procedures in relation to these matters were designed
in the context of our audit opinion as a whole. They were not
designed to enable us to express an opinion on these matters
individually and we express no such opinion.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
We have nothing to report in this regard.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion based on the work undertaken in the course of our
audit
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the group and the
parent company and their environment obtained in the course of the
audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of the directors for the financial
statements
As explained more fully in the directors' responsibilities
statement set out on page 18, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and parent company's ability
to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Extent to which the audit is capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below: We design our procedures so as to obtain
sufficient appropriate audit evidence that the financial statements
are not materially misstated due to non-compliance with laws and
regulations or due to fraud or error.
We obtained an understanding of the legal and regulatory
frameworks within which the company operates, including the US tax
legislations focusing on those laws and regulations that have a
direct effect on the determination of material amounts and
disclosures in the financial statements. The laws and regulations
we considered in this context were the Companies Act 2006 and
Taxation legislation.
We are not responsible for preventing non-compliance and cannot
be expected to detect non-compliance with all laws and regulations
- this responsibility lies with management with the oversight of
the Directors.
Based on our understanding of the Group and the Company and
industry, discussions with management and directors we identified
financial reporting standards and Companies Act 2006 as having a
direct effect on the amounts and disclosures in the financial
statements.
As part of the engagement team discussion about how and where
the Company's financial statements may be materially misstated due
to fraud, we did not identify any areas with an increased risk of
fraud.
We identified the greatest risk of material impact on the
financial statements from irregularities, including fraud, to be
the override of controls by management and revenue recognition.
Our audit procedures included:
-- completing a risk-assessment process during our planning for
this audit that specifically considered the risk of fraud;
-- enquiry of management about the Company's policies,
procedures and related controls regarding compliance with laws and
regulations and if there are any known instances of
non-compliance;
-- examining supporting documents for all material balances, transactions and disclosures;
-- review, where applicable, of the Board of Directors' minutes;
-- enquiry of management, about litigations and claims and
inspection of relevant correspondence
-- analytical procedures to identify any unusual or unexpected relationships;
-- specific audit testing on and review of areas that could be
subject to management override of controls and potential bias, most
notably around the key judgments and estimates, including the
carrying value of accruals, provisions, recoverability of trade
debtors and revenue recognition;
-- considering management override of controls outside of the
normal operating cycles including testing the appropriateness of
journal entries recorded in the general ledger and other
adjustments made in the preparation of the financial statements
including evaluating the business rationale of significant
transactions, outside the normal course of business;
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. We are not responsible for preventing
non-compliance and cannot be expected to detect non-compliance with
all laws and regulations.
These inherent limitations are particularly significant in the
case of misstatement resulting from fraud as this may involve
sophisticated schemes designed to avoid detection, including
deliberate failure to record transactions, collusion or the
provision of intentional misrepresentations.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
John Glasby (Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Statutory Auditor
55 Ludgate Hill
London
EC4M 7JW
7 June 2021
Consolidated Statement of Comprehensive Income for the year
ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Notes $ $
-------------------------------------------- ----- --------------- ---------------
Revenue 4 37,933,896 32,363,935
-------------------------------------------- ----- --------------- ---------------
Cost of sales (8,830,250) (7,448,289)
-------------------------------------------- ----- --------------- ---------------
Gross profit 29,103,646 24,915,646
-------------------------------------------- ----- --------------- ---------------
Administrative expenses
- Other Income 93,066 -
- Share-based payments 7 (233,584) (176,960)
- Amortisation of intangibles 13 (524,017) (319,041)
- Other administrative costs (23,879,139) (21,723,670)
)
-------------------------------------------- ----- --------------- ---------------
Total administrative expenses (24,543,674) (22,219,671)
-------------------------------------------- ----- --------------- ---------------
Operating profit 4,559,972 2,695,975
Finance income 8 88,753 61,754
Finance expense 9 (445,351) (400,241)
-------------------------------------------- ----- --------------- ---------------
Profit before tax 4,203,374 2,357,488
Taxation expense 10 (1,273,319) (662,062)
-------------------------------------------- ----- --------------- ---------------
Profit for the year 2,930,055 1,695,426
Attributable to:
Equity holders of the parent 2,892,974 1,695,033
Non-controlling interests 37,081 393
-------------------------------------------- ----- --------------- ---------------
2,930,055 1,695,426
Other Comprehensive Income
Exchange differences arising on translation
of foreign operations 32,375 (164,145)
Fair value adjustment on listed equity
investment (net of deferred tax) (236,900) 584,379
Total comprehensive profit for the year 2,725,530 2,115,660
-------------------------------------------- ----- --------------- ---------------
Attributable to:
Equity holders of the parent 2,688,449 2,115,267
Non-controlling interests 37,081 393
-------------------------------------------------- --------- ---------
2,725,530 2,115,660
Profit per share attributable to equity holders Cents Cents
of Parent
-------------------------------------------------- --------- ---------
Basic 11 19.5 11.7
Diluted 11 18.8 11.1
--------------------------------------- --------- --------- ---------
The results reflected above relate to continuing activities.
Consolidated Statement of Financial Position as at 31 December
2020
Notes 2020 2019
$ $
ASSETS
Non-current assets
Goodwill and indefinite life
intangible assets 13 22,159,836 9,090,701
Listed equity investment 24 1,564,254 1,932,252
Other intangible assets 13 1,651,296 1,949,832
Property, plant and equipment 14 5,172,221 3,898,133
Trade and other receivables 17 581,191 605,234
31,128,798 17,476,152
---------------------------------------- ------ ------------- -------------
Current assets
Inventories 16 444,791 344,011
Trade and other receivables 17 6,049,067 5,036,149
Cash and cash equivalents 18 6,818,715 5,280,808
13,312,573 10,650,968
---------------------------------------- ------ ------------- -------------
TOTAL ASSETS 44,441,371 28,127,120
---------------------------------------- ------ ------------- -------------
EQUITY AND LIABILITIES
Equity attributable to holders
of the parent
Share capital 21 116,212 114,440
Share premium 21 12,091,069 9,717,349
Shares held in treasury 21 (340,327) (539,834)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 650,286 416,700
Foreign exchange reserve (874,212) (907,344)
Reverse acquisition reserve 21 (27,758,090) (27,758,088)
Equity investment reserve 346,721 584,378
Retained earnings 37,787,624 34,894,649
---------------------------------------- ------ ------------- -------------
23,020,433 17,523,400
---------------------------------------- ------ ------------- -------------
Equity attributable to Non-Controlling
interest
---------------------------------------- ------ ------------- -------------
Non-controlling Interest 346,124 100,793
---------------------------------------- ------ ------------- -------------
Non-current liabilities
Borrowings 23 5,848,261 2,321,400
Deferred consideration 12 3,421,936 556,198
Deferred tax liability 20 957,170 588,684
10,227,367 3,466,282
---------------------------------------- ------ ------------- -------------
Current liabilities
Trade and other payables 19 5,663,898 4,596,085
Borrowings 23 2,941,610 1,163,055
Deferred consideration 12 2,241,939 1,277,505
10,847,447 7,036,645
---------------------------------------- ------ ------------- -------------
TOTAL EQUITY AND LIABILITIES 44,441,371 28,127,120
---------------------------------------- ------ ------------- -------------
The financial statements of Water Intelligence plc, company
number 03923150, were approved by the Board of Directors and
authorised for issue on 7 June 2020. They were signed on its behalf
by:
Patrick De Souza
Executive Chairman
Company Statement of Financial Position as at 31 December
2020
2020 2019
Notes $ $
ASSETS
Non-current assets
Investment in subsidiaries 15 7,459,645 7,206,394
Listed equity investment 24 1,564,254 1,932,252
---------------------------------- ------------------------ --------------- -----------
9,023,899 9,138,646
---------------------------------- ------------------------ --------------- -----------
Current assets
Trade and other receivables 17 7,072,544 5,006,074
Cash and cash equivalents 18 366,737 195,750
---------------------------------- ------------------------ --------------- -----------
7,439,281 5,201,824
---------------------------------- ------------------------ --------------- -----------
TOTAL ASSETS 16,463,180 14,340,470
---------------------------------- ------------------------ --------------- -----------
EQUITY AND LIABILITIES
Equity attributable to holders of
the parent
Share capital 21 116,212 114,440
Share premium 21 12,091,069 9,717,349
Shares held in treasury 21 (340,327) (539,834)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 650,286 416,700
Foreign exchange reserve (1,586,208) (1,870,039)
Equity investment reserve 346,721 584,378
Retained earnings 3,963,789 4,599,878
---------------------------------- ------------------------ --------------- -----------
16,242,692 14,024,022
---------------------------------- ------------------------ --------------- -----------
Non-current liabilities
Deferred tax liability 20 77,943 146,094
---------------------------------- ------------------------ --------------- -----------
77,943 146,094
Current liabilities
Trade and other payables 19 142,545 170,354
---------------------------------- ------------------------ --------------- -----------
142,545 170,354
---------------------------------- ------------------------ --------------- -----------
TOTAL EQUITY AND LIABILITIES 16,463,180 14,340,470
---------------------------------- ------------------------ --------------- -----------
The loss for the financial year in the financial statements of
the parent Company was $636,089 (2019: loss $759,209), which
related entirely to Plc costs.
The financial statements of Water Intelligence plc, company
number 03923150, were approved by the Board of Directors and
authorised for issue on 7 June 2020. They were signed on its behalf
by:
Patrick De Souza
Executive Chairman
Consolidated Statement of Changes in Equity for the year ended
31 December 2020
Shares Share
held based Foreign Reverse Equity Retained Non-controlling
Share Share in Merger payment exchange Acquisition Investment (Losses)/ interest Total
Capital Premium Treasury Reserve reserve reserve Reserve Reserve Earnings Total $ Equity
$ $ $ $ $ $ $ $ $ $ $
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
As at 1 January
2019 101,916 6,887,739 - 1,001,150 239,740 (743,198) (27,758,088) - 33,246,277 12,975,535 100,499 13,076,034
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
IFRS 16 Adjustment - - - - - - - - (44,869) (44,869) (99) (44,968)
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
Restated as at 1
January 2019
----------------- 101,915 6,887,739 - 1,001,150 239,740 (743,198) (27,758,088) - 33,201,408 12,930,666 100,400 13,031,066
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
Issue of Ordinary
Shares 11,237 2,714,604 - - - - - - - 2,725,841 - 2,725,841
Options exercised 515 115,006 - - - - - - - 115,521 115,521
Share-based payment
expense - - - - -- - 176,960 - - - - 176,960 - 176,960
Share buyback 772 - (539,834) - - - - - (1,792) (540,854) - (540,854)
Profit for the year - - - - - - - - - - 1,695,033 1,695,034 393 1,695,426
Other comprehensive
loss - - - - - - - (164,146) - 584,378 - 420,232 - 420,232
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
As at 31 December
2019 114,440 9,717,349 (539,834) 1,001,150 416,700 (907,344) (27,758,088) 584,378 34,894,649 17,523,401 100,793 17,624,194
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
As at 1 January
2020 114,440 9,717,349 (539,834) 1,001,150 416,700 (907,344) (27,758,088) 584,378 34,894,649 17,523,401 100,793 17,624,194
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
Issue of Ordinary
Shares 1,454 2,039,399 - - - - - - - 2,040,853 - 2,040,853
Options exercised 318 24,447 - - - - - - - 24,765 - 24,765
Share-based payment
expense - - - - -- - 233,585 - - - - 233,585 - 233,585
Share buyback - - (715,911) - - - - - - (715,911) - (715,911)
Sale of treasury
share - 309,874 915,418 - - - - - - 1,225,292 - 1,225,292
Capital
Contribution
NCI - - - - - - - - - - 208,250 208,250
Profit for the year - - - - - - - - - - 2,892,974 2,892,974 37,081 2,930,055
Other comprehensive
income - - - - - - - 33,132 - (237,657) - (204,525) - (204,525)
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
As at 31 December
2020 116,212 12,091,069 (340,327) 1,001,150 650,285 (874,211) (27,758,088) 346,721 37,787,623 23,020,434 346,124 23,366,558
-------------------- -------- -------------------- ---------- -------------------- ---------------- ----------------- -------------------- -------------------- ----------------- ----------- ----------------- -----------
Company Statement of Changes in Equity for the year ended 31
December 2020
Cost of Share Equity
Shares based Foreign Investment Retained
Share Share held in Merger payment exchange Reserve (Losses)/ Total
Capital Premium Treasury Reserve reserve reserve $ Earnings Equity
$ $ $ $ $ $ $ $
--------------- -------- ----------- ---------- ---------- -------- ------------ ------------ ---------- -----------
As at 1 January
2019 101,915 6,887,739 - 1,001,150 239,740 (2,013,369) - 5,360,880 11,578,055
---------------- -------- ----------- ---------- ---------- -------- ------------ ------------ ---------- -----------
Issue of
Ordinary
Shares 11,237 2,714,604 - - - - - - 2,725,841
Options
exercised 515 115,006 - - - - - - 115,521
Share buyback 772 - (539,834) - - - - (1,793) (540,854)
Share-based
payment
expense - - - - 176,960 - - - 176,960
Profit for the
year - - - - - - - (759,209) (759,209)
Other
comprehensive
loss - - - - - 143,330 584,378 - 727,708
---------------- -------- ----------- ---------- ---------- -------- ------------ ------------ ---------- -----------
As at 31
December 2019 114,440 9,717,349 (539,834) 1,001,150 416,700 (1,870,039) 584,378 4,599,878 14,024,022
---------------- -------- ----------- ---------- ---------- -------- ------------ ------------ ---------- -----------
As at 1 January
2020 114,440 9,717,349 (539,834) 1,001,150 416,700 (1,870,039) 584,378 4,599,878 14,024,022
---------------- -------- ----------- ---------- ---------- -------- ------------ ------------ ---------- -----------
Issue of
Ordinary
Shares 1,454 2,039,399 - - - - - - 2,040,853
Options
exercised 318 24,447 - - - - - - 24,765
Share-based
payment
expense - - - - 233,585 - - - 233,585
Share buyback - - (715,911) - - - - - (715,911)
Sale of
treasury
shares - 309,874 915,418 - - - - - 1,225,292
Profit for the
year - - - - - - - (636,089) (636,089)
Other
comprehensive
income - - - - - 283,832 (237,657) - 46,175
---------------- -------- ----------- ---------- ---------- -------- ------------ ------------ ---------- -----------
As at 31
December
201920 116,212 12,091,069 (340,327) 1,001,150 650,285 (1,586,207) 346,721 3,963,790 16,242,692
---------------- -------- ----------- ---------- ---------- -------- ------------ ------------ ---------- -----------
Share capital Amount subscribed for share capital at nominal
value.
Share premium Amount subscribed for share capital in excess of
nominal value.
Shares held in treasury Amounts received for buyback of shares
Merger reserve Non-distributable reserve arising on reverse
acquisition.
Share based payment reserve Amounts recognised for the fair
value of share options granted in accordance with IFRS 2.
Foreign exchange reserve Foreign exchange differences on re-translation.
Retained profits/(losses) Cumulative net profits/(losses)
recognised in the Financial Statements.
Consolidated Statement of Cash Flows for the year ended 31
December 2020
Year ended
31 December
2019
Year ended
31 December
2020 $ $
------------------------------------------------- --------------- -----------------
Cash flows from operating activities
Profit before tax 4,203,374 2,357,488
Adjustments for non-cash/non-operating items:
Depreciation of plant and equipment 1,568,034 1,268,463
Amortisation of intangible assets 524,017 319,041
Share based payments 233,584 176,960
Finance costs 445,351 400,241
Finance income (88,753) (61,754)
------------------------------------------------- --------------- ---------------
Operating cash flows before movements in working
capital 6,885,607 4,460,439
------------------------------------------------- --------------- ---------------
(Increase) / Decrease in inventories (110,780) 117,454
Increase in trade and other receivables (988,875) (811,396)
Increase in trade and other payables 273,071 2,477,094
------------------------------------------------- --------------- ---------------
Cash generated by operations 6,059,023 6,243,591
------------------------------------------------- --------------- ---------------
Income taxes paid (982,776) (535,693)
Net cash generated from operating activities 5,076,247 5,707,898
Cash flows from investing activities
Purchase of plant and equipment (717,519) (3,104,796)
Purchase of intangible assets - (200,000)
Purchase of listed equity investment - (1,201,780)
Acquisition of subsidiaries (300,000) (741,130)
Reacquisition of franchises (9,229,647) (2,480,417)
Finance income 88,753 61,754
------------------------------------------------- --------------- ---------------
Net cash used in investing activities (10,158,413) (7,666,369)
------------------------------------------------- --------------- ---------------
Cash flows from financing activities
Issue of ordinary share capital 8,128 11,237
Premium on issue of ordinary share capital 2,031,084 2,714,604
Share buyback (715,911) (540,853)
Sale of treasury shares 1,225,292 -
Options exercised 25,083 115,521
Finance costs (445,351) (400,241)
Proceeds from borrowings 6,153,836 1,854,936
Repayment of borrowings (848,421) (808,520)
Repayment of lease liabilities (813,667) (723,812)
Net cash generated from financing activities 6,620,073 2,222,873
------------------------------------------------- --------------- ---------------
Net increase in cash and cash equivalents 1,537,907 264,402
------------------------------------------------- --------------- ---------------
Cash and cash equivalents at the beginning of
year 5,280,808 5,016,406
------------------------------------------------- --------------- ---------------
Cash and cash equivalents at end of year 6,818,715 5,280,808
------------------------------------------------- --------------- ---------------
Company Statement of Cash Flows for the year ended 31 December
2019
Year ended Year ended
31 December 31 December
2020 2019
$ $
---------------------------------------------- -------------- --------------
Cash flows from operating activities
Loss before tax (636,089) (759,209)
Adjustments for non-cash/non-operating
items:
Share based payment expense 233,585 176,960
---------------------------------------------- -------------- --------------
Operating cash flows before movements in
working capital (402,504) (582,249)
---------------------------------------------- -------------- --------------
Increase in trade and other receivables (2,066,470) (187,842)
(Decrease)/Increase in trade and other
payables 66,286 (181,053)
---------------------------------------------- -------------- --------------
Cash used by operations (2,402,688) (951,144)
---------------------------------------------- -------------- --------------
Income taxes paid - -
---------------------------------------------- -------------- --------------
(2,402,688)
Net cash used by operating activities ) (951,144)
---------------------------------------------- -------------- --------------
Cash flows from investing activities
---------------------------------------------- -------------- --------------
Purchase of listed equity investment - (1,201,780)
Net cash used in investing activities - (1,201,780)
---------------------------------------------- -------------- --------------
Cash flows from financing activities
Issue of ordinary share capital 8,128 11,237
Premium on issue of ordinary share capital 2,031,084 2,714,604
Share buyback (715,911) (540,853)
Sale of treasury shares 1,225,292 -
Options exercised 25,083 115,521
---------------------------------------------- -------------- --------------
Net cash generated from financing activities 2,573,676 2,300,509
---------------------------------------------- -------------- --------------
Increase in cash and cash equivalents 170,988 147,585
---------------------------------------------- -------------- --------------
Cash and cash equivalents at the beginning
of period 195,749 48,165
---------------------------------------------- -------------- --------------
Cash and cash equivalents at end of period 366,737 195,750
---------------------------------------------- -------------- --------------
Notes to the Financial Statements
1 General information
The Group is a leading provider of minimally invasive, leak
detection and remediation services for potable and non-potable
water. The Group's strategy is to be a "One-stop Shop" of water
leak and repair solutions (services and products) for residential,
commercial and municipal customers.
The Company is a public limited company limited by shares.
Domiciled in the United Kingdom and incorporated under registered
number 03923150 in England and Wales. The Company's registered
office is 27-28 Eastcastle Street, London W1W 8DH.
The Company is listed on AIM of the London Stock Exchange. These
Financial Statements were authorised for issue by the Board of
Directors on 7 June 2021.
2 Adoption of a new International Financial Reporting Standards
A number of new standards are effective for annual periods
beginning after 1 January 2020 and earlier application is
permitted; however, the Group has not early adopted the new or
amended
standards in preparing these consolidated financial
statements.
A. Onerous contracts - Cost of Fulfilling a Contract (Amendments
to IAS 37)
The amendments specify which costs an entity includes in
determining the cost of fulfilling a
contract for the purpose of assessing whether the contract is
onerous. The amendments apply
for annual reporting periods beginning on or after 1 January
2022 to contracts existing at the date
when the amendments are first applied. At the date of initial
application, the cumulative effect of
applying the amendments is recognised as an opening balance
adjustment to retained earnings
or other components of equity, as appropriate. The comparatives
are not restated.
B. Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The amendments address issues that might affect financial
reporting as a result of the reform of
an interest rate benchmark, including the effects of changes to
contractual cash flows or hedging
relationships arising from the replacement of an interest rate
benchmark with an alternative
benchmark rate. The amendments provide practical relief from
certain requirements in IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16 relating to:
-- changes in the basis for determining contractual cash flows
of financial assets, financial
liabilities and lease liabilities; and
-- hedge accounting.
C. Other standards
The following new and amended standards are not expected to have
a significant impact on the
Group's consolidated financial statements.
-- COVID-19-Related Rent Concessions (Amendment to IFRS 16)
-- Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16).
-- Reference to Conceptual Framework (Amendments to IFRS 3).
-- Classification of Liabilities as Current or Non-current
(Amendments to IAS 1).
-- IFRS 17 Insurance Contracts and amendments to IFRS 17
Insurance Contracts.
3 Significant accounting policies
Basis of preparation
These Financial Statements of the Group and Company are prepared
on a going concern basis, under the historical cost convention and
in accordance with International Financial Reporting Standards
(IFRS) and IFRIC interpretations issued by the International
Accounting Standards Board (IASB) and adopted by the European
Union, in accordance with the Companies Act 2006. The Parent
Company's Financial Statements have also been prepared in
accordance with IFRS and the Companies Act 2006.
The preparation of Financial Statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The Financial Statements are presented in US Dollars ($),
rounded to the nearest dollar.
Going concern
The Group's business activities, together with factors likely to
affect its future development, performance and position are set out
in the Directors' Report, Strategic Report and the Chairman's
Statement. The Directors have prepared a business plan and cash
flow forecast for the period to June 2022. The forecast contains
certain assumptions about the level of future sales and the level
of margins achievable.
These assumptions are the Directors' best estimate of the future
development of the business. The Directors acknowledge that the
Group in the near-term is funded on a mixture of cash generation by
its profitable US-based, ALD business and its existing cash
position, as well as available banking facilities. Moreover,
because demand for the Group's equity offerings has historically
been strong, the Directors believe that the funding will be
available on a case by case basis for different initiatives such
that the Group will have adequate cash resources to pursue its
growth plan.
In March 2020, the World Health Organization declared the
outbreak of a novel coronavirus (COVID-19) as a pandemic which
continues to spread throughout the United States and the world. The
Company is monitoring the social effects produced by COVID-19, the
related business and travel restrictions and changes to public
policy intended to reduce its spread. The Company assesses on an
on-going basis, the impact of COVID-19 on its operations, financial
positions, cash flows, customer payments, and the industry in
general and especially its impact on its employees, customers and
stakeholders. Lockdown orders that were in effect during parts of
March, April and May 2020 impacted operations. Governmental
entities, in every jurisdiction that the Company operates in,
recognize water solutions as part of "essential services" that need
to be provided even during the application of "shelter-in-place"
regulations. Whilst to date there has been no material impact on
operations and liquidity of the Company, at the time of issuance,
these circumstances may change in the foreseeable future.
The Directors are satisfied that the Group has adequate
resources to continue in operational existence for the foreseeable
future and accordingly, continue to adopt the going concern basis
in preparing the financial statements.
Basis of consolidation
The Group financial statements consolidate the accounts of Water
Intelligence plc and all of its subsidiary undertakings made up to
31 December 2020. The Consolidated Statement of Comprehensive
Income includes the results of all subsidiary undertakings for the
period from the date on which control passes. Control is achieved
where the Group (or one of its subsidiary undertakings) obtains the
power to govern the financial and operating policies of an investee
entity so as to derive benefits from its activities.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of
the cost of acquisition over the fair value of the Group's share of
the identifiable net assets acquired is recorded as goodwill. If
the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognised
directly in the income statement.
The acquisition of ALDHC in 2010 was accounted for as a reverse
acquisition. The assets and liabilities revalued at their fair
value on acquisition therefore related to the Company. Both a
merger reserve and a reverse acquisition reserve were created to
enable the presentation of a consolidated statement of financial
position which combines the equity structure of the legal parent
with the reserves of the legal subsidiary.
Inter-company transactions and balances and unrealised gains or
losses on transactions between Group companies are eliminated in
full.
Parent Company income statement - UK head office only
The Company has taken advantage of Section 408 of the Companies
Act 2006 in not presenting its own Statement of Comprehensive
Income. The Company's loss after tax for the year ended 31 December
2020 is $636,089 (2019: $759,209).
Inventories
The inventories, consisting primarily of equipment, parts, and
supplies, are recorded at the lower of cost (FIFO) or market
value.
Defined contribution pension scheme
Water Intelligence International provides a government run
pension scheme under UK legislation. Employees have the opportunity
to opt in or opt out. It is compulsory for companies to offer this
to their employees. This was implemented on 1 November 2017.
Taxation
Income tax expense represents the sum of the current tax and
deferred tax charge for the year.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the
Statement of Comprehensive Income because it excludes items of
income or expense that are taxable or deductible in other periods
and it further excludes items that are never taxable or deductible.
The Group's and Company's liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by
the year end.
Deferred tax
Deferred income taxes are provided in full, using the liability
method, for all temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the
Financial Statements. Deferred income taxes are determined using
tax rates that have been enacted or substantially enacted and are
expected to apply when the related deferred income tax asset is
realised or the related deferred income tax liability is
settled.
The principal temporary differences arise from depreciation or
amortisation charged on assets and tax losses carried forward.
Deferred tax assets relating to the carry forward of unused tax
losses and are recognised to the extent that it is probable that
future taxable profit will be available against which the unused
tax losses can be utilised. The carrying amount of deferred tax
assets is reviewed at each balance sheet date and reduced to the
extent that it is probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Foreign currencies
(i) Functional and presentational currency
Items included in the Financial Statements are measured using
the currency of the primary economic environment in which each
entity operates
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the income statement.
(ii) Group Companies
The results and financial position of all the Group entities
that have a functional currency different from the presentational
currency are translated into the presentational currency as
follows:
(a) assets and liabilities for each statement of financial
position presented are translated at closing rate at the date of
the statement;
(b) the income and expenses are translated at average exchange
rates for period where there is no significant fluctuation in
rates, otherwise a more precise rate at a transaction date is used;
and
(c) all resulting exchange differences are recognised in other comprehensive income.
Leases The Group recognizes a right-of-use asset and a lease
liability at the lease commencement date. The right of use lease is
initially measured at cost, which comprises the initial amount of
the lease liability adjusted for any lease payments made at or
before commencement date plus any initial direct costs incurred and
an estimate of costs to dismantle and remove the underlying asset.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of
the useful life of the right-of-use asset or the end of the lease
term. The lease liability is initially measured at the present
value of the lease payments that are not paid at the commencement
date discounted using the Group incremental borrowing rate.
Revenue recognition
IFRS 15 (Revenue from Contracts with Customers) came into effect
on 1 January 2018 replacing IAS 18 Revenue and related
interpretations. Under IFRS 15, revenue is recognized when a
customer obtains control of a good or service and thus has the
ability to direct the use and obtain the benefits from the good or
service.
Nature of the Business
Water Intelligence plc operates through two wholly-owned
subsidiaries: American Leak Detection (ALD) and Water Intelligence
International (WII). Both subsidiaries provide precision water leak
detection and repair services. The services that are performed for
various customers are discrete activities - locating a water leak
or fixing a leak. The services are not bundled. Each service has a
price established in a rate book. Depending on customer preference,
a service technician may stop after locating the leak. The customer
would pay a fee for that service. Or following the leak detection
service, the technician may also provide repair services for
separate fee depending on what is contracted for by the customer.
Service jobs are typically short in duration, usually 1-2 hours for
a leak detection service. ALD delivers these services through
corporate locations and franchise locations across the United
States and in Canada and Australia. WII operates outside the United
States and delivers services only through corporate locations.
Customers and Sources of Revenue
Residential . Both ALD and WII provide services to residential
customers. Service technicians, whether from franchise-operated
locations or corporate-operated locations, provide services to
homeowners. When the service is delivered, the homeowner is
invoiced immediately upon completion of the service. The price of
the service is a fixed call-out charge for the technician to come
to the house and an hourly charge based on the time it takes to
find the leak. Revenue is recognized upon completion of the
service.
Business-to-Business . ALD has written national contracts with
nationwide insurance companies. The insurance company, as ALD's
customer, receives claims from homeowners or property management
for water-related damage. The insurance company contracts directly
with ALD headquarters. ALD headquarters, as the principal, takes
liability risk for performance of the service jobs and for
providing to insurance companies certain management services. A
national price book is established as part of the national
contract. After the leak detection service is performed, report
from ALD headquarters is delivered to the insurance company and the
insurance company is also invoiced for the job. Service is deemed
complete upon delivery of the report and invoice. Revenue is
recognized upon delivery of the report and invoice.
Municipal . WII headquarters or ALD headquarters will contract
with a municipality to provide leak detection services. Such leak
detection services largely consist of surveying kilometers of pipe.
During such surveys, a designated distance is covered each day with
a daily rate per technician per kilometer covered. A report is
prepared for the municipality weekly. When the report is delivered,
the service is deemed complete with respect to the distance
covered. The municipality will be billed for the week's work when
the report is conveyed. Revenue is recognized upon the delivery of
the report.
Franchise Sales, Equipment and On-going Royalty Payments . ALD
is a franchisor and leak detection services are delivered not only
by corporate-operated locations but also by ALD's franchise System.
Franchisees are independently owned and operated.
The franchise System has the following characteristics for
revenue recognition. ALD sells franchises to third parties. A
franchise is an exclusive territory in which a franchisee is
authorized to deliver ALD services, mainly leak detection and
repair. ALD headquarters provides training and advice to support
the delivery of services by franchisees.
The franchise sale is documented by means of a ten-year license
agreement that is renewable for ten-year increments based on
certain conditions derived from franchisee performance. The
agreement has three main components. First, the agreement provides
for the payment of an upfront fee in exchange for the exclusive
territory and training. The upfront fee is non-refundable. ALD
revenue is recognized with respect to most of the upfront fee at
the Closing of the franchise sale. The remaining portion of the
upfront fee is recognized as revenue over time using a
straight-line method to reflect the delivery of franchisor services
over the ten-year period. Second, the franchise agreement provides
that the franchisee may purchase proprietary equipment from ALD and
more general equipment from ALD-approved third parties. There is a
price book. ALD revenue is recognized upon the delivery of
equipment to franchisees and an invoice for the equipment. Third,
in accordance with the franchise license agreement, each franchise
pays a royalty fee to ALD each month based on a percentage of the
franchisee's gross sales for that month. Each month, a franchise
files a royalty report and pays the royalty amount. ALD revenue is
recognized upon the receipt of the royalty report.
In respect of the sale of franchise territories, the Group will
monitor on an ongoing basis the correct apportionment for each such
sale between recognition of upfront fees and fees which are
deferred over the length of the franchise agreement. This year such
sales were not a material part of the Group's revenue or
income.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group's statement of financial position when the Group becomes a
party to the contractual provisions of the instrument.
Loans and receivables
Trade receivables, loans, and other receivables held with the
objective to collect the contractual cash flows are classified as
subsequently measured at amortised cost. These are initially
measured at fair value plus transaction costs. At each period end,
there is an assessment of the expected credit loss in accordance
with IFRS 9, with any increase or reduction in the credit loss
provision charged or released to other selling and administrative
expenses in the statement of comprehensive income. IFRS 9 was
adopted as at 1 January 2018 and as permitted the prior year
actuals comparatives were not restated.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held
at call with banks, and other short term highly liquid investments
with original maturities of three months or less.
Impairment of financial assets
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The expected
cash flows will include cash flows from the sale of collateral held
or other credit enhancements that are integral to the contractual
terms.
The Group always recognises lifetime expected credit losses
("ECL") for trade receivables and contract assets. The expected
credit losses on these financial assets are estimated using a
provision matrix based on the Group's historical credit loss
experience, adjusted for factors that are specific to the debtors,
general economic conditions and an assessment of both the current
as well as the forecast conditions at the reporting date, including
time value of money where appropriate.
For all other financial instruments, the Group recognises
lifetime ECL when there has been a significant increase in credit
risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial
recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12 -- month ECL.
Financial liabilities
Financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs and are
subsequently measured at amortised cost using the effective
interest method.
Equity instruments
An equity instrument is any instrument with a residual interest
in the assets of the Company after deducting all of its
liabilities. Equity instruments (ordinary shares) are recorded at
the proceeds received, net of direct issue costs.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire.
Property, plant and equipment
All property, plant and equipment is stated at cost less
accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows:
Equipment and displays: 5 to 7 years
Motor vehicles: 5 years
Leasehold improvements: 7 years or lease term, whichever is shorter
The asset's residual values and economic lives are reviewed, and
adjusted if appropriate, at each reporting date. An asset's
carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated
recoverable amount. Assets that are no longer of economic use to
the business are retired.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised within other
(losses) or gains in the income statement.
Goodwill
Goodwill represents the excess of the fair value of the
consideration over the fair values of the identifiable net assets
acquired.
Goodwill arising on acquisitions is not subject to amortisation
but is subject to annual impairment testing. Any impairment is
recognised immediately in the Consolidated Statement of
Comprehensive Income and not subsequently reversed.
Other intangible assets
Intangible assets are recorded as separately identifiable assets
and recognised at historical cost less any accumulated
amortisation. These assets are amortised over their definite useful
economic lives on the straight-line method.
Amortisation is computed using the straight-line method over the
estimated definite useful lives of the assets as follows:
Years
Covenants not to compete 1-3
Customer lists 5
Trademarks 20
Patents 10
Product development 4
Any amortisation is included within administrative expenses in
the statement of comprehensive income.
Intangible assets with indefinite useful lives are not
amortised, but are tested for impairment annually, either
individually or at the cash-generating unit level. The assessment
of indefinite life is reviewed annually to determine whether the
indefinite life continues to be supportable. If not, the change in
useful life from indefinite to finite is made on a prospective
basis.
The asset's residual values and economic lives are reviewed, and
adjusted if appropriate, at each balance sheet date. An asset's
carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised within other
(losses) or gains in the Statement of Comprehensive Income.
Research and development
Research expenditure is recognised as an expense when incurred.
Costs incurred on development projects (relating to the design and
testing of new or improved products) are recognised as intangible
assets when the following criteria are fulfilled.
-- It is technically feasible to complete the intangible asset
so that it will be available for use or resale;
-- Management intends to complete the intangible asset and use or sell it;
-- There is an ability to use or sell the intangible;
-- It can be demonstrated how the intangible asset will generate
possible future economic benefits;
-- Adequate technical, financial and other resource to complete
the development and to use or sell the intangible asset are
available; and
-- The expenditure attributable to the intangible asset during
its development can be reliably measured.
Other development expenditures that do not meet these criteria
are recognised as an expense in the period incurred. Development
costs previously recognised as an expense are not recognised as an
asset in a subsequent period. Capitalised development costs are
recorded as intangible assets and are amortised from the point at
which they are ready for use on a straight-line basis over the
asset's estimated useful life.
Segment reporting
A business segment is a group of assets and operations engaged
in providing products or services that is subject to risks and
returns that are different from those of other business
segments.
Impairment reviews
Assets that are subject to amortisation and depreciation are
reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be fully recoverable.
Assets that are not subject to amortisation and depreciation are
reviewed on an annual basis at each year end and, if there is any
indication that an asset may be impaired, its recoverable amount is
estimated. The recoverable amount is the higher of its net selling
price and its value in use. Any impairment loss arising from the
review is charged to the Statement of Comprehensive Income whenever
the carrying amount of the asset exceeds its recoverable
amount.
Share based payments
The Group has made share-based payments to certain Directors and
employees and to certain advisers by way of issue of share options.
The fair value of these payments is calculated either using the
Black Scholes option pricing model or by reference to the fair
value of any fees or remuneration settled by way of granting of
options. The expense is recognised on a straight-line basis over
the period from the date of award to the date of vesting, based on
the best estimate of the number of shares that will eventually
vest.
Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with
International Financial Reporting Standards requires the use of
judgements together with accounting estimates and assumptions that
affect the reported amounts of assets and liabilities and the
reported amounts of income and expenses during the reporting
period. Although these judgements and estimates are based on
management's best knowledge of current events and actions, the
resulting accounting treatment estimates will, by definition,
seldom equal the related actual results.
The key judgements in respect of the preparation of the
financial statements are in respect of the accounting for
acquisitions, determination of separately identifiable assets on
acquisition, the determination of cash generating units, the
evaluation of segmental information, the evaluation of whether
there is any indication of any impairment in investments,
intangibles, goodwill or receivables and whether deferred tax
assets should be recognized for tax losses.
The estimates and assumptions that have a risk of causing
material adjustment to the carrying amounts of assets and
liabilities within the next financial year are the fair value of
assets arising on acquisition (see note 12), carrying value of the
goodwill, the carrying value of the other intangibles (see note 13)
and the carrying value of the investments. Please see relevant
notes for these areas.
4 Segmental Information
In the opinion of the Directors, the operations of the Group
currently comprise five operating segments, being (i) Franchise
royalty income, (ii) Franchise-related activities (including
product and equipment sales, business-to-business sales and sales
of franchises), (iii) US corporate operated locations, (iv)
International corporate operated locations and (v) head office
costs. Information reported to the Group's Chief Operating Decision
Maker (being the Executive Chairman), for the purpose of resource
allocation and assessment of division performance is now separated
into the four income generating segments (items (i) to (iv)), and
items that do not fall into these segments have been categorized as
unallocated head office costs (v).
The Group mainly operates in the US, with operations in the UK
and certain other countries especially Canada and Australia. No
single customer accounts for more than 10% of the Group's total
external revenue.
The following is an analysis of the Group's revenues and profits
from operations and assets by business segment.
Revenue Year ended Year ended
31 December 31 December
2020 2019
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 6,691,433 6,499,045
Franchise related activities 9,513,209 8,049,570
US corporate operated locations 17,434,216 14,446,286
International corporate operated locations 4,295,037 3,369,034
-------------------------------------------- ------------ ------------
Total 37,933,895 32,363,935
-------------------------------------------- ------------ ------------
Profit/(Loss) before tax Year ended Year ended
31 December 31 December
2020 2019
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 1,771,302 1,603,149
Franchise related activities 682,958 601,281
US corporate operated locations 3,795,753 2,025,095
International corporate operated locations 311,783 226,215
Unallocated head office costs (2,257,323) (1,605,252)
Non-core costs (101,099) (493,000)
-------------------------------------------- ------------ ------------
Total 4,203,374 2,357,488
-------------------------------------------- ------------ ------------
Assets Year ended Year ended
31 December 31 December
2020 2019
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 10,571,497 9,412,402
Franchise related activities 2,006,569 1,862,887
US corporate operated locations 24,932,417 11,772,004
International corporate operated locations 6,930,887 5,079,827
-------------------------------------------- ------------ ------------
Total 44,441,371 28,127,120
-------------------------------------------- ------------ ------------
Amortization Year ended Year ended
31 December 31 December
2020 2019
$ $
-------------------------------------------- ------------ ------------
US corporate operated locations 496,315 291,692
International corporate operated locations 27,702 27,350
-------------------------------------------- ------------ ------------
Total 542,017 319,042
-------------------------------------------- ------------ ------------
Depreciation Year Year
ended ended
31 31
December December
2020 2019
Note $ $
---------------------------------------------------------------------------------------------------- ---------- ----------
Franchise royalty income - -
Franchise related activities - -
US corporate operated locations 2 1,288,989 1,092,312
International corporate operated locations 279,045 176,151
---------------------------------------------------------------------------------------------------- ---------- ----------
Total 1,568,034 1,268,463
---------------------------------------------------------------------------------------------------- ---------- ----------
Finance Expense Year Year
ended ended
31 31
December December
20120 2019
$ $
---------------------------------------------------------------------------------------------------- ---------- ----------
US corporate operated locations 78,031 81,608
International corporate activities 8,769 995
Unallocated head office costs 358,553 317,638
Total 445,353 400,241
---------------------------------------------------------------------------------------------------- ---------- ----------
For the purpose of monitoring segmental performance, liabilities
are not reported to the Group's Chief Operating Decision Maker.
Geographic Information
As noted herein, the Group has two wholly-owned subsidiaries -
ALD and WII. ALD has US franchise-operated and corporate-operated
locations and international franchises in Australia and Canada.
Meanwhile, WII has corporate-operated activities outside the US. We
may also regroup the same information into US and Outside the US to
capture the Group's effort to be multinational company. As
indicated herein, the Group has had strong balanced growth in the
US and abroad and across ALD and WII. For 2020, outside the US
sales have grown 26% to $4.4 million (2019: $3.5 million). Sales in
the US have grown 16% to $33.5 million (2019: $28.9 million). The
percentage of International sales to total sales has remained
constant at 11% (2019: 11%).
Total Revenue
Year ended 31 December 2020 Year ended 31 December 2019
US International Total US International Total
$ $ $ $ $ $
---------------------------------- ----------- -------------- ----------- ----------- -------------- -----------
Franchise royalty income 6,572,162 119,271 6,691,433 6,355,811 143,234 6,499,045
Franchise related activities 9,513,209 - 9,513,209 8,049,570 - 8,049,570
US Corporate owned Stores 17,434,216 - 17,434,216 14,446,285 - 14,446,285
International corporate
activities - 4,295,037 4,295,038 - 3,369,034 3,369,034
---------------------------------- ----------- -------------- ----------- ----------- -------------- -----------
Total 33,519,587 4,414,308 37,933,895 28,851,666 3,512,268 32,363,934
5 Expenses by nature
The Group's operating profit has been arrived at after
charging:
Year ended Year ended
31 December 31 December
2020 2019
Note $ $
---------------------------------------- ----- ------------ ------------
Raw materials and consumables
used 752,670 820,885
Employee costs 6 14,424,268 12,965,317
Operating lease rentals - 70,038
Depreciation charge 2 1,568,034 1,268,463
Amortization charge 524,017 319,042
Marketing costs 290,049 224,297
R & D (3,034) 10,152
Foreign exchange (gain)/loss (77,027) (34,805)
---------------------------------------- ----- ------------ ------------
Year ended Year ended
31 December 31 December
2020 2019
$ $
---------------------------------------- ----- ------------ ------------
Auditors remuneration
Fees payable to the Company's
auditor for audit of Parent Company
and Consolidated Financial Statements 52,000 51,000
---------------------------------------- ----- ------------ ------------
Fees payables to the Company's - -
auditor for other services (assurance
related services)
---------------------------------------- ----- ------------ ------------
The Group auditors are not the auditors of the US subsidiary
companies. The fees paid to the auditor of the US subsidiary
companies were $142,336 (2019: $121,009) for the audit of these
companies and $28,204 (2019: $24,260) for other services.
6 Employees and Directors
The Employees and Directors of the Company contribute to the
execution and management of the business.
Year ended Year ended
31 December 31 December
2020 2019
Short-Term employee benefits
Directors fees, salaries and benefits 774,465 659,596
Employee wages and salaries 12,672,270 11,392,014
Social Security Costs 763,948 736,748
Long-Term employee benefits
Share based payments 233,584 176,960
-------------------------------------- ----------- -----------
14,444,268 12,965,318
-------------------------------------- ----------- -----------
Information regarding Directors' emoluments are as follows:
Year ended Year ended
31 December 31 December
2020 2019
$ $
---------------------------------------- ----------- -----------
Short-Term employee benefits
Directors' fees, salaries and benefits 774,465 659,596
Social Security Costs 20,331 20,034
794,796 679,630
---------------------------------------- ----------- -----------
The highest paid Director (Executive) received emoluments of
$606,515 (2019: $537,380).
The average number of employees (including Directors) in the
Group during the year was:
Year ended Year ended
31 December 31 December
2020 2019
$ $
---------------------------------------- ----------- -----------
Directors (executive and non-executive) 5 5
Management 26 23
Field Services 150 132
Franchise Support 20 22
Administration 46 34
---------------------------------------- ----------- -----------
247 216
---------------------------------------- ----------- -----------
7 Share options
The Company grants share options at its discretion to Directors,
management and advisors. These are accounted for as equity settled
options. Should the options remain unexercised after a period of
ten years from the date of grant the options will expire unless an
extension is agreed to by the Board. Options are exercisable at a
price equal to the Company's quoted market price on the date of
grant or an exercise price to be determined by the Board.
Details for the share options and warrants granted, exercised,
lapsed and outstanding at the year-end are as follows:
Number
of share
Weighted Weighted average
average exercise exercise price
price ($) options ($)
Number of share
options 2020 2020 2019 2019
----------------------- ------------------------------- ----------------------- ---------- -----------------------
Outstanding at
beginning
of year 1,450,000 3.01 1,535,000 1.43
Granted during the
year 525,000 5.63 525,000 6.08
Forfeited/lapsed
during
the year - - (160,000) 1.40
Exercised during the
year (67,500) 1.23 (450,000) 1.21
----------------------- ------------------------------- ----------------------- ---------- -----------------------
Outstanding at end of
the year 1,907,500 3.92 1,450,000 3.01
----------------------- ------------------------------- ----------------------- ---------- -----------------------
Exercisable at end of
the year 697,500 1.15 765,000 1.52
----------------------- ------------------------------- ----------------------- ---------- -----------------------
Fair value of share options
During the year, the Group granted 525,000 Share Options to
certain Employees, with exercise prices ranging from of GBP4.28 to
GBP4.80 ($5.60 to $6.20).
The fair value of options granted during the prior year has been
calculated using the Black Scholes model which has given rise to
fair values per share ranging from 41.86p to 66.62p. This is based
on risk-free rates of 0.72% and volatility of 34%.
The Black Scholes calculations for the options granted during
the year resulted in a charge of $233,584 (2019: $176,960) which
has been expensed in the year.
The weighted average remaining contractual life of the share
options as at 31 December 2020 was 7.12 years (2019: 6.95
years).
Options arrangements that exist over the Company's shares at
year end and at the time of the report are detailed below:
At report Date of Exercise Exercise period
Grant date 2020 2019 Grant price From To
----------------- --------- --------- --------- ---------- -------- -----------------------------
ALDHC Plan 122,500 142,500 142,500 01/12/2013 $1.14 01/12/2013 01/12/2023
2013 Directors 100,000 100,000 100,000 01/08/2013 $1.30 01/08/2013 01/08/2023
2015 Options 177,500 177,500 177,500 08/06/2015 $0.67 08/06/2015 08/06/2025
2016 Directors 100,000 100,000 100,000 13/06/2016 $1.26 13/06/2016 13/06/2026
2016 Employee 45,000 45,000 95,000 19/12/2016 $1.24 19/12/2019 19/12/2026
2016 Employee 132,500 132,500 150,000 19/12/2016 $1.56 19/12/2019 19/12/2026
2018 Acquisition 135,000 135,000 135,000 06/03/2018 $3.15 06/03/2021 06/03/2028
2018 Acquisition 25,000 25,000 25,000 08/10/2018 $4.52 08/10/2021 08/10/2028
2019 Employee
(1) 475,000 475,000 475,000 04/04/2019 $6.24 04/04/2023 04/04/2029
2019 Acquisition
(2) 50,000 50,000 50,000 04/04/2019 $4.59 04/04/2023 04/04/2029
2020 Employee
(3) 500,000 500,000 31/07/2020 $5.60 31/07/2023 31/07/2030
2020 Acquisition
(4) 25,000 25,000 30/09/2020 $6.20 30/09/2024 30/09/2030
2021 Acquisition
(5) 45,500 01/01/2021 $6.24 01/01/2025 01/01/2031
2021 Directors
(6) 300,000 15/03/2021 $10.40 15/03/2024 15/03/2031
----------------- --------- --------- --------- ---------- -------- ------------- --------------
Total 2,233,000 1,907,500 1,450,000
----------------- --------- --------- --------- ---------- -------- ------------- --------------
All share options are equity settled on exercise. The amounts at
the Report Date reflect all share options that have been either
exercised or forfeited.
(1) On 4 April 2019, certain employees were granted options to
purchase 475,000 New Ordinary Shares at a price of $6.24. These
options have a four-year vesting requirement.
(2) On 4 April 2019, certain vendors, retained as employees,
were granted options to purchase 50,000 New Ordinary Shares at a
price of $4.59 pursuant to the acquisition of franchises acquired
in 2019. These options have a four-year vesting requirement.
(3) On 31 July 2020, certain employees were granted options to
purchase 500,000 New Ordinary Shares at a price of $5.60. These
options have a four-year vesting requirement.
(4) On 30 September 2020, certain vendors, retained as
employees, were granted options to purchase 25,000 New Ordinary
Shares at a price of $6.20 pursuant to the acquisition of
franchises acquired in 2020. These options have a four-year vesting
requirement.
(5) On 01 January 2021, certain vendors, retained as employees,
were granted options to purchase 45,500 New Ordinary Shares at a
price of $6.24 pursuant to the acquisition of franchises acquired
in 2020. These options have a four-year vesting requirement.
(6) On 15 March 2021, Dan Ewell, a newly appointed Director,
received an option to purchase 200,000 New Ordinary Shares. All
other members of the Board received an option to purchase 25,000
New Ordinary Shares. These options have an exercise price of $10.40
per share, being a 18% premium to the prevailing share price. These
Options have a four-year vesting requirement.
Patrick DeSouza received (i) 600,000 Partly Paid Shares at an
exercise price of $1.07 during 2016, (ii) 750,000 Partly Paid
Shares at an exercise price of $2.71 in March 2018, (iii) 850,000
Partly Paid Shares at an exercise price of $4.82, in May 2019 and
(iv) 300,000 Partly Paid Shares at an exercise price of $6.13 in
October 2020 in connection with capital raising and bank
financings. He has paid up 300,000 Partly Paid Shares of the shares
issued in 2016. These Partly Paid Shares carry voting rights but
will not be admitted to trading or carry any economic rights until
fully paid.
8 Finance income
Year ended Year ended
31 December 31 December
2020 2019
$ $
Interest income 88,753 61,754
----------------------- -------------- --------------
9 Finance expense
Year ended Year ended
31 December 31 December
2020 2019
$ $
Interest expense 445,351 400,241
------------------------ -------------- --------------
10 Taxation
Year ended Year ended
31 December 31 December
2020 2019
Group $ $
------------------------------------- -------------- ------------------
Current tax:
Current tax on profits in the year 836,682 535,692
Prior year over provision - -
------------------------------------- -------------- ------------------
Total current tax 836,681 535,692
------------------------------------- -------------- ------------------
Deferred tax current year 436,637 126,369
Deferred tax prior year - -
------------------------------------- -------------- ------------------
Deferred tax (credit)/expense (note
20) 436,637 126,369
------------------------------------- -------------- ------------------
Income tax expense 1,273,319 662,061
------------------------------------- -------------- ------------------
The tax on the Group's loss before tax differs from the
theoretical amount that would arise using the weighted average tax
rate applicable to profits of the consolidated entities as
follows:
Profit before tax on ordinary activities 4,203,374 2,357,488
---------------------------------------------- ---------- ----------
Tax calculated at domestic rate applicable
profits in respective countries
(2020: 31.7% versus 2019: 31.6%) 882,709 446,277
Tax effects of:
Non-deductible expenses 65,445 11,528
GILTI Inclusion 15,202 22,548
Other tax adjustments, reliefs and transfers 95,620 38,314
State taxes net of federal benefit 190,419 110,772
Adjustment in respect of prior year 17,262 30,586
Changes in rates 6,662 2,036
---------------------------------------------- ---------- ----------
Taxation expense recognized in income
statement 1,273,319 662,061
---------------------------------------------- ---------- ----------
The Group is subject to income taxes in multiple jurisdictions.
Significant judgment is required in determining the worldwide
provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain.
The Group recognises liabilities for anticipated tax audit issues
based on estimates of whether additional taxes will be due.
As also set forth, in Note 20, at the balance sheet date, the
Group's UK trading operations had unused tax losses of GBP5,898,312
(2019: GBP4,276,906) available for offset against future profits.
GBP1,002,713 (2019: GBP727,074) represents unrecognized deferred
tax assets thereon at 19%. The deferred tax asset has not been
recognized due to uncertainty over timing of utilization.
The effective rate for tax for 2020 is 31.7% (2019: 31.6%). It
is anticipated that the Group will use this effective tax rate of
31.7% going forward.
11 Earnings per share
The profit per share has been calculated using the profit for
the year and the weighted average number of ordinary shares
outstanding during the year, as follows:
Basic
Year ended Year ended
31 December
2019
31 December 2020 $
$
-------------------------------------------- ------------------------------
Profit for the year attributable to equity
holders of the Parent ($) 2,892,974 1,695,033
Weighted average number of ordinary shares 14,832,294 14,426,694
Diluted weighted average number of ordinary
shares 15,427,122 15,244,422
11
Profit per share (cents) 19.5 11.7
Diluted profit per share (cents) 18.8 11.1
12 Acquisitions
These can be summarised as follows:
On 12 May 2020, the Company announced the reacquisition of
Minneapolis, Minnesota franchise. Operationally, the reacquisition
enables the creation of regional corporate hub in the Upper Midwest
of the United States connecting various franchise locations.
Financially, for full-year 2019, Minneapolis generated
approximately $985,000 of sales and $315,000 of pre-tax profits.
The purchase price was $1.3 million spread evenly over four
years.
On 2 June 2020, the Company announced the reacquisition of its
San Jose, California franchise. The reacquisition of San Jose is
strategic in that it enables the Group to create a regional
corporate base in Silicon Valley to not only execute its growth
plan but also to source and test new technologies. Financially, for
full-year 2019, San Jose franchise operations generated
approximately $0.7 million of sales and $0.2 million of pre-tax
profits. The purchase price was approximately $1.05 million to be
paid over three years.
On 16 July 2020, the Company announced the reacquisition of its
Maryland franchise. Maryland is a significant reacquisition. The
franchise territory covers the entire state of Maryland which
includes cities such as Baltimore, Bethesda, and Annapolis. The
Group plans to create a regional hub and link corporate operations
in South New Jersey and Washington D.C. and franchise operations in
Philadelphia and Northern New Jersey. Financially, for full-year
2019, Maryland generated approximately $1.07 million of sales and
approximately $0.4 million of pre-tax profits. The purchase price
for the reacquisition was $1.35 million.
On 4 August 2020, the Company announced the reacquisition of its
franchise operation in Melbourne, Australia. Melbourne is a
significant reacquisition because it complements the Group's other
corporate base in Sydney. Between Melbourne and Sydney, the Group
can better support growth of its existing franchise locations in
the eastern half of Australia. The Group intends to expand
operations further west to Adelaide and Perth, both of which remain
untapped. Financially, for the trailing twelve months, which
includes six months of Covid-impacted results, the Melbourne
operation generated AUD$1.29 million in sales and AUD$0.25 million
in pre-tax profits. The purchase price for the reacquisition was
AUD$1.77 million.
On 30 September 20, the Company announced the reacquisition of
its franchise operation in Brisbane, Australia. The Group now will
have corporate operations in the three most populous cities in
Australia. Such critical mass will enable the Group to better
support the growth of current and new ALD franchises and corporate
operations throughout the eastern half of Australia. Brisbane
operations generated approximately AUD$0.5 million in revenue and
AUD$0.1 million in pre-tax profits for the trailing twelve months
which includes a period of slowdown due to Covid. The purchase
price was AUD$550,000.
On 14 December 2020, the Company announced the reacquisition of
its Baton Rouge, Louisiana franchise. The franchise operation
encompasses the cities of Baton Rouge and New Orleans.
Strategically, the Louisiana reacquisition will enable ALD to form
a regional operational center in the southern part of the United
States from which to support the growth of franchise and corporate
locations. Financially, for full-year 2019 the Louisiana franchise
generated approximately $1.1 million in sales and $0.3 million in
pre-tax profits. The purchase price for the reacquisition was $1.77
million to be paid over four years.
On 22 December 2020, the Company announced the reacquisition of
its Melbourne, Florida franchise. The Melbourne reacquisition will
enable ALD to link its current and fast-growing corporate
operations of Orlando, to the north, and Miami, to the south, along
the eastern part of Florida. The purchase price was $1.55 million
based on 2020 pro forma full-year results of approximately $1.2
million in sales and $0.3 million in profits. The purchase price is
to be paid over three years.
On 31 December 2020, the Company reacquired its Seattle,
Washington franchise. The reacquisition is the largest franchise
reacquisition to date and strategic in tying together different
growing business segments and creating efficiencies. In terms of
business segments, Seattle will work together with Water
Intelligence International ("WII") to set up a US base of
operations for WII's municipal solutions. In terms of efficiencies,
the Seattle location enables the Group to link its corporate
operations in Portland to the south and to open up a new Canadian
location in Vancouver to the north. For 2020, Seattle reached
approximately $2.7 million in revenue and $0.8 million in profits
before tax adjusted. The purchase price was $5.5 million of which
$500,000 is contingent on performance targets through year-end
2022.
Sub.
Aqu. Melbourne Baton Melbourne Brisbane
Denver Minneapolis San Jose Maryland Seattle Florida Rouge Australia Australia Adjust-ments Totals
$ $ $ $ $ $ $ $ $ $ $
Fair value of
assets and
liabilities
acquired
Equipment 32,430 73,720 69,397 50,410 182,950 52,750 40,500 48,644 69,364 - 620,164
Vehicles - 40,922 - 75,000 187,906 108,750 115,800 80,086 92,875 - 701,340
Other - - - 60,000 60,000 60,000 30,000 7,164 7,036 - 224,200
Net assets
acquired 32,430 114,642 69,397 185,410 430,856 221,500 186,300 135,894 169,276 - 1,545,704
Consideration
Cash 300,000 327,670 380,000 1,350,000 4,000,000 800,000 700,000 1,270,177 351,800 50,000 9,529,647
Note payable - 983,012 667,000 - 1,500,000 750,000 1,150,000 - 35,180 - 5,085,192
Total
consideration 300,000 1,310,682 1,047,000 1,350,000 5,500,000 1,550,000 1,850,000 1,270,177 386,980 50,000 14,614,839
Intangible
assets
arising on
acquisition
(see note 13) 267,570 1,196,040 977,603 1,164,590 5,069,144 1,328,500 1,663,700 1,134,283 217,704 50,000 13,069,135
The intangible assets arising on the above acquisitions of
$13,069,135 is included in additions to goodwill and indefinite
life intangible assets for owned & operated stores (see note
13).
Following acquisitions all Franchises are classed as one cash
generating unit therefore cannot separately disclose revenue and
profit for each individual franchise.
The amount of deferred consideration for 2020 acquisitions as
well as the remaining deferred consideration for acquisitions made
in 2015, 2016, 2017, 2018 and 2019 (after discounting anticipated
cash flows to evaluate the fair value), can be summarized as
follows:
Current Year ended Year ended
31 December 31 December
Year acquired 2020 2019
$ $
T&M Tech LLC (South Michigan franchise) 2015 75,473
Cincinnati 2016 56,604
Kentucky 2018 557,816
South Florida 2018 24,928 23,480
Orlando 2019 471,698
Tucson 2019 105,884 92,434
Minneapolis 2020 327,670
San Jose 2020 295,137
Seattle 2020 750,000
Baton Rouge 2020 700,000
Brisbane, Australia 2020 38,320
Total current deferred consideration 2,241,939 1,277,505
Non-Current Year ended Year ended
31 December 31 December
Year 2020 2019
acquired $ $
----------- -----------
South Florida 2018 143,905 168,834
Tucson 2019 271,667 387,364
Minneapolis 2020 668,449
San Jose 2020 353,040
Seattle 2020 750,000
Melbourne, Florida 2020 462,375
Baton Rouge 2020 772,500
Total non-current deferred consideration 3,421,936 556,198
13 Intangible assets
The calculation of amortization of intangible assets requires
the use of estimates and judgement, related to the expected useful
lives of the assets.
An impairment review is undertaken annually or whenever changes
in circumstances or events indicate that the carrying amount may
not be recovered.
Goodwill and other indefinite life intangible assets
Group Goodwill relating Goodwill
Goodwill to Owned & on franchisor
Acquisitions Operated stores activities Totals
$ $ $ $
Cost
At 1 January 2019 2,545,134 4,654,351 636,711 7,836,196
Additions 494,117 2,341,617 - 2,835,734
At 31 December
2019 3,039,251 6,995,968 636,711 10,671,930
Additions (see
note 12) 267,570 12,801,565 - 13,069,135
At 31 December
2020 3,306,821 19,797,533 636,711 23,741,065
Impairment
At 1 January 2019 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
At 31 December
2019 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
At 31 December
2020 1,506,229 75,000 - 1,581,229
Carrying amount
At 31 December
2019 1,533,022 6,920,968 636,711 9,090,701
At 31 December
2020 1,800,592 19,722,533 636,711 22,159,836
The increase in carrying value of Goodwill Acquisitions at 31
December 2020 relate to goodwill additions arising on the
acquisition outlined in Note 12 above during 2020.
Goodwill and indefinite life intangible assets on owned &
operated stores comprises legacy owned stores together with
additions arising from reacquisitions of franchise operations from
2015 through 2020. Details on additions in 2020 can be found in
note 12 above.
Goodwill on Franchisor Activities relates to the royalty income
franchise business.
Where appropriate consideration of separately identifiable
intangible assets has been considered in the evaluation of the fair
value of assets acquired and the determination of the fair value of
goodwill arising. For the acquisitions in 2015 - 2020 relating to
the reacquisition of franchises, it is considered that the value
being attributed to the purchase consideration relates to the
synergies with surrounding franchises, obtaining wider geographical
coverage directly within the Group, the focus to seize potential
opportunity within a wider business strategy for revenue and
earnings growth and the ability to expand new service offerings.
Where appropriate, consideration of separate intangibles, such as
covenants not to compete, are evaluated.
There is no separately identified intangible considered to arise
from the customer list of a franchise reacquired given the terms of
the franchise agreement and on that these customers continue to be
customers of the Group's products and services before and after the
reacquisition.
An impairment review is undertaken annually or whenever changes
in circumstances or events indicate that the carrying amount may
not be recovered. For the purpose of impairment testing, goodwill
or indefinite life intangible assets are allocated to appropriate
cash generating units which can be summarised as follows:
Goodwill on Acquisitions are separately categorized as cash
generating units.
Goodwill or indefinite life intangible assets on owned &
operated stores are categorized as cash generating units that are
expected to benefit from the synergies of the combination.
Goodwill on Franchisor Activities is considered as one cash
generating unit by reference to revenues and activities derived
from the franchise royalty income and franchise related activities
segments (see note 4).
The cash generating units to which goodwill or indefinite life
intangible assets have been allocated are tested for impairment
annually. If the recoverable amount of the cash generating unit is
less than its carrying amount, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to
the unit and then to the other assets of the unit pro-rata on the
basis of the carrying amount of each asset in the unit. An
impairment loss recognised for goodwill is not recovered in a
subsequent period.
The key assumptions/inputs used for the impairment assessment
based on the forecast cash flow and revenues for 2020 were as
follows:
%
Discount rate 15
Short term revenue growth 5
Long term revenue growth 3.5
Tax rate 25
Discount rate sensitivity step 2
Perpetual growth rate sensitivity step 1
This has resulted in no material impairment charge being
required in 2020 (2019: $nil).
Based upon the sensitivity analysis had the estimated discount
rate used been 2% higher and the perpetual revenue growth rate used
been 1% lower in these calculations the Group would still not have
incurred any material impairment for any of the categories of
goodwill or indefinite life intangible assets.
13 Intangible assets continued
Other Intangible assets table
Covenants Enterprise
Product not to Customer Solution
development compete Lists Trademarks Patents Website Development Total
$ $ $ $ $ $ $ $
Cost
At 1 January
2019 164,880 290,000 350,357 5,293,817 23,692 90,000 457,471 6,670,217
Additions - 200,000 - - - (355,471) (155,471)
At 31
December
2019 164,880 490,000 350,357 5,293,817 23,692 90,000 102,000 6,514,746
Additions - 224,200 - - - - - 224,200
Disposals - (290,000) (217,500) (62,050) - (90,000) (659,550)
At 31
December
2020 164,880 424,200 132,857 5,231,767 23,692 - 102,000 6,079,397
Accumulated
amortisation
At 1 January
2019 164,880 290,000 297,213 3,418,367 23,692 52,500 - 4,246,652
Amortisation
expense - - 27,350 261,691 - 30,000 - 319,041
Exchange
differences - - (779) - - - - (779)
At 31
December
2019 164,880 290,000 323,784 3,680,058 23,692 82,500 - 4,564,914
Amortisation
expense - 193,124 27,702 261,691 - 7,500 34,000 524,017
Disposals (290,000) (217,500) (62,050) - (90,000) - (659,550)
Exchange
differences - (151) (1,130) - - - - (1,281)
At 31
December
2020 164,880 192,973 132,857 3,879,699 23,692 - 34,000 4,428,101
Carrying
amount
At 31
December
2019 - 200,000 26,573 1,613,759 - 7,500 102,000 1,949,832
At 31
December
2020 - 231,227 - 1,352,068 - - 68,001 1,651,296
All intangible assets have been acquired by the Group.
The calculation of amortization of intangible assets requires
the use of estimates and judgement, related to the expected useful
lives of the assets.
An impairment review is undertaken annually or whenever changes
in circumstances or events indicate that the carrying amount may
not be recovered.
14 Property, plant and equipment
Right Right
Equipment Motor Leasehold Buildings of of
& displays Vehicles Improvements $ Use Vehicles Use Offices Total
$ $ $ $ $ $
Cost
At 1 January
2019 1,428,404 917,560 15,000 - - - 2,360,964
Acquired on acquisition
of subsidiary 163,116 113,302 - 152,009 - - 428,427
Additions 488,163 513,283 68,672 - 357,458 533,652 1,961,228
IFRS 16 Adoption - - - - 1,092,582 1,323,060 2,415,642
Exchange differences 4,682 1,848 - 1,382 - - 7,912
Disposals (107,805) (107,415) - - (55,786) (373,762) (644,768)
At 31 December
2019 1,976,560 1,438,578 83,672 153,391 1,394,254 1,482,950 6,529,405
Acquired on acquisition
of subsidiary 32,430 - - - - - 32,430
Additions 1,053,569 953,024 - - 253,583 719,831 2,980,006
Exchange differences 74,947 (47,310) - 2,851 723 17,061 48,272
Disposals (85,324) (17,787) - - (199,594) (542,266) (844,970)
At 31 December
2020 3,052,181 2,326,504 83,672 156,242 1,448,967 1,677,576 8,745,143
Accumulated depreciation
At 1 January
2019 420,611 205,781 2,046 - - - 628,438
Acquired on acquisition
of subsidiary 109,945 55,924 - 27,116 192,985
Eliminated on
disposals (35,915) (54,216) - - (55,786) (373,762) (519,679)
IFRS 16 Adoption - - - - 396,350 663,257 1,059,607
Depreciation
expense 325,759 269,482 5,942 10,947 284,712 371,621 1,268,463
Exchange differences 955 495 - 9 - - 1,459
At 31 December
2019 821,355 477,466 7,988 38,072 625,276 661,116 2,631,273
Eliminated on
disposals (33,752) (10,429) - - (174,892) (421,793) (640,866)
Depreciation
expense 450,167 306,723 15,098 11,859 311,973 472,214 1,568,034
Exchange differences 3,426 8,003 - 832 77 2,143 14,481
At 31 December
2020 1,241,197 781,762 23,085 50,764 762,433 713,681 3,572,921
Carrying amount
At 31 December
2019 1,155,205 961,112 75,684 115,319 768,978 821,834 3,898,132
At 31 December
2020 1,810,985 1,544,742 60,587 105,479 686,533 963,896 5,172,221
The value of the assets charged as security for the bank debt is
$2,056,692 (2019: $1,426,896).
15 Investment in subsidiary undertakings
Subsidiary
Undertakings
Company $
Cost
At 31 December 2019 13,607,300
Exchange difference 253,251
At 31 December 2020 13,860,551
Impairment
At 31 December 2019 6,400,906
Exchange difference -
At 31 December 2020 6,400,906
Carrying amount
At 31 December 2019 7,206,394
At 31 December 2020 7,459,645
The Directors annually assess the carrying value of the
investment in the subsidiary and in their opinion no impairment
provision is currently necessary. See notes 12 and 13 for the
assumptions and sensitivities in assessing the carrying value of
the investment.
The net carrying amounts noted above relate to the US
incorporated subsidiaries.
The subsidiary undertakings during the year were as follows:
Interest
held
Registered office Country %
address of incorporation
Water Intelligence International 27-28 Eastcastle Street,
Limited* (leak detection London, United Kingdom, England
products and services) W1W 8DH and Wales 100%
Water Intelligence Australia 1 Farrer Place, Sydney,
Pty NSW 2000 Australia 100%
American Leak Detection 199 Whitney Avenue,
Holding Corp. (holding New Haven, Connecticut
company of ALD Inc.) * 06511 US US 100%
American Leak Detection, 199 Whitney Avenue,
Inc. (leak detection product New Haven, Connecticut
and services) 06511 US US 100%
8-4696 Bartlette Rd.
Canadian Leak Detection, Beamsville, Ontario
Inc. L0R 1B1 Canada 100%
Qonnectis Group Limited 27-28 Eastcastle Street, England
(dormant) London, United Kingdom, and Wales
W1W 8DH
NRW Utilities Limited (Dormant) 27-28 Eastcastle Street, England
London, United Kingdom, and Wales
W1W 8DH
* Subsidiaries owned directly by the Parent Company. These
subsidiaries - WII and ALDHC - represent the two principal business
lines of the Parent Company. Water Intelligence Australia and
American Leak Detection are also wholly-owned by the two principal
subsidiaries and indirectly owned by the Parent.
The Company's strategy involves acquisitions, especially of
franchisees. American Leak Detection has reacquired one franchise,
Bakersfield on 15 March 2018, by purchasing 100% upfront and at the
same time sold 40% of the franchise. American Leak Detection has an
unrestricted option to acquire the remaining 40% at a pre-set price
at any time in the future. American Leak Detection has a 51% stake
in a former franchise located in Denver, Colorado.
16 Inventories
Group
Year ended Year ended
31 December 31 December
2020 2019
$ $
Group Inventories 444,791 334,011
During the year ended 31 December 2020, an expense of $8,830,250
(2019: $7,448,287) was recognized in the Consolidated Statement of
Comprehensive Income, including business to business expenses of
$8,024,178 (2019: $6,747,495). There has been no write down of
inventories during 2020.
17 Trade and other receivables
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2020 2019 2020 2019
$ $ $ $
Trade notes receivable 581,191 605,234 - - -
All non-current receivables are due within five years from the
end of the reporting period.
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2020 2019 2020 2019
$ $ $ $
Trade receivables 2,843,462 2,796,536 - -
Prepayments 899,903 671,047 3,973 27,901
Due from Group undertakings - - 7,068,570 4,906,216
Accrued royalties receivable 673,832 584,876 - -
Trade notes receivable 212,681 223,706 - -
Other receivables 1,093,994 389,701 - -
Due from related party 325,195 370,284 - 71,956
Current portion 6,049,067 5,036,149 7,072,544 5,006,073
Trade receivables disclosed above are classified as loans and
receivables and are therefore measured at amortised cost. The
Directors consider that the carrying amount of trade and other
receivables approximates their fair value.
Accrued royalties receivable are never reclassified to trade
receivables as, should any royalties be withheld or unpaid, the
Group has the right to take back the relevant franchise.
The average credit period taken on sales is 39 days (2019: 39
days).
The carrying amounts of the Group's trade and other receivables
are denominated in the following currencies:
Year ended Year ended
31 December 31 December
2020 2019
$ $
US Dollar 5,229,898 4,133,093
UK Pound 504,926 658,728
Australian Dollar 293,179 208,592
Canadian Dollar 21,063 35,735
6,049,067 5,036,149
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivable mentioned above. The
Group does not hold any collateral as security.
18 Cash and cash equivalents
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2020 2019 2020 2019
$ $ $ $
Cash at bank and in hand 6,818,715 5,280,808 366,737 195,749
19 Trade and other payables
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2020 2019 2020 2019
$ $ $ $
Trade payables 1,531,740 993,241 21,094 52,627
Accruals and other payables
(Note 2) 4,132,158 3,602,845 121,452 117,725
Due to Group undertakings - - -
5,663,898 4,596,086 142,546 170,352
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs and are payable
within 3 months. The average credit period taken for trade
purchases is 16 days (2019:16 days ).
20 Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group 2020 2019
$ $
Deferred tax (liability)/assets (957,170) (588,684)
The movement in deferred tax liabilities is as follows:
2020 Recognized Recognized
Opening in the income in Other Comprehensive Closing
balance statement Income balance
$ $ $ $
Temporary differences: - - - -
Net operating profit - - - -
(loss) (non-current)
Short term temporary
differences (588,684) (436,637) 68,151 (957,170)
(588,684) (436,637) 68,151 (957,170)
2019 Recognized Recognized
Opening in the income in Other Comprehensive Closing
balance statement Income balance
$ $ $ $
Temporary differences: - - - -
Net operating profit - - - -
(loss) (non-current)
Short term temporary
differences (316,221) (126,369) (146,094) (588,684)
(316,221) (126,369) (146,094) (588,684)
At the balance sheet date, the Group's UK trading subsidiaries
had unused tax losses (as reported on the Group's tax returns) of
GBP5,898,312 (2019: GBP4,276,906) available for offset against
future profits. GBP1,002,713 (2019: GBP727,074) represents
unrecognized deferred tax assets thereon at 19%. The deferred tax
asset has not been recognized due to uncertainty over timing of
utilization.
21 Share capital
The issued share capital in the year was as follows:
Group & Company
Shares held
Ordinary Shares in treasury
Number Number Total Number
At 31 December 2019 14,702,371 145,000 14,847,371
At 31 December 2020 15,434,784 65,538 15,500,322
.
Group & Company
Shares in
Share capital Share premium Treasury
$ $ $
At 31 December 2019 114,440 9,717,349 (539,833)
At 31 December 2020 116,212 12,091,069 (340,327)
At various times during 2020, the Company bought 80,483 shares
into treasury at a purchase price range of 247p to 420p.
On 5 January 2020, the Company issued 25,000 shares pursuant to
an exercise of options.
On 16 October 2020, the Company announced a capital raise,
pursuant to which the Company sold 285,451 new ordinary shares to
raise GBP1.4 million and the Company sold 159,945 shares out of
treasury to raise GBP0.8 million. At the same time, Patrick
DeSouza, Executive Chairman of the Company, fully paid 300,000 of
his partly paid shares and, in addition, options over 42,500
ordinary shares were exercised and sold to incoming investors. All
of these shares were admitted to trading on AIM on 26 October 2020.
In addition, Patrick DeSouza received 300,000 Partly Paid Shares
(being ordinary shares with voting rights and no economic rights
until fully paid) in exchange for increasing the guarantee he is
providing over the Company's bank facilities.
Reverse acquisition reserve
The reverse acquisition reserve was created in accordance with
IFRS3 Business Combinations and relates to the reverse acquisition
of Qonnectis Plc by ALDHC in July 2010. Although these Consolidated
Financial Statements have been issued in the name of the legal
parent, the Company it represents in substance is a continuation of
the financial information of the legal subsidiary ALDHC. A reverse
acquisition reserve was created in 2010 to enable the presentation
of a consolidated statement of financial position which combines
the equity structure of the legal parent with the reserves of the
legal subsidiary. Qonnectis Plc was renamed Water Intelligence Plc
on completion of the reverse acquisition on 29 July 2010.
22 Right of use liability
Year ended Year ended
31 December 31 December
2020 2019
$ $
Lease liabilities in statement of
financial position
Amounts due within one year 771,713 587,674
Amount due after more than one year 991,720 1,116,132
1,763,433 1,703,806
Amount recognized in the statement of
comprehensive income
Interest on leasehold liabilities 93,912 88,189
Amount recognized in the statement
of
cash flows
Repayment of lease liabilities 813,667 723,812
23 Financial instruments
The Group has exposure to the following key risks related to
financial instruments:
i. Market risk (including foreign currency risk management)
ii. Interest rate risk
iii. Credit risk
iv. Liquidity risk
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk, and the Group's
management of capital. Further quantitative disclosures are
included throughout these consolidated Financial Statements.
The Directors determine, as required, the degree to which it is
appropriate to use financial instruments or other hedging contracts
or techniques to mitigate risk. The main risk affecting such
instruments is foreign currency risk which is discussed below.
Throughout the year ending 31 December 2020 no trading in financial
instruments was undertaken (2019: none) and the Group did not have
any derivative or hedging instruments.
The Group uses financial instruments including cash, loans and
finance leases, as well as trade receivables and payables that
arise directly from operations.
Due to the simple nature of these financial instruments, there
is no material difference between book and fair values. Discounting
would not give a material difference to the results of the Group
and the Directors believe that there are no material sensitivities
that require additional disclosure.
Fair value of financial assets and financial liabilities
The estimated difference between the carrying amount and the
fair values of the Group's financial assets and financial
liabilities is not considered material.
Credit risk
The Group's principal financial assets are bank balances, cash,
cash equivalents, trade and other receivables. The Group's credit
risk is primarily attributable to its trade receivables and cash
and cash equivalents. Receivables are regularly monitored and
assessed for recoverability. The Group has no significant
concentration of credit risk as exposure is spread over a number of
customers. As at 31 December 2020, 66.9% was held with one
counterparty with a credit rating of Aaa and a further 15.05% was
held with another counterparty with a credit rating of A-.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. To measure the expected credit
losses, trade receivables have been grouped based on the shared
credit risk characteristics and the days past due. The expected
loss rates are based on the historic payment profiles of sales and
the credit losses experienced within this period. The historical
loss rates are adjusted to reflect current and forward-looking
information.
As the Group does not hold any collateral, the maximum exposure
to credit risk is represented by the carrying amount of the
financial assets as at the end of each reporting period.
As at 31 December 2020, trade receivables of $281,805 (2019:
$460,716) were past due but not impaired. These relate to a number
of customers for whom there is no history of default. The ageing
analysis of these trade receivables is as follows:
Ageing of past due but not impaired receivables
Year ended Year ended
31 December 31 December
2020 2019
$ $
60-90 days 87,621 129,287
90+ days 194,184 331,429
281,805 460,716
Average age (days) 95 95
The Group believes that no impairment allowance is necessary in
respect of trade receivables that are past due but not impaired.
This is based on the Group's good historic track record of
collection for all such receivables .
Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group seeks to limit credit risk on liquid funds through
trading only with counterparties that are banks with high credit
ratings assigned by international credit rating agencies.
Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure. The exposure to credit risk at the year-end was in
respect of the past due receivables that have not been impaired are
disclosed in note 17.
Categories of financial instruments
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2020 2019 2020 2019
$ $ $ $
Loans and receivables - - - -
Cash and cash equivalents 6,818,715 5,280,808 366,737 195,749
Trade and other receivables 5,036,149
- current 6,049,067 -- 7,072,544 5,006,074
Trade and other receivables
- non-current 581,191 605,234 - -
Financial Liabilities measured
at amortised cost
Trade and other payables 5,663,898 4,596,086 142,545 170,353
1,163,055
Borrowings - current 2,941,610 - - -
2,321,401
Borrowings - non-current 5,848,261 - - -
Deferred consideration
- current 2,241,939 1,277,504 - -
Deferred consideration
- non-current 3,421,936 556,197 - -
Borrowings
For 2020, the Group has two basic types of Borrowings: Bank Debt
of $6,782,000 (see below) and PPP Loans of $1,869,800 (see
Subsequent Events). The remainder amount of $138,061 represents
non-bank borrowing with respect to service vehicles.
Bank Debt
The Group has a commercial banking relationship with People's
United Bank (People's) with various facilities: a working capital
line of credit ("WCL"); acquisition lines of credit ("ALOCs"), and
a term loan ("Term Loan").
A $2,000,000 WCL is secured by substantially all of the assets
of the Group. On May 9, 2019, the WCL was extended to a maturity
date from December 2019 to December 2020 and bore interest at a
rate equal to LIBOR plus 3.00%. On October 13, 2020, the WCL was
extended to a maturity date of December 5, 2021 and bears an annual
variable interest rate equal to equal to LIBOR plus 3.00%. At
December 31, 2020 and 2019, the interest rate was 4.00% and 4.70%,
respectively. Monthly interest only payments on any unpaid balance
were made during 2020. The balance outstanding at December 31, 2020
and 2019 was $226,737 and $228,133, respectively and included
within line of credit on the balance sheets.
In addition to the $2,000,000 line of credit, People's has
provided the Group a $1,500,000 acquisition line of credit (ALOC1).
ALOC1 had a two year draw period but was paid off in October 2020
as part of the Group's refinancing of their debt. ALOC1 bore
interest at a rate equal to LIBOR plus 3.00%. As of December 31,
2019, the interest rate was 5.40%, and required installments of
principal and interest amounting to $35,469 to be paid per month.
As part of the agreement, such payments would be converted into a
term loan if any ALOC advance exceeded $250,000 or automatically at
the end of a two year draw period. Upon conversion, the term loan
would bear interest at a rate per annum equal to three (3)
percentage points in excess of People's four year cost of funds
interest rate. The ALOC1 was secured by substantially all of the
assets of the Group. The balance outstanding of $0 and $1,035,468
as of December 31, 2020 and 2019 is included within notes payable
on the balance sheets. See note 8 for a summary of notes payable
which includes the ALOC1.
On May 9, 2019, People's provided the Group with a second ALOC
(ALOC2) in the amount of $4,000,000. ALOC2 had a two year draw
period but was paid off in October 2020 as part of the Company's
refinancing of their debt. ALOC2 bore interest at a rate equal to
LIBOR plus 3.00%. As of December 31, 2019, the interest rate was
5.57% and required installments of principal and interest amounting
to $35,524 to be paid per month beginning in June 2019. As part of
the agreement, the ALOC2 would be converted into a term loan if any
ALOC2 advance exceeded $250,000 or automatically at the end of the
two year draw period. Upon conversion, the term loan would bear
interest at a rate per annum equal to three (3) percentage points
in excess of People's five year cost of funds interest rate. The
line of credit was secured by substantially all of the assets of
the Group. The balance outstanding as of December 31, 2020 and 2019
was $0 and $1,662,661 and is included within notes payable on the
balance sheets. See note 8 for a summary of notes payable which
includes the ALOC2.
Both ALOC 1 and ALOC 2 were refinanced on October 13, 2020.
People's provided the Group with a term loan in the amount of
$4,607,000 ("Term Loan"). The Term Loan bears interest at a rate
equal to 3.58% and requires installments consisting of principal of
$85,315 plus accrued interest to be paid monthly beginning in
November 2020 until maturity in May 2025. The loan is secured by
substantially all of the assets of the Group. The balance
outstanding as of December 31, 2020 was $4,521,685 and is included
within notes payable on the balance sheets.
As part of the refinancing, People's provided the Group with a
new ALOC ("New ALOC") in the amount of $6,000,000. The New ALOC has
a two year draw period. The balance outstanding as of December 31,
2020 was $2,309,341 and is included within notes payable on the
balance sheets. See note 8 for a summary of notes payable which
includes the New ALOC. The line bears interest at a rate equal to
LIBOR plus 3.00%. As of December 31, 2020, the interest rate was
3.59% and requires installments of principal and interest amounting
to $39,816 to be paid per month beginning in November 2020 until
maturity in October 2025. As part of the agreement, New ALOC
advances would be converted into a term loan if any ALOC advance
exceeded $500,000 or automatically at the end of each draw period.
Upon conversion, the term loan would bear interest at a rate per
annum equal to three (3) percentage points in excess of People's
five year cost of funds interest rate; with a floor of 3.25%. New
ALOC is secured by substantially all of the assets of the
Group.
In connection with the People's line of credit, ALOC, and term
note, the Group is required to comply with certain financial and
non-financial covenants to be performed on a consolidated basis
with its parent company. The most restrictive of these covenants
includes a debt service coverage ratio to be tested quarterly and a
maximum total funded debt to EBITDA ratio minimal to be tested
quarterly. The Group was in compliance with those requirements at
December 31, 2020.
Current Non-Current
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2020 2019 2020 2019
Financial Instruments $ $ $ $
Term loans 1,074,507 465,664 3,585,440 137,702
PPP Loan 1,449,769 - 420,031 -
Working Capital Line of
Credit - - 226,737 228,133
Acquisition Line of Credit 477,795 713,685 1,831,546 1,984,351
Less: Loan Closing Costs (60,461) (16,294) (215,495) (28,787)
Total 2,941,610 1,163,055 5,848,260 2,321,400
Capital risk management
In managing its capital, the Group's primary objective is to
maintain a sufficient funding base to enable working capital,
research and development commitments and strategic investment needs
to be met and therefore to safeguard the Group's ability to
continue as a going concern in order to provide returns to
shareholders and benefits to other stakeholders. In making
decisions to adjust its capital structure to achieve these aims,
through new share issues, the Group considers not only its
short-term position but also its long term operational and
strategic objectives.
The capital structure of the Group currently consists of cash
and cash equivalents, short and medium term borrowings and equity
comprising issued capital, reserves and retained earnings. Other
than with respect to Bank Debt, the Group is not subject to any
externally imposed capital requirements. See KPI on page 11.
Significant accounting policies
Details of the significant accounting policies including the
criteria for recognition, the basis of measurement and the bases
for recognition of income and expense for each class of financial
asset, financial liability and equity instrument are disclosed in
Note 3.
Foreign currency risk management
The Group undertakes transactions denominated in foreign
currencies (other than the functional currency of the Company and
its UK operations, being GBP Sterling), with exposure to exchange
rate fluctuations. These transactions predominately relate to
royalties receivable in the US denominated in currencies other than
US$ being Canadian Dollars, Australian Dollars and Euro; royalties
from such outside US sources in 2020 were $119,271 (2019:
$143,234). No foreign exchange contracts were in place at 31
December 2020 (2019: Nil).
The carrying amount of the Group's foreign currency denominated
monetary assets and monetary liabilities were:
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2020 2019 2020 2019
$ $ $ $
Assets
Sterling, Australian
and Canadian Dollars 1,685,233 1,558,156 7,439,281 5,201,823
Liabilities
Sterling, Australian
and Canadian Dollars 1,053,196 604,422 142,545 170,353
As shown above, at 31 December 2020 the Group had Sterling,
Australian and Canadian denominated monetary net assets of $632,037
(2019: $953,734). If the foreign currency weakens by 10% against
the US dollar, this would decrease net assets by $63,203 (2018:
$95,373) with a corresponding impact on reported losses. Changes in
exchange rate movements resulted in a gain from exchange
differences on a translation of foreign exchange of $33,375 in 2020
(2019: loss of $164,145), resulting primarily from the share
issuance during the year in Pound Sterling and subsequent
intercompany transfer accounted in US Dollars.
Interest rate risk management
The Group is potentially exposed to interest rate risk because
the Group borrows and deposits funds at both fixed and floating
interest rates. However, at the year end, the borrowings are only
subject to fixed rates. The fixed rate borrowings at the year end
are $8,789,871 (2019:$3,484,456).
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the
year ended 31 December 2020 would not materially change if market
interest rates had been 1% higher/lower throughout 2020 and all
other variables were held constant.
Liquidity risk management
Ultimate responsibility for liquidity management rests with
management. The Group's practice is to regularly review cash needs
and to place excess funds on fixed term deposits for periods not
exceeding one month. The Group manages liquidity risk by
maintaining adequate banking facilities and by continuously
monitoring forecast and actual cash flows.
The Directors have prepared a business plan and forecast for the
period to 31 December 2022. The forecast contains certain
assumptions about the level of future sales and the level of
margins achievable. These assumptions are the Directors' best
estimate of the future development of the business. The Directors
acknowledge that the Group in the near-term trading is primarily
reliant on cash generation from its predominantly US-based royalty
income.
The following tables detail the Group's remaining contractual
maturity for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the
undiscounted cash flows of financial liabilities based on the
earliest due repayment dates. The table shows principal cash
flows.
0-6 months 6-12 months >12 months Total
Group $ $ $ $
2020
Payables 3,900,465 - - 3,900,465
Lease liabilities 365,363 406,350 991,720 1,763,433
Borrowings 2,619,786 321,824 5,848,261 8,789,871
Deferred consideration 1,364,771 877,168 3,421,936 5,663,875
0-6 months 6-12 months >12 months Total
Group $ $ $ $
2019
Payables 2,892,280 - - 2,892,280
Lease liabilities 327,253 260,420 1,116,132 1,703,805
Borrowings 563,143 599,912 2,321,400 3,484,455
Deferred consideration 1,214,019 63,486 556,198 1,833,703
Interest expected to be paid on liabilities are shown in the
table below
0-6 months 6-12 months >12 months Total
Group $ $ $ $
2020
Payables - - - -
Lease liabilities 33,122 24,463 45,677 103,262
Borrowings 118,084 105,064 350,668 573,816
Deferred consideration 88,746 81,707 122,015 292,467
The Company has no non-derivative financial liabilities.
Derivatives
The Group and Company have no derivative financial instruments
.
Fair values
The Directors consider that the carrying amounts of financial
assets and financial liabilities approximate their fair values.
Reconciliation of liabilities arising from financing
activities
The changes in the Group's liabilities arising from financing
activities can be classified as follows:
Long-term Short-term Lease Liabilities Total
borrowings borrowings
$ $ $ $
At 1 January 2020 2,321,401 1,163,055 1,703,805 5,188,261
Cash flows
* Repayment (848,421) - (813,667) (1,662,088)
* Proceeds 6,153,836 - - 6,153,836
Non-cash
* New Leases - - 873,295 873,295
- - - -
* Fair value
* Reclassification (1,778,555) 1,778,555 - -
As at 31 December
2019 5,848,261 2,941,610 1,763,433 10,553,304
Long-term Short-term Lease Liabilities Total
borrowings borrowings
$ $ $ $
At 1 January 2019 1,448,303 989,736 - 2,438,039
Cash flows
* Repayment (808,520) - (635,623) (1,444,143)
* Proceeds 1,854,936 - - 1,854,936
Non-cash
* New Leases - - 2,339,428 2,339,428
- - - -
* Fair value
* Reclassification (173,319) 173,319 - -
As at 31 December
2018 2,321,401 1,163,055 1,703,805 5,188,261
24 Fair value measurement
The following table provides the fair value measurement
hierarchy for assets measured at fair value:
Fair value measurement using
Quoted
process Significant Significant
in active observable unobservable
markets inputs inputs
Total (Level (Level (Level 3)
1) 2)
Assets measured at fair
value Date of valuation $000 $000 $000 $000
Listed equity investments
SEEEN investment 31 December 2020 1,564 1,564 - -
SEEEN investment 31 December 2019 1,932 1,932 - -
To estimate fair value, the lower end of the bid-offer spread as
at 31 December 2020 was used to calculate the value of the holding.
There is an active market for the Group's liquid equity
investment.
25 Contingent liabilities
The Directors are not aware of any material contingent
liabilities.
26 Related party transactions
PSS was one former owner of ALDHC and ALD until the reverse
merger in 2010 that created Water Intelligence. PSS is now a
significant shareholder of Water Intelligence and hence is a
related party to the Company. PSS provides a technology license to
Water Intelligence and ALD on terms favourable to Water
Intelligence and ALD. The license is royalty-free for the first $5
million of sales for products developed with PSS technology. PSS
also guarantees the bank debt of Water Intelligence as described
below.
During the normal course of operations, there are intercompany
transactions among PSS, Water Intelligence plc, ALDHC and ALD. In
previous years, PSS charged administrative fees to the Company to
cover activities taken on behalf of company business, including
research. The financial results of these related party transactions
are reviewed by an independent director of Water Intelligence plc,
the parent of ALDHC and ALD.
As described in Note 7, the Company's parent (and the Company as
co-borrower) have different credit facilities with Peoples. For the
PSS guarantee, ALDHC pays 0.75% per annum based on the outstanding
balance of the loan calculated at the end of each month. Interest
charged on the PSS receivable will match the interest rate charged
by the bank. The monthly charge for the PSS guarantee would not
change and would be offset against amounts owed by PSS. The charge
will be eliminated should the guarantee no longer be required by
the bank. Interest income related to the PSS receivable amounted to
$18,062 and $15,185 for the years December 31, 2020 and 2019,
respectively. The guarantee fee expense for the PSS guarantee
amounted to $38,219 and $24,126 for the years ended December 31,
2020 and 2019, respectively. During 2020 the Company paid expenses
on behalf of PSS in the amount of $46,883. The related
receivable/prepaid balance remaining is $325,195 and $298,327 at
December 31, 2020 and 2019, respectively.
During the year, the Company had the following transactions with
its subsidiary companies:
Water Intelligence International Limited $
Balance at 31 December 2019 2,771,082
Net loans to subsidiary -
Other expenses recharged and exchange differences 278,488
Balance at 31 December 2020 3,049,570
ALDHC $
Balance at 31 December 2019 -
Loans prepaid by WI capital raise -
Balance at 31 December 2020 -
ALD Inc. $
Balance at 31 December 2019 2,135,134
Loans incurred due to WI capital raise 1,586,205
Loans paid to WI (188,610)
Other expenses recharged and exchange differences 486,272
Balance at 31 December 2020 4,019,000
27 Subsequent events
On 4 February 2021, the Group completed an extension of its
credit facilities by $3.2 million, on the same terms as the
refinancing completed in October 2020 and referenced in note
23.
On 30 March 2021, the Group completed the reacquisition of its
Central Florida (Clermont) franchise territory within the Group's
ALD franchise business. Strategically, the Central Florida
reacquisition will enable ALD to link operations along the eastern
part of Florida from its Central Florida location to fast-growing
corporate operations in Orlando, to the east, and sizeable
Melbourne and Miami operations, to the south. As noted above,
demand is high for ALD water leak detection and repair offerings in
this geography because of various factors ranging from the number
of swimming pools to level of disposable income to rainy weather.
In linking the above four eastern Florida operations, ALD expects
to achieve even faster growth through fulfilling pent-up demand and
creating operating efficiencies from scale.
The provisional fair values of the acquisitions subsequent to
year end are detailed below:
Clermont
--------------------------------------
$
-------------------------------------- ---------
Fair value of assets and liabilities
acquired
Equipment 26,250
Vehicles 54,868
Other 30,000
Net assets acquired 111,118
-------------------------------------- ---------
Consideration
Cash 330,000
Deferred consideration - discounted
to present value 330,000
-------------------------------------- ---------
Total consideration 660,000
-------------------------------------- ---------
Intangible asset arising on
acquisition 548,882
-------------------------------------- ---------
On 23 April 2021, the Group announced the acquisition of
intellectual property assets ("IP") from FastDitch, Inc., a US
corporation ("FastDitch"). The IP Assets will be used to launch a
new subsidiary of the Group's core American Leak Detection business
("ALD") dedicated to providing water infrastructure solutions. The
subsidiary will operate under the tradename Intelliditch. As set
forth in a recent market communication, the Group is accelerating
its growth plan given the anticipated increase in market demand for
water infrastructure solutions stimulated by the Biden
Administration's American Jobs Plan
On 2 June 2021, the Group announced the reacquisition of its
Reno, Nevada franchise territory within its ALD franchise business.
The acquisition strengthens corporate presence in the western part
of the United States and links its ALD innovation centers in
Silicon Valley and Seattle. The purchase price of $0.25 million is
based on $0.25 million of sales during 2020. It is believed that
strong growth will occur in this location with the end of Covid
restrictions. The purchase price allocation for the Reno
acquisition will be completed in due course.
On 2 June 2021, the Group announced the acquisition of
PlumbRight Services, Inc. PlumbRight extends the plumbing services
capabilities of the Group's fast-growing, multimillion dollar
Louisville, Kentucky location. The PlumbRight team will enable the
Louisville office to take on larger scale repair jobs as
follow-through sales beyond current pinpoint leak detection
solutions for its existing business and municipal customers. The
purchase price of $0.7 million is based on 2020 sales of
approximately $1 million. The purchase price allocation for the
PlumbRight Services acquisition will be completed in due
course.
COVID-19
PPP Program - The Paycheck Protection Program (PPP) brings much
needed relief to business owners affected by the coronavirus. Not
only does this loan program provide funding to help cover payroll
and other expenses, but if used for qualifying purposes, part or
all of the loan can be forgiven. ALD applied for and received
funding of $1,869,800 under this program in April 2020. The group
received notification from the SBA on March 31, 2021 that the full
advance of $1,869,800 was forgiven.
Work Protocols and PPE - The Group reviewed all applicable
Shelter-in-Place Orders and determined that our operations qualify
as services related to essential/critical infrastructure with
respect to water and wastewater and that we are able to continue to
operate under those Orders. The Group has taken health and safety
measures with respect to all personnel and increased significantly
its inventory of Personal Protective Equipment (PPE). The Group has
issued work protocols with respect to our service technicians who
are essential to the delivery of our water and wastewater solutions
to customers. All non-essential personnel have been notified to
work remotely until further notice. All employees have been
instructed to comply with social distancing rules/requirements in
their jurisdictions, as well as other safety and health precautions
including use of PPE, frequent hand-washing and sanitizing of all
equipment.
28 Control
The Company is under the control of its shareholders and not any
one party. The shareholdings of the directors and entities in which
they are related are as outlined within the Director's Report.
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June 08, 2021 02:00 ET (06:00 GMT)
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