TIDMWATR
RNS Number : 2379Z
Water Intelligence PLC
17 September 2020
Water Intelligence plc (AIM: WATR.L)
Interim Results
Water Intelligence plc (AIM: WATR.L) ("Water Intelligence",
"Group", or the "Company"), a leading multinational provider of
precision, minimally-invasive leak detection and remediation
solutions for both potable and non-potable water is pleased to
provide its Interim Results for the six months ended 30 June
2020.
1H statutory profit before tax grew strongly by 33% to $2.01
million (1H 2019: $1.51 million) resulting in the Group being
comfortably at the top end of market expectations despite Covid-19
challenges.
3Q builds on and adds significant operational and financial
momentum to Group: Two additional franchise reacquisitions,
National insurance win and Salesforce.com implementation.
Brand profile sharpened for ESG Investors with receipt of the
London Stock Exchange's Green Economy Mark.
Financial Highlights
* Revenue for the period increased 8% to $1 7.10
million (1H 2019: $15.87 million)
o A ll revenue channels grow
* Royalty income up 1% to $3.46 million (1H 2019: $3.44
million)
* Franchise-related activities Including national
channel accounts up 7% t o $4.32 million (1H 2019:
$4.05 million) with Business-to Business insurance
channel component up 12% to $3.94 million (1H 2019:
$3.52 million)
* US corporate-operated locations up 12% to $7.60
million (1H 2019: $6.82 million)
* International corporate-operated locations up 10% to
$1.71 million (1H 2019: $1.56 million)
* Profit before tax at top-end of market expectations
o Statutory profit before tax up 3 3% to $2.01 million
(1H 2019: $1.51 million)
o Profit before tax adjusted for non-core, amortization
and share-based payments up 20% to $2.4 million (1H
2019: $2.0 million)
o Continued investment in hiring and technology R&D
* EPS Growth
o Statutory EPS up 27% to 10.0 cents (1H 2019: 7.9 cents)
o A djusted EPS up 14% to 12.0 cents (1H 2019: 10.6
cents)
* Balance Sheet strong
o Cash and equivalents increase to $7.44 million (1H
2019: $6.03 million)
o Net Cash at $0.91 million (cash minus borrowings)
Corporate Development Highlights
1H 2020
-- Strong Execution: Implementation of protocols and navigation of Covid-19 challenges
-- Franchise Reacquisitions: 2 accretive franchise
reacquisitions - Minneapolis, Minnesota and San Jose, California -
add operational scale, especially in Silicon Valley, and financial
scale
-- Strategic relationship: Salesforce.com enabling secure
automation of dispatch, scheduling, execution and reporting
-- Innovation: New product launch of sewer diagnostic device for residential and commercial use
3Q Subsequent Events
-- Brand: Green Economy Mark received from London Stock Exchange
-- Franchise Reacquisitions: 2 accretive franchise
reacquisitions: in the U.S. - Maryland; in Australia - Melbourne,
adding operational scale in Australia
-- Strategic Relationship: New National Account with leading Insurance company
Board Change
-- David Silverstone retires from the Board effective as of the
publication of the Interim Financials. Both the board and team
(corporate and franchise) appreciate his board service. David will
continue to assist the Company with his expertise in the municipal
business as part of an Advisory Board
Dr. Patrick DeSouza, Executive Chairman of Water Intelligence,
commented: " Given the challenges of operating in a Covid-19
marketplace, we are pleased, once again, to deliver strong
financial and operating results during 1H that reaffirm our stated
objective of sustainable multinational growth. Moreover, we
accelerated during 3Q along all dimensions of our growth plan.
Each quarter has been marked by a signature event that
communicates our strategic direction. During 1Q, we launched an
ambitious next five-year plan at a well-attended annual franchise
convention in Arizona. During 2Q, we launched a strategic
relationship with Salesforce.com that will advance our business
model of being an efficient distribution platform - a 'One Stop
Shop' - for water infrastructure services and products. Finally,
during 3Q we were honored to receive the Green Economy Mark from
the London Stock Exchange. We are enthusiastic that this
designation will further define our brand for ESG Investors. We
look forward to making a difference in providing solutions for the
various challenges facing the world's most precious resource and
its infrastructure."
For further information please contact:
Water Intelligence plc
Patrick DeSouza (Executive Chairman) Tel: +1 203 654
Adrian Hargrave (VP Corporate Development) 5426
Tel: 07775 701 838
WH Ireland Limited - NOMAD & Broker
Adrian Hadden Tel: 020 7220 1666
James Sinclair-Ford Tel: 020 3903 7721
Dowgate Capital
Stephen Norcross Tel: 07920 599 793
Chairman's Statement
Overview
We executed well and distinguished ourselves during the first
half, especially in light of Covid-19 challenges facing all
companies in the marketplace. World-wide lockdown orders that were
in effect during parts of March, April and May adversely affected
the Group, but our entire team worked relentlessly and implemented
additional health and safety protocols to safeguard our
stakeholders: customers, franchisees and employees.
Demand for our solutions remains strong. Water infrastructure is
a strategic area for the global economy even during a pandemic.
Water and wastewater solutions are "essential services" that need
to be provided even when our customers are subject to
"shelter-in-place" regulations. Our sense of corporate mission
drives us to find and stop potable water loss from leakage and to
safeguard public health by remediating clogged and leaking
wastewater pipes.
Undeterred by Covid-19, we announced at our annual franchise
convention last March an aggressive five-year growth plan that aims
to build upon our last five-year plan which produced compounded
annual growth of 35% in revenue and 33% in profit before tax over
the period. Post-convention, as discussed below, we have reaffirmed
this growth plan with reinvestment, customer wins and added
operational scale through more franchise reacquisitions. These
achievements should help sustain our growth trajectory for the
remainder of 2020, 2021 and beyond.
1H Operating Results
We are off to a good start on our next five-year plan. Water
Intelligence distinguished itself in the marketplace during 1H by
achieving 8% growth in revenue reaching $17.1 million (1H 2019:
$15.9 million) and an outstanding 33% growth in statutory profit
before tax reaching $2.0 million (1H 2019: $1.5 million). As
discussed in the financial section below, each of our revenue
channels grew profitably.
Each quarter has been marked by a signature event that advances
our business model and brand development. Our annual franchise
convention was well-attended. Important for our firm culture, the
Convention produced a sense of common purpose among franchisees and
corporate staff towards executing our next five-year growth plan
and providing green economy leadership to the marketplace. During
2Q, building on our sense of common purpose, the Company agreed to
a strategic partnership with Salesforce.com to implement an
enterprise application to enable secure, automated dispatch,
execution and reporting across the United States. Such reinvestment
in the business, by both franchisees and corporate, allows us to
achieve a competitive advantage and to more rapidly scale
operations. During 3Q, we were delighted to receive the Green
Economy Mark from the London Stock Exchange, a recognition of our
ESG credentials. Given the anticipated growth in spending on
sustainability over the next decade, especially given the impact of
climate change on water and infrastructure, we are in a better
position to communicate our brand given our strong
fundamentals.
We are well-positioned to achieve our growth plan and to help
lead the Green Economy. Under our American Leak Detection and Water
Intelligence International brands, we have over 140 locations
(franchise and corporate) across the United States, UK, Australia
and Canada from which to provide a matrix of technology-based
solutions for clean water and wastewater problems facing
residential, business-to-business and municipal customers. Across
these franchise and corporate locations, we touch over 200,000
customers with an aggregate of over $125 million of gross sales to
third parties. With our Salesforce implementation, we wiil be able
to automate execution to provide responsive customer service and
opportunities for up-selling additional solutions. Soon we will be
implementing a video e-commerce solution that will enable us to
transact follow-on business with customers in a frictionless way by
offering customers both water-related products and service
technicians who can then make the "smart home" a reality.
With a growing base of sales, array of offerings and a sense of
mission across all of our locations, we can communicate more
sharply our brand differentiation as a Green Economy platform with
on-going, scalable and repeatable customer relationships. As a
result, we are no longer simply a "support services" company with
one-off sales, as analysts positioned us five years ago. Rather we
have evolved into a distribution platform for clean water and
wastewater infrastructure solutions with recurring income and
scale. This model carries with it a much higher valuation multiple
than "support services." Our financial results validate our
business model.
Financial Results
As noted above, we operate through two subsidiaries: American
Leak Detection and Water Intelligence International. ALD focuses
largely on residential and commercial leak detection and
remediation in the US, Australia and Canada. WII focuses largely on
municipal leak detection and remediation in the UK and Australia.
Each cross-sells the other's service offerings to ready customers
in their respective geographies. While the numbers reported are for
1H, as discussed herein, the Group also has significant momentum
given 3Q "Subsequent Events" that are accelerating our growth
trajectory.
Four KPIs are set forth in the Strategic Report that forms part
of our Annual Report. The KPIs organize our on-going evaluation of
financial performance relative to our business model. First, on the
franchise side of our business, we continue to grow our franchise
System and our American Leak Detection brand. Royalties grew 1% to
$3.46 million (1H 2019: $3.44 million) despite Covid-19 and despite
additional franchise reacquisitions that continue to remove royalty
from an eligible pool of franchise royalties. As seen in our
segmental information herein, profits on royalty income grew 20% to
$0.96 million (1H 2019: $0.80 million). Margins on royalty income
improved to 28% even with increased re-investment in staffing to
assist the franchise System.
During 1H, the Group reacquired franchises in Minneapolis,
Minnesota, and San Jose, California. During 3Q, the Group
reacquired franchises in Maryland and Melbourne, Australia. These
reacquisitions help the franchise System by providing regional
corporate management to work with franchisees to grow their
businesses. The transitions have been seamless. Customers value the
brand and appreciate the responsiveness of our trained technicians
whether franchise or corporate.
Second, in tandem with the growth in royalty income,
Franchise-related Activities also grew 7% to $4.32 million (1H
2019: $4.05 million). However, within Franchise-related Activities,
our business-to-business insurance channel grew at a higher rate of
12% to $3.94 million (1H 2019: $3.52 million). The growth in jobs
from this channel to franchisees more than offset a decrease in new
equipment purchases as franchisees adjusted their budgets during
Covid-19. (1H 2020: $0.37 million vs. 1H 2019: $0.40 million). The
Group's business-to-business channel structure reinforces recurring
sales through our distribution platform and helps franchisees
continue to grow. During 3Q, the Group signed a new national
account with a leading U.S. insurance company. This relationship is
expected to further grow our business-to-business channel.
Third, during 1H, corporate-operated locations at ALD grew 12%
to $7.60 million (1H 2019: $6.82 million). Importantly, US
corporate-operated locations improved their profit margins to 19%
from 16% (1H 2020: $1.45 million; 1H 2019: $1.09 million). At 19%
profit margin, corporate-operated locations are approaching the
margins of franchise-operated locations. The transformation of
indirect royalty income to higher margin direct corporate store
income unlocks shareholder value and drives the Group's profits. To
illustrate: a 19% profit on a corporate-executed sale is higher
than 6% franchisee royalty income and a profit yield of
approximately 2% after the administrative and sales costs of
royalty income is taken into account. On the other hand, a healthy
royalty amount producing monthly recurring income with no bad debt
is still advantageous for optimizing capital formation because it
supports our ability to use bank debt effectively, which benefits
our equity holders.
Fourth, during 1H, international corporate results led by
UK-based WII also continued to grow despite Covid-19. WII primarily
executes our solutions for municipal customers like Thames Water
and Sydney Water. Revenue grew 10% to $1.71 million (1H 2019: $1.56
million). Profit before tax grew marginally to $80,000,
representing a 5% profit margin. This margin also includes
reinvestment expenses in building our municipal channel in the US
and in Australia and in pre-marketing for our sewer diagnostic
product to be commercialized during 2H.
Conclusion
Despite Covid-19 challenges, we have continued to execute on our
strategy and produce top-line growth and strong bottom-line
results. We feel confident in our prospects for both top-line and
bottom-line growth for three reasons. First, market demand for
water and wastewater solutions will only get stronger as the price
of water goes up. All jurisdictions around the world - whether the
US or Australia, where we operate, or India or China, where we seek
to expand with partners - will need to address aging infrastructure
that results in 15-40% daily water loss from leakage and additional
price increases from the resulting scarcity. Second, the Group has
a highly scalable and valuable business model as a distribution
platform providing various technology-based clean water and
wastewater solutions for residential, commercial and municipal
customers. Finally, all of the Group's stakeholders - franchise and
corporate teams, institutional investors, strategic partners and,
most importantly, our customers - are united by a common mission to
provide leadership with respect to a scarce natural resource. We
are excited to build upon the Green Economy Mark from the London
Stock Exchange in communicating our brand.
To reiterate, our last five-year plan produced compounded annual
growth of 35% in terms of revenue and 33% in terms of profit before
tax. We have launched our next five-year plan with confidence and
have navigated to a strong start despite marketplace
challenges.
Patrick DeSouza
Executive Chairman
September 16, 2020
Interim Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2020
Six months Six months Year ended
ended ended 31
30 June 30 June December
2020 2019 2019
------------------------------------ ------ ------------- ------------- -------------
Notes $ $ $
------------------------------------ ------ ------------- ------------- -------------
Unaudited Unaudited Audited
Revenue 4 17,096,587 15,867,440 32,363,935
Cost of sales (4,019,249) (3,658,507) (7,448,289)
------------------------------------ ------ ------------- ------------- -------------
Gross profit 13,077,338 12,208,933 24,915,646
Administrative expenses
* Other income 13,658 (1,403) -
* Share-based payments (100,895) (81,657) (176,960)
* Amortisation of intangibles (252,546) (159,475) (319,041)
* Other administrative costs (10,582,146) (10,350,375) (21,723,670)
------------------------------------ ------ ------------- ------------- -------------
Total administrative
expenses (10,921,929) (10,592,910) (22,219,671)
------------------------------------ ------ ------------- ------------- -------------
Operating profit 2,155,409 1,616,023 2,695,975
Finance income 57,103 31,871 61,754
Finance expense (205,231) (135,277) (400,241)
------------------------------------ ------ ------------- ------------- -------------
Profit before tax 4 2,007,281 1,512,617 2,357,488
Taxation expense (525,000) (396,950) (662,062)
Profit for the period 1,482,281 1,115,667 1,695,426
Attributable to:
Equity holders of
the parent 1,470,653 1,115,460 1,695,033
Non-controlling interests 11,628 207 393
------------------------------------ ------ ------------- ------------- -------------
1,482,281 1,115,667 1,695,426
Other comprehensive
income
Exchange differences
arising on translation
of foreign operations (66,452) (19,050) (164,144)
Fair value adjustment
on listed equity investment
(net of deferred tax) (574,728) - 584,378
Total comprehensive
income for the period 841,101 1,096,617 2,115,660
------------------------------------ ------ ------------- ------------- -------------
Earnings per share Cents Cents Cents
------------------------------------ ------ ------------- ------------- -------------
Basic 5 10.0 7.9 11.7
------------------------------------ ------ ------------- ------------- -------------
Diluted 5 9.7 7.4 11.1
------------------------------------ ------ ------------- ------------- -------------
Consolidated Statement of Financial Position as at 30 June
2020
At At At
30 June 30 June 31 December
2020 2019 2019
------------------------------ ------ ------------- ------------- -------------------
Notes $ $ $
------------------------------ ------ ------------- ------------- -------------------
Unaudited Unaudited Audited
ASSETS
Non-current assets
Goodwill 11,298,344 9,045,858 9,090,701
Listed equity investment 1,187,460 - 1,932,252
Other intangible assets 1,713,600 2,527,911 1,949,832
Property, plant and
equipment 3,983,818 2,168,062 3,898,133
Trade and other receivables 547,520 688,442 605,234
------------------------------ ------ ------------- ------------- -------------------
18,730,742 14,430,273 17,476,152
------------------------------ ------ ------------- ------------- -------------------
Current assets
Inventories 428,661 443,903 334,011
Trade and other receivables 6,101,549 5,977,998 5,036,149
Cash and cash equivalents 7,439,568 6,034,649 5,280,808
------------------------------ ------ ------------- ------------- -------------------
13,969,778 12,456,551 10,650,968
------------------------------ ------ ------------- ------------- -------------------
TOTAL ASSETS 4 32,700,520 26,886,824 28,127,120
------------------------------ ------ ------------- ------------- -------------------
EQUITY AND LIABILITIES
Equity attributable
to holders of the parent
Share capital 6 114,762 113,152 114,440
Share premium 6 9,741,797 9,569,988 9,717,349
Shares held in treasury 6 (619,368) - (539,834)
Merger reserve 1,001,150 1,001,150 1,001,150
Share based payment
reserve 517,595 321,453 416,700
Other reserves (973,038) (762,304) (907,344)
Reverse acquisition
reserve 6 (27,758,089) (27,758,089) (27,758,089)
Equity investment reserve 8,892 - 584,379
Retained profit 36,365,303 34,361,736 34,894,649
------------------------------ ------ ------------- ------------- -------------------
18,399,004 16,847,086 17,523,400
------------------------------ ------ ------------- ------------- -------------------
Equity attributable
to Non-Controlling interest
Non-controlling interest 112,421 100,706 100,793
------------------------------ ------ ------------- ------------- -------------------
Non-current liabilities
Borrowings 5,655,992 2,735,931 2,321,400
Deferred consideration 7 1,513,441 697,915 556,198
Deferred tax liability 955,883 700,378 588,684
------------------------------ ------ ------------- ------------- -------------------
8,125,316 4,134,224 3,466,282
------------------------------ ------ ------------- ------------- -------------------
Current liabilities
Trade and other payables 4,442,498 2,536,015 4,596,085
Borrowings 868,857 1,123,925 1,163,055
Deferred consideration 7 752,424 2,144,868 1,277,505
6,063,779 5,804,808 7,036,645
------------------------------ ------ ------------- ------------- -------------------
TOTAL EQUITY AND LIABILITIES 32,700,520 26,886,824 28,127,120
------------------------------ ------ ------------- ------------- -------------------
Interim Consolidated Statement of Changes in Equity
For the six months ended 30 June 2020
Share Share Shares Reverse Merger Share Other Equity Retained Total Non-controlling Total
Capital Premium held Acquisition Reserve based Reserves investment Profit interest Equity
in Reserve payment reserve
treasury reserve
$ $ $ $ $ $ $ $ $ $ $ $
--------------- -------- ---------- ---------- ------------- ---------- -------- ---------- ----------- ----------- ----------- ---------------- -----------
As at 1
January 2019 101,915 6,887,739 - (27,758,088) 1,001,150 239,740 (743,198) - 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 - (27,758,088) 1,001,150 239,740 (743,198) - 33,201,407 12,930,666 100,400 13,031,066
--------------- -------- ---------- ---------- ------------- ---------- -------- ---------- ----------- ----------- ----------- ---------------- -----------
Issue of
ordinary
shares 11,237 2,682,249 - - - - - - - 2,693,486 - 2,693,486
Share based
payment
expense - - - - - 81,713 - - - 81,713 - 81,713
Profit for the
period - - - - - - - - 1,115,460 1,115,460 306 1,115,667
Other
comprehensive
income - - - - - - (19,106) - - (19,106) - (19,106)
As at 30 June
2019
(unaudited) 113,152 9,569,988 - (27,758,088) 1,001,150 321,453 (762,304) - 34,361,737 16,847,086 100,706 16,947,792
--------------- -------- ---------- ---------- ------------- ---------- -------- ---------- ----------- ----------- ----------- ---------------- -----------
Issue of
ordinary
shares - 32,355 - - - - - - - 32,355 - 32,355
Options
purchase 515 115,006 - - - - - - - 115,521 - 115,521
Share-based
payment
expense - - - - - 95,247 - - - 95,247 - 95,247
Share buyback 772 - (539,834) - - - - - (1,792) (540,854) - (540,854)
Profit for the
period - - - - - - - - 579,574 579,574 186 579,760
Other
comprehensive
income - - - - - - (144,282) 583,621 - 439,339 - 439,339
As at 31
December
2019
(audited) 114,440 9,717,349 (539,834) (27,758,088) 1,001,150 416,700 (906,586) 583,621 34,894,649 17,523,401 100,793 17,624,194
--------------- -------- ---------- ---------- ------------- ---------- -------- ---------- ----------- ----------- ----------- ---------------- -----------
Issue of - - - - - - - - - - - -
ordinary
shares
Options
purchase 322 24,447 (79,534) - - - - - - (54,765) - (54,765)
Share based
payment
expense - - - - - 100,895 - - - 100,895 - 100,895
Profit for the
period - - - - - - - - 1,470,653 1,470,653 11,628 1,482,281
Other
comprehensive
loss - - - - - - (66,452) (574,728) - (641,180) - (641,180)
--------------- -------- ---------- ---------- ------------- ---------- -------- ---------- ----------- ----------- ----------- ---------------- -----------
As at 30 June
2020
(unaudited) 114,762 9,741,796 (619,368) (27,758,088) 1,001,150 517,595 (973,038) 8,893 36,365,302 18,399,004 112,421 18,511,425
--------------- -------- ---------- ---------- ------------- ---------- -------- ---------- ----------- ----------- ----------- ---------------- -----------
Interim Consolidated Statement of Cash Flows
For the six months ended 30 June 2020
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019
2019
------------------------------------------- -------------- ------------ -------------
$ $ $
------------------------------------------- -------------- ------------ -------------
Unaudited Unaudited Audited
Cash flows from operating activities
Profit before tax 2,007,281 1,512,617 2,357,488
Adjustments for non-cash/non-operating
items:
Depreciation of plant and equipment 708,416 257,940 1,268,463
Amortisation of intangible assets 252,545 159,475 319,041
Share based payments 100,895 81,657 176,960
Interest paid 205,231 135,277 400,241
Interest received (57,103) (31,871) (61,754)
------------------------------------------- -------------- ------------ -------------
Operating cash flows before movements
in working capital 3,217,265 2,115,094 4,460,439
------------------------------------------- -------------- ------------ -------------
Decrease/(Increase) in inventories (94,650) 7,562 117,454
Increase in trade and other receivables (1,007,686) (1,836,453) (811,396)
(Decrease)/Increase in trade and
other payables 564,829 (33,318) 2,477,094
Cash generated by operations 2,679,758 252,885 6,243,591
------------------------------------------- -------------- ------------ -------------
Income taxes - (12,793) (535,693)
------------------------------------------- -------------- ------------ -------------
Net cash generated from operating
activities 2,679,758 240,092 5,707,898
------------------------------------------- -------------- ------------ -------------
Cash flows from investing activities
Purchase of plant and equipment (608,062) (493,047) (3,104,796)
Purchase of intangibles (16,000) (243,023) (200,000)
Purchase of listed equity investment (1) - (1,201,780)
Acquisition of subsidiaries - (740,225) (741,130)
Reacquisition of Franchises (2,393,682) (1,757,451) (2,480,417)
Interest received 57,103 31,871 61,754
------------------------------------------- -------------- ------------ -------------
Net cash used in investing activities (2,960,642) (3,201,875) (7,666,369)
------------------------------------------- -------------- ------------ -------------
Cash flows from financing activities
Issue of ordinary share capital - 11,237 11,237
Premium on issue of ordinary share
capital - 2,682,249 2,714,604
Share buy-back - - (540,853)
Options exercised (54,765) - 115,521
Interest paid (205,231) (135,277) (400,241)
Proceeds from borrowings 3,342,628 1,854,936 1,854,936
Repayment of borrowings (302,235) (433,118) (808,520)
Repayment of lease liabilities (340,754) - (723,812)
Net cash generated by/(used in) financing
activities 2,439,643 3,980,026 2,222,873
------------------------------------------- -------------- ------------ -------------
Net (decrease)/increase in cash and
cash equivalents 2,158,759 1,018,243 264,402
Cash and cash equivalents at the
beginning of period 5,280,808 5,016,406 5,016,406
Cash and cash equivalents at end
of period 7,439,567 6,034,649 5,280,808
------------------------------------------- -------------- ------------ -------------
Notes to the Interim Consolidated Financial Information
for the six months ended 30 June 2020
1 General information
The Group is a leading provider of non-invasive, leak detection
and remediation services. The Group's strategy is to be a provider
of "end-to-end" solutions for the problems of water loss through
leakage. The Group is a "one-stop shop" for residential, commercial
and municipal customers whether for potable or non-potable water
issues.
The Company is a public limited company 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.
2 Significant accounting policies
Basis of preparation and changes to the Group's accounting
policies
The accounting policies adopted in the preparation of the
interim consolidated financial information are consistent with
those of the preparation of the Group's annual consolidated
financial statements for the year ended 31 December 2019. Effective
1 June 2020, IFRS 16 was amended to provide a practical expedient
for lessee's accounting for rent concessions that arise as a direct
consequence of the COVID-19 pandemic. This amendment had no effect
on this interim consolidated financial information.
This interim consolidated financial information for the six
months ended 30 June 2020 has been prepared in accordance with IAS
34, 'Interim financial reporting'. This interim consolidated
financial information is not the Group's statutory financial
statements and should be read in conjunction with the annual
financial statements for the year ended 31 December 2019, which
have been prepared in accordance with International Financial
Reporting Standards (IFRS) and have been delivered to the Registrar
of Companies. The auditors have reported on those accounts; their
report was unqualified, did not include references to any matters
to which the auditors drew attention by way of emphasis of matter
without qualifying their report and did not contain statements
under section 498(2) or (3) of the Companies Act 2006.
The interim consolidated financial information for the six
months ended 30 June 2020 is unaudited. In the opinion of the
Directors, the interim consolidated financial information presents
fairly the financial position, and results from operations and cash
flows for the period. Comparative numbers for the six months ended
30 June 2019 are unaudited.
This interim consolidated financial information is presented in
US Dollars ($), rounded to the nearest dollar.
Foreign currencies
(i) Functional and presentational currency
Items included in this interim consolidated financial
information are measured using the currency of the primary economic
environment in which each entity operates ("the functional
currency") which is considered by the Directors to be the Pounds
Sterling (GBP) for the Parent Company and US Dollars ($) for
American Leak Detection Holding Corp. This interim consolidated
financial information has been presented in US Dollars which
represents the dominant economic environment in which the Group
operates and is considered to be the functional currency of the
Group. The effective exchange rate at 30 June 2020 was GBP1 = US$
1.2698 (30 June 2019: GBP1 = US$ 1.2760).
Critical accounting estimates and judgments
The preparation of interim consolidated financial information
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities and the reported amounts of
income and expenses during the reporting period. Although these
estimates are based on management's best knowledge of current
events and actions, the resulting accounting estimates will, by
definition, seldom equal the related actual results.
In preparing this interim consolidated financial information,
the significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements for the year ended 31 December 2019.
3 Significant events and transactions
The World Health Organisation declared coronavirus and Covid-19
a global health emergency on 30 January 2020. With respect to the
Covid-19 pandemic of 2020, the Group has reviewed all applicable
Shelter-in-Place Orders and have determined that our operations
qualify as essential/critical infrastructure and that we are able
to continue to operate under those Orders. Our service technicians
are essential to the minimum basic operations of our business. All
non-essential personnel have been notified to work remotely until
further notice. Employees who are critical to the minimum basic
operations of the business have been instructed to comply with
social distancing rules/requirements in their jurisdictions, as
well as other safety and health precautions.
Analytical review of operations indicates that for a short
period (March to May 2020) it is estimated that revenue may have
been negatively impacted by at least $750,000 and net profit by at
least $150,000. As mentioned in the financial highlights, despite
this COVID-19 impact, over the course of 1H revenue grew by 8% and
net profit before taxes grew by 33%. The Group continues to execute
its growth plan and to build scale as an "essential service
provider" for water and wastewater infrastructure solutions despite
the challenges of Covid-19 affecting the broader marketplace.
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 maintain 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. Final rules for
applying for forgiveness have not been released as of the report
date. Management expects that the total funding will be forgiven
given that, among other things, payroll and expenses have been
maintained.
4 Segmental information
In the opinion of the Directors, the operations of the Group
currently comprise four operating segments: (i) franchise royalty
income, (ii) franchise-related activities including
business-to-business sales and product and equipment sales, (iii)
corporate-operated locations led by the Group's U.S.-based American
Leak Detection subsidiary and (iv) international corporate
locations led by the Group's UK-based Water Intelligence
International.
The Group mainly operates in the US, with operations in the UK,
Canada and Australia. In the six months to 30 June 2020, 89.6% (1H
2019: 90.2%) of its revenue came from the US-based operations; the
remaining 10.4% (1H 2019: 9.8%) of its revenue came from its
international corporate operated locations.
No single customer accounts for more than 10% of the Group's
total external revenue.
The Group adopted IFRS 8 Operating Segments with effect from 1
July 2008. IFRS 8 requires operating segments to be identified on
the basis of internal reports about components of the Group.
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 separated into
four income generating segments that serve as key performance
indicators (KPI's):
- Franchise royalty income;
- Franchise-related activities (including product and equipment
sales and Business-to-Business sales);
- US corporate operated locations; and
- International corporate operated locations.
Items that do not fall into the four segments have been
categorised as unallocated head office costs and non-core costs
which largely reflect transaction costs associated with the Group's
franchise re-acquisition strategy.
The following is an analysis of the Group's revenues, results
from operations and assets:
Revenue Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
$ $ $
Unaudited Unaudited Audited
------------------------------ --------------- --------------- -------------
Franchise royalty income 3,464,489 3,435,521 6,499,045
Franchise related activities 4,322,401 4,054,399 8,049,570
US corporate operated
locations 7,600,601 6,816,359 14,446,286
International corporate
operated locations 1,709,096 1,561,161 3,369,034
------------------------------- --------------- --------------- -------------
Total 17,096,587 15,867,440 32,363,935
------------------------------- --------------- --------------- -------------
Profit before tax Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
$ $ $
Unaudited Unaudited Audited
------------------------------ --------------- --------------- -------------
Franchise royalty income 958,079 796,929 1,603,149
Franchise related activities 303,151 394,489 601,281
US corporate operated
locations 1,449,825 1,090,578 2,025,095
International corporate
operated locations 79,932 73,826 226,215
Unallocated head office
costs (745,716) (577,357) (1,605,252)
Non-core costs (37,990) (265,848) (493,000)
------------------------------- --------------- --------------- -------------
Total 2,007,281 1,512,617 2,357,488
------------------------------- --------------- --------------- -------------
Assets Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
$ $ $
Unaudited Unaudited Audited
------------------------------ --------------- --------------- -------------
Franchise royalty income 12,317,290 9,737,259 9,412,402
Franchise related activities 2,006,273 1,007,599 1,862,887
US corporate operated
locations 14,208,693 10,700,439 11,772,004
International corporate
operated locations 4,168,264 5,441,527 5,079,827
------------------------------- --------------- --------------- -------------
Total 32,700,520 26,886,824 28,127,120
------------------------------- --------------- --------------- -------------
Geographic Information
The Group has two wholly-owned subsidiaries - American Leak
Detection (ALD) and Water Intelligence International (WII).
Operating activities are captured as both franchise-executed
operations and corporate-executed operations. ALD has both US
franchises and corporate-operated locations. It also has
international franchises, principally located in Australia and
Canada. Operations focus on residential and commercial water leak
detection and remediation with some municipal activities. By
comparison, WII has only corporate operations located outside the
United States. These WII international operations are principally
municipal activities. As noted herein, the Group's vision is to
become a multinational growth company.
Total Revenue
Six months ended 30 June Year ended 31 December
2020 2019
Unaudited Audited
US International Total US International Total
$ $ $ $ $ $
----------------------- ----------- -------------- ----------- ----------- -------------- -----------
Franchise royalty
income 3,402,402 62,087 3,464,489 6,355,811 143,234 6,499,045
Franchise related
activities 4,322,401 - 4,322,401 8,049,570 - 8,049,570
US corporate operated
locations 7,600,601 - 7,600,601 14,446,286 - 14,446,286
International
corporate operated
locations - 1,709,096 1,709,096 - 3,369,034 3,369,034
----------------------- ----------- -------------- ----------- ----------- -------------- -----------
Total 15,325,404 1,771,183 17,096,587 28,851,667 3,512,268 32,363,935
----------------------- ----------- -------------- ----------- ----------- -------------- -----------
5 Earnings per share
The earnings per share has been calculated using the profit for
the period and the weighted average number of ordinary shares
outstanding during the period, as follows:
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Unaudited Unaudited Audited
-------------------------- --------------- --------------- -------------
Earnings attributable
to shareholders of
the Company ($) 1,470,653 1,115,460 1,695,033
Weighted average number
of ordinary shares 14,702,371 14,127,248 14,426,694
Diluted weighted average
number of ordinary
shares 15,237,545 15,096,052 15,244,422
--------------------------- --------------- --------------- -------------
Earnings per share
(cents) 10.0 7.9 11.7
--------------------------- --------------- --------------- -------------
Diluted earnings per
share (cents) 9.7 7.4 11.1
--------------------------- --------------- --------------- -------------
Earnings per share are computed based on Ordinary shares. There
is a class of B Ordinary Shares discussed in Footnote 6 that are
not admitted to trading.
6 Share capital
The issued share capital at the end of the period was as
follows:
Group & Company
Ordinary Shares held
Shares of 1p each in treasury
Number
Number Total Number
-------------------- ------------------- ------------- ------------
At 30 June 2020 14,702,371 170,000 14,872,371
At 30 June 2019 14,702,371 - 14,702,371
-------------------- ------------------- ------------- ------------
At 31 December 2019 14,702,371 145,000 14,847,371
-------------------- ------------------- ------------- ------------
On 7 August 2020 the Group reserved and issued options for
500,000 shares to incentivize, based on performance goals, a new
group of executives who have joined or been promoted within the
Company. These new options vest upon the completion of three years
and have an exercise price of $5.60 which is more than 35% higher
than the market price at the time of grant. The net number of
options including the new grants and leavers from the Company
during 2020 is approximately 1,925,000.
Subsequent to 30 June 2020, the Company bought back 10,000
shares for treasury resulting in 180,000 shares in treasury.
The Company has also issued 2,200,000 Partly Paid Shares (B
Ordinary Shares) that carry voting rights but no economic rights
and are will not be converted into Ordinary Shares until fully
paid.
Group & Company Share Capital Share Premium Shares In
Treasury
$ $ $
-------------------- ------------- -------------- ---------
At 30 June 2020 114,762 9,741,797 (619,368)
At 30 June 2019 113,152 9,569,989
-------------------- ------------- -------------- ---------
At 31 December 2019 114,440 9,717,349 (539,833)
-------------------- ------------- -------------- ---------
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.
7 Reacquisition of franchisee territories in the period
On 30 April 2020, the Group completed the reacquisition of its
Minneapolis, Minnesota franchise within the Group's ALD franchise
business. Minneapolis is a significant reacquisition that enables
the Group to add further scale to Water Intelligence financially
and operationally. The purchase price was approximately $1.3
million to be paid evenly over four years. 2019 sales for the
Minneapolis franchise location was approximately $0.98 million and
pre-tax profits were approximately $0.31 million. Operationally,
the reacquisition of Minneapolis creates a corporate base in the
Upper Midwest region of the United States. During 2019, the Group
executed several significant municipal contracts in the Upper
Midwest affording cross-selling opportunities from the Group's
Water Intelligence International subsidiary.
On 1 June 2020, the Group completed the reacquisition of its San
Jose, California franchise territory within the Group's ALD
franchise business. San Jose is a strategic reacquisition because
of its location in Silicon Valley. The Group plans to use this
corporate base to advance its innovation roadmap and R&D. The
reacquisition also enables the Group to add further scale to Water
Intelligence financially and operationally. The purchase price was
approximately $1.05 million. 2019 sales for the San Jose franchise
location were approximately $0.7 million and pre-tax profits were
approximately $0.2 million. The reacquisition also reinforces
growth in the Bay Area with its multimillion dollar franchises in
the San Francisco and Berkeley territories.
8 Subsequent events
Franchise Reacquisitions
On 17 July 2020, the Group completed the reacquisition of its
Maryland franchise territory (entire state of Maryland) within the
Group's ALD franchise business. Maryland is a significant
reacquisition. As noted, the franchise territory covers the entire
state of Maryland which includes significant cities such as
Baltimore, Bethesda, and Annapolis. The reacquisition enables the
Group to add further scale to Water Intelligence, both
operationally and 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 which includes all assets to conduct operations
(trucks, equipment etc.) is $1.35 million.
On 4 August 2020, the Group completed the reacquisition of its
franchise operation in Melbourne, Australia within the Group's ALD
franchise business. Due to strong demand for water conservation -
residential, commercial and municipal - and an existing base of
corporate and franchise operations to fulfil such demand, Australia
is an important geography for the Group's strategic growth plan.
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. 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$0.27 million in profits. The purchase price for the
reacquisition which includes all assets to conduct operations
(trucks, equipment etc.) is AUD$1.77 million.
Corporate Transactions
On 7 August 2020 the Group reserved and issued options for
500,000 shares to incentivize, based on performance goals, a new
group of executives who have joined or been promoted within the
Company. These new options vest upon the completion of three years
and have an exercise price of $5.60 which is more than 35% higher
than the market price at the time of grant.
Transaction in Own Shares - pursuant to the authority approved
by shareholders at the Company's Annual General Meeting dated 29
July 2020, the Company purchased the following shares (all to be
held in treasury).
6 August 2020 - 2,500 ordinary shares of 1 penny each at 324
pence.
7 August 2020 - 2,500 ordinary shares of 1 penny each at 319
pence.
10 August 2020 - 5,000 ordinary shares of 1 penny each at 315
pence.
Board
David Silverstone retires from the Board effective as of the
publication of the Interim Financials. Both the board and team
(corporate and franchise) appreciate his board service. David will
continue to assist the Company with his expertise in the municipal
business as part of an Advisory Board.
9 Publication of announcement and the Interim Results
A copy of this announcement will be available at the Company's
registered office ( 27-28 Eastcastle Street, London, W1W 8DH ) from
the date of this announcement and on its website -
www.waterintelligence.co.uk . This announcement is not being sent
to shareholders.
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END
IR FFFVFALIRLII
(END) Dow Jones Newswires
September 17, 2020 02:00 ET (06:00 GMT)
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