REG - Water Intelligence - Audited Results For Year Ended 31 December 2021
09/06/2022 07:00
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RNS Number : 2906O Water Intelligence PLC 09 June 2022
Water Intelligence plc
Audited Results For Year Ended 31 December 2021
Water Intelligence plc (AIM: WATR.L) ("Water Intelligence", 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 2021.
· Statutory results higher than previously announced due to $1.9m
one-off gain
· Adjusted FY results (not including one-time gain) in line with
February trading update with revenues +44%, Adjusted EBITDA +48% and EPS +29%
· Confident in further corporate development through 2022; well
placed to navigate inflationary challenges in order to be in line with market
expectations for 2022 with a strong Q1 already reported
Overview
During 2021 and the first quarter of 2022, the Group deployed capital that it
raised to accelerate delivery of its plan to build a leading multinational
growth company for water and wastewater infrastructure solutions. The Group
has achieved strong results across various dimensions of the plan: (i) sales
growth; (ii) profits; (iii) acquisitions that add scale, organizational
control and new product offerings; (iv) significantly increased execution
capabilities through hirings ranging from more technicians to senior-level
management and board; and (v) multiple equity and debt financings to establish
a balance sheet that can sustain our growth trajectory for the long-run.
A strong 2021 reinforced our confidence in our growth plan. Water
Intelligence's compounded annual growth rate ("CAGR") from 2016 to 2021 has
reached 35% in terms of revenue and 49% in terms of statutory profit before
tax ("PBT"). Such statutory PBT growth does not take into account a one-time
$1.9 million profit gain recorded in 2021 which would have driven the trailing
CAGR significantly higher. Moreover, our critical mass of "network" sales to
third-party customers (gross sales by corporate-run locations and indirect
gross sales by our franchisees under the same brand from which Group royalty
is derived) grew 14% to approximately $147 million (2020: $129 million). This
is further reinforced by like for like sales growth of 18% from corporate
owned stores. Importantly, Water Intelligence has been able to achieve such
results despite the continued impact of Covid-19 on society.
For 2022, the Group is mindful of inflationary
pressures that are now layered upon lingering Covid-related challenges.
However, we are navigating such marketplace challenges with our greater
operating scale and investments made over the last three years to improve
efficiency such as Salesforce field force automation software and our
proprietary Pulse and LS1 diagnostic tools.
Copies of the Annual Report will be made available to view on the Company's
website at www.waterintelligence.co.uk (http://www.waterintelligence.co.uk)
Highlights from the Group's 2021 Audited Results:
Financial
· Revenue growth strong at 44% reaching $54.5 million (2020: $37.9
million)
· Adjusted EBITDA(1) grew 48% to $10.3 million (2020: $7.0 million)
· Statutory EBITDA(2) grew 72% to $11.4 million (2020: $6.7 million)
· Adjusted PBT(3) grew 36% reaching $6.9 million (2020: $5.1 million)
· Statutory PBT(2) grew 80% reaching $7.6 million (2020: $4.2 million)
· Adjusted EPS(4) grew 29% reaching 30.2 cents (2020: 23.5 cents)
· Statutory EPS grew 85% reaching 36.1 cents (2020: 19.5 cents)
· Balance Sheet strong with sufficient resources to execute the
Company's growth plan:
o Cash: $23.8 million (2020: $6.8 million)
o Net of Bank Debt: $15.5 million cash (repayment of Bank Debt spread
through 2026) (2020: break-even)
o Net of Bank Debt plus Deferred Payments to Franchisees: $1.8 million cash
(repayment of deferred payments spread through 2026)
(1) Does not include one-time gain of $1.9 million but as historically done
for comparison purposes adds back "Non-core costs" (one-time costs or
non-recurring costs such as legal costs related to transactions)
(2) Includes one-time gain of $1.9 million but does not add back Non-core
costs
(3) Does not include one-time gain of $1.9 million but as historically done
for comparison purposes adds back non-cash expenses (amortization, share-based
payments) and Non-core costs
(4) Does not include one-time gain of $1.9 million but as historically done
for comparison purposes adds back non-cash expenses (amortization, share-based
payments) and Non-core costs and assumes tax rate on adjustments consistent
with statutory tax rate
Corporate Development
· 8 Acquisitions
o 5 franchise
o 2 bolt-on (1 UK; 1 US)
o 1 technology (open channel liner)
§ Subsequent Event: (2 franchises acquired; 1 sale of franchise territory YTD
2022)
· 3 Financings
o 2 Equity ($23.8 million added)
o 1 Bank Debt ($3.2 million added)
§ Subsequent Event: ($17 million in bank availability added in April 2022)
· 3 Technology Testings and Implementations
o Salesforce and related applications
o Pulse (sewer diagnostic)
o LS1 (rapid water surveys)
· Corporate Execution: Added 132 headcount (73 technicians)
Dr. Patrick DeSouza, Executive Chairman of Water Intelligence, commented:
"Despite Covid-19 disruptions, we delivered across the board in both 2020 and
2021 to deliver on our mission of building a world-class multinational growth
company in an important space - water infrastructure.
The marketplace now faces new challenges with inflation and labour retention
layered on top of Covid-related issues. We will step forward to meet these
latest challenges as well. Our management team has only gotten stronger
during 2021 as we added senior leaders and have continued to add technicians
to meet strong market demand for our services and products. We deliver
important value to our customers - residential, commercial and municipal -
with our minimally-invasive technology approach to remediation of failing
water infrastructure. It is a worldwide problem that will be with us for a
long time. With the support of our investors, we have a strong balance sheet
enabling us to navigate confidently in the short, medium and long run."
This announcement contains inside information for the purposes of Article 7 of
the UK version of Regulation (EU) No 596/2014 which is part of UK law by
virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon
the publication of this announcement via a Regulatory Information Service,
this inside information is now considered to be in the public domain.
Enquiries:
Water Intelligence plc Tel: +1 203 654 5426
Patrick DeSouza, Executive Chairman
WH Ireland Limited - NOMAD & Joint Broker Tel: +44 (0)20 7220 1666
Chris Hardie
Ben Good
RBC Capital Markets - Joint Broker Tel: +44 (0)20 7653 4000
Jill Li
Daniel Saveski
Dowgate Capital Ltd - Joint Broker Tel: +44 (0)20 3903 7715
Stephen Norcross
Chairman's Statement
Overview
Despite the challenges of navigating the global marketplace over the last few
years, we continue to reaffirm our primary objective, one that has been set
forth in the Chairman's Statement for the last decade: to create a leading
multinational growth company for water and wastewater infrastructure solutions
whose growth is not only strong but sustainable. Global market demand for
services and products to preserve our most precious natural resource and to
address the reality of aging water infrastructure underpins our mission. We
are proud that we were awarded the Green Economy Mark from the London Stock
Exchange.
In our 2020 Chairman's Statement, we provided a simple message: full steam
ahead for 2021 despite the disruptions caused by Covid. Demonstrated in this
year's report and consistent with that message, we produced strong growth in
2021 and reinforced our enviable compounded annual growth rate ("CAGR") from
2016 when we launched our current growth plan. Revenue increased 44% to $54.5
million (2020: $37.9 million). Statutory profit before tax (PBT) increased
80% to $7.6 million (2020: $4.2 million). However, $1.9 million of statutory
PBT represented a one-time gain. Not including the one-time gain, statutory
PBT grew 35% to $5.7 million (2020: $4.2 million). Meanwhile PBT Adjusted
for non-cash costs (amortisation and share-based payments) and non-core costs
increased by 36% to $6.9 million (2020: $5.1 million). Not counting our
one-time statutory PBT gain, for the span of 2016 -2021 our CAGRs still show
revenue growth of 35% and statutory PBT growth of 49%.
For 2022, we have a new set of challenges layered upon the lingering effects
of Covid. We are all aware of the inflationary challenges ranging from the
conflict in Ukraine to supply chain and inflationary concerns that create
market uncertainty. For our business, we face fuel and material prices that
have doubled over the course of 1H 2022 as we service our customers to solve
their leakage problems. Moreover, we face rising labour costs and retention
issues as our technicians and managers themselves need to cope with
economy-wide inflation. Tactically, as outlined below, we are responding to
these new challenges. Overall, our Chairman's Statement strategic message
remains similar to last year's: Full steam ahead but with prudence as we
balance rising costs.
We have several operational attributes that enable us to navigate these
market-wide challenges better than most. Importantly, global market demand
for water infrastructure solutions remains strong as we rise to meet new
execution challenges. Second, our core American Leak Detection (ALD)
business operates in the United States, and we benefit from earning money in
dollars as interest rates rise to cope with inflation and produce a stronger
dollar. Third, we have made timely technology investments in making our
business more efficient. These investments will help combat inflationary
pressures on our costs. Most importantly, this year we are completing our
Salesforce (and related applications) implementation to automate many of our
business processes and help drive greater productivity by our workforce.
Further, we are introducing during Q3 a proprietary new tool for water surveys
that should lower labour costs for delivering that municipal offering. We have
executed successful field trials in the UK and are now planning similar trials
in Australia. In navigating 1Q 2022, our growth trajectory remained firm with
revenue increasing by 44% (Q1 2022: $16.5 million vs. Q1 2021: $11.4 million).
Our PBT Adjusted still grew by 16% to $2.1 million (Q1 2021: $1.7 million).
As we navigate 2022, we are helped by the fact that we have a critical mass of
customers and a matrix of business lines - residential, commercial, municipal,
clean water, sewer - that help offset volatility in any one segment. Our
overall market presence in 2022 will surpass $150 million in annual
network-wide gross sales to customers. Network-wide gross sales is a
non-statutory concept that illuminates the actual sales to customers executed
under the same brand whether by franchisees or by corporate technicians.
Network-wide gross sales includes both indirect sales to our customers by our
franchisees from which royalty income to the Group is derived (which is
recorded in statutory terms) plus direct sales from corporate operations. To
reiterate, both franchisees and corporate locations operate under the same ALD
brand and to the customers there is no difference in franchise or corporate
execution. This critical mass of sales, across our more than 150 locations
spread across the United States and in the UK, Australia and Canada,
establishes a solid foundation of customers from which to launch our next
stage of growth.
In building from this foundation, despite market-wide challenges, we are
well-positioned for the short-run, medium-run and long-run to execute our
growth plan. With our strong balance sheet and our ability to generate cash
each year, we have the working capital to reinvest in the business for short
to medium term projects that reinforce sustainable growth. Over the last six
months, we have accelerated investment in human capital; expanding our
execution team both in terms of senior management and on-the-ground trained
technicians. More broadly, as noted above, over the last five years, we have
also made investments in technology products (sewer diagnostic tools, open
channel liners, video e-commerce, Salesforce) that will over the next several
years expand our business lines and make our business more scalable. Finally,
we have also positioned ourselves for the longer-run horizon with two sets of
financings during 2021 and Q1 2022. We expanded our institutional equity
base during July and November 2021. In parallel, during February 2021 and
April 2022, we lowered our cost of capital by blending in low-cost bank debt.
Such short-run, medium-run and long-run tactics enable us to meet the
marketplace challenges ahead.
Operating KPIs
Water Intelligence Key Performance Indicators (KPIs) are explained more fully
in the Strategic Report. These KPIs serve to underscore two key dimensions of
our overall strategic growth plan. First, we prioritize Network-wide growth
in order to establish a strong foundation of market presence. With over 40
years of operations, American Leak Detection (ALD) is a well-developed and
highly regarded brand that sells to customers - residential, commercial and
municipal - across the United States and in Australia and Canada. ALD
represents approximately 90% of the Group's revenue. In 2021 through
franchise operated and corporate operated locations, ALD customers purchased
services and products amounting to approximately $141 million of gross sales.
Our Water Intelligence International (WII) brand added another $6 million in
gross sales operating primarily in the UK. In implementing Salesforce, we
are creating efficiencies to further grow Network-wide sales.
For 2021, KPIs illuminate the growth of both ALD and WII brands. KPI #1 or
ALD royalty income grew 2% to $6.8 million (2020: $6.7 million). This
royalty income represents approximately $99 million of Network gross sales
(2022: $97 million). ALD and WII corporate sales or KPIs #2, #3 and #4
(respectively franchise related activities such as the Corporate insurance
channel; US Corporate direct sales; and International Corporate direct sales)
grew 53% to $47.7 million (2020: $31.2 million). Captured by these 4 KPIs,
total Network gross sales (ALD and WII) grew 14% to approximately $147 million
(2020: $129 million). With 44% WI revenue growth during 1Q, Network sales is
on pace to significantly pass $150 million for 2022.
Second, beyond expanding Network sales, we also seek to unlock shareholder
value and add profits to the Group's consolidated accounts by selectively
reacquiring franchises and then delivering solutions through corporate-run
locations more efficiently. Our Salesforce implementation enables us to create
corporate regional hubs that will help scale dispatch and scheduling. In
executing for the same customers under the ALD brand but as a corporate-run
operation, we are bringing a portion of the approximately $99 million of
franchise operated sales and associated profits directly onto the Water
Intelligence Group (WI) accounts.
As explained more fully in KPI #3, we have unlocked significant value by
growing former franchise locations faster both in terms of sales and profits.
For comparison purposes, corporate-run locations acquired from franchisees
before 1 January 2020 grew 18% to $18.3 million (2020: $15.5 million); profits
from those reacquired locations increased 8% to $3.3 million (2020: $3.1
million) even as we reinvested in these new corporate locations after
acquisition for future growth. The profit yield of $3.3 million under
corporate execution at these locations is significantly higher than the profit
yield from the same $18.3 million of sales if executed by a franchisee.
Profit to the Group from franchise royalty would be approximately $0.3
million. The difference in yield is even more pronounced when one considers
the $31.9 million of sales at all corporate-run locations not just the ones
owned prior to 1 January 2020. It should be underscored that despite such
selective reacquisitions, our strategic plan is still committed to reinforcing
our core franchise business. Not only is the franchise System integral to our
firm culture, it also provides monthly recurring income from franchise
royalties that enables the Group to optimize its capital base with a prudent
amount of bank debt. As noted above, during Q1 2021 and Q1 2022 we have been
able to complement institutional equity investment rounds with rounds of
low-cost bank debt.
Strategic Direction
Our strategic plan continues to deliver results but we are mindful that we
need to be vigilant with respect to market-wide inflationary pressures. We
are making the necessary investments both to capture more of market demand for
our solutions and to reinforce profitability. We have invested in human
capital to retain our highly trained technicians and also to provide
incentives to execute more jobs. We have invested in advancing our
technology leadership not only in terms of new, more efficient tools but also
in automating our business. Our sales footprint in the US, UK, Canada and
Australia provide us with a stable base and we will prudently look for
opportunities to expand our multinational footprint because aging
infrastructure is a world-wide problem. We appreciate our institutional
investors and their long-term commitment towards building a world-class
multinational growth company despite all of the market challenges.
Patrick DeSouza
Executive Chairman
Director's 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 2021.
Principal Activities
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" 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.
2021 was marked by sustained and balanced multinational growth for both ALD
and WII. Total revenue grew 44% to $54.5 million and statutory profits before
tax grew 80% to $7.6 million when compared with 2020. Profit before tax
included a one-time gain of $1.9 million. Holding the one-time gain aside,
statutory profit before tax grew 35% to $5.3 million. Again, holding aside
the one-time gain, our ALD subsidiary grew revenue 44% to $48.4 million and
profit before tax 38% to $5.40 million when compared with 2020. Our WII
subsidiary grew revenue 42% to $6.1 million and grew profit before taxes by 1%
to $0.32 million. The splits between ALD and WII revenue remained consistent
during 2021 when compared with 2020 with approximately 90% of total revenue
attributable to ALD and 10% of total sales attributable to WII.
Going Concern
The Directors have prepared a business plan and cash flow forecast for the
period to December 2023. 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
oversubscribed capital raises in July and November 2021 and expansion of its
credit facilities in February 2021 and April 2022, the Directors believe that
funding will be available on a case-by-case basis for additional initiatives.
Cash at 31 December 2021 increased to $23.8 million (2020: $6.8 million). At
31 December 2021, total debt (borrowings and deferred consideration from
franchise acquisitions) was $22 million with amortisation of such amount
spread through 2026. Meanwhile, operating cash flows (EBITDA) in 2021
increased by 45% to $10.0 million (2020: $6.9 million). For 2022, the
Directors are monitoring inflationary pressures and investments, such as
Salesforce.com and related software applications, geared to offset inflation
through efficiencies.
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 is
undertaken by third parties not related to the Group, was $0 (2020: $3,034).
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 (2020: $nil).
Share Price
On 31 December 2021, the closing market price of Water Intelligence plc
ordinary shares was 1095.0 pence. The highest and lowest prices of these
shares during the year to 31 December 2021 were 1340.0 pence and 490.0 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.
Financial Risk Management
Financial risk management is outlined in the principal risks and uncertainties
section of the Strategic Report.
Subsequent Events
On 19 January 2022, the Group announced the reacquisition of its Fort Worth,
Texas franchise territory within the Group's ALD franchise business. The Fort
Worth operation is fast-growing and expected to accelerate further by adding
new service locations in north and west Texas during 2022. Moreover, this
reacquisition reinforces the Group's strategy of establishing regional
corporate hubs in the US that have scale to fuel growth in nearby corporate
and franchise locations. The purchase price of $7.7 million in cash is to be
paid over three years. The purchase price is based on 2021 pro forma of $3.6
million in revenue and $1.2 million in profit before tax.
On 3 February 2022, the Group announced the sale of certain territory in rural
North Carolina to an existing, fast-growing franchisee of American Leak
Detection (ALD). The purchase price for the territory is $90,000, all of
which is recognised as revenue at 100% profit margin. It is also expected that
the franchise owner will be purchasing additional equipment from ALD to launch
service vehicles to develop the territory. Finally, the commercialization of
such "greenfield" territory will also add royalty income to the Group's ALD
business unit during 2022.
On 7 April 2022, the Group announced the expansion of its acquisition line of
credit to include an additional $15 million for further acquisitions of its
franchises. As part of the facility, the Group entered into swap arrangements
that maintain a fixed interest rate of approximately 5.5% on amounts drawn
under the facility and are amortised over a term of five years. The covenants
and guarantee requirements for the new facility remain the same all other
credit facilities with People's Bank, now operating post-acquisition as part
of M&T Bank.
On 12 May 2022, the Group announced the reacquisition of its American Leak
Detection Central Texas franchise. The franchise includes the cities of
Abilene, Lubbock and Midland which are west of recently launched
corporate-operated locations of Fort Worth (via franchise acquisition) and
Wichita Falls (greenfield). The purchase price of $0.75 million in cash is
based on the franchise's 2021 Statement of Income of $0.65 million in revenue
and $0.21 million in profit before tax.
Directors
The Directors who served the Company during the year and up to the date of
this document were as follows:
Executive Directors
Patrick DeSouza - Executive Chairman
Laura Hills
Non-Executive Directors
Bobby Knell
Michael Reisman
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 (http://www.waterintelligence.co.uk)
Directors' emoluments
2021 Salary, Fees & Bonus Benefits Redundancy Total
$ $ $ $
Executive Directors
P DeSouza 639,381 15,004 - 654,385
L Hills 125,000 - - 125,000
Non-Executive Directors
D Ewell 30,000 - - 30,000
B Knell 40,000 - - 40,000
M Reisman 40,000 - - 40,000
874,381 15,004 - 889,385
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
Directors' interests
The Directors who held office at 31 December 2021 and subsequent to year end
had the following direct interest in the voting rights of the Company at 31
December 2021 and at the date of this document, excluding the shares held by
Plain Sight Systems, Inc.
Number of shares at 31 December 2021 % held at 31 December 2021 Number of shares at 8 June 2022 % held at 8 June 2022
Patrick DeSouza*/** 4,867,110 25.03 4,867,110 25.04
Michael Reisman* 184,126 0.95 184,126 0.95
Laura Hills 116,196 0.60 116,196 0.60
Bobby Knell 27,000 0.14 27,000 0.14
Dan Ewell 30,524 0.16 30,524 0.16
*Included in the total above, Patrick DeSouza has (i) 180,000 Partly Paid
Shares (2016), (ii) 750,000 (March 2018) (iii) 850,000 (May 2019) and (iv)
300,000 Partly Paid Shares (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 1,965,000 shares held by The Patrick J.
DeSouza 2020 Irrevocable Trust U/A Dtd 11/23/2020 and 605,936 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 document were as follows:
Number of shares % held
Plain Sight Systems, Inc. 2,430,410 12.50
Canaccord Genuity Group Inc. 2,300,580 11.84
State Street Nominees Limited 1,291,339 6.64
George D. Yancopoulos 880,920 4.53
Amati AIM VCT 814,660 4.19
Herald Investment Trust 642,526 3.31
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
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.
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 sections 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 2021 and 31 December 2021
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 2/2
Michael Reisman 6/6 2/2 2/2
Dan Ewell 6/6 2/2
Laura Hills 6/6
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)l. 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. 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 served 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 2020 annual accounts
and the interim accounts to 30 June 2021. 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
(http://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 UK adopted International Accounting Standards.
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 judgments 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
(http://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 Directors' responsibility also extends to the ongoing integrity
of the Financial Statements contained there.
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 2021, which comprise:
· the Group statement of comprehensive income for the year ended 31
December 2021;
· the Group and parent company statements of financial position as
at 31 December 2021;
· 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 2021 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 are 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 $398,000 (2020: $321, 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 restrictions earlier in the year around travel, we have remotely
reviewed the US work to carry out our review of component auditor working
papers and have met 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 in accordance with the accounting policy set out in the Validating that revenue is recognised in accordance with the accounting
financial statements. The group has a number of different revenue streams, policies for appropriateness in accordance with International Financial
some of which contain judgements, particularly in recognising when a purchase Reporting Standard 15 'Revenue from Contract with Customers' and performed
order has been satisfied and have passed to the buyer. This is determined audit procedures to provide evidence that revenue was accounted for in
with reference to the underlying contract with the purchaser and the nature of accordance with the policy.
the service provided.
Testing a sample of revenue transaction across the operating companies of the
Group to ensure through testing an appropriate sample of income from each
revenue stream by agreeing amounts to contracted amounts, cash receipt and/or
when a purchase order has been satisfied.
Assessing the appropriateness of the related disclosures in the financial
statements.
Impairment of intangible assets We reviewed management's assessment of the carrying value of the group's
intangible assets. In considering this assessment, we evaluated:
The carrying value of intangible assets relates to trademarks, franchisor
activities, goodwill on acquisitions and owned stores goodwill and indefinite · The discounted cash-flow forecasts for the group and the relevant cash
life intangible assets. There is a risk that the carrying value could be generating units. This assessment included consideration of the key
impaired as a result of reduced activity. Any significant future downturn in assumptions, which principally included discount rate and growth rates.
performance or activity could also result in an impairment of these assets.
· We have checked the arithmetic accuracy of the forecast.
· Board minutes, budgets and other operational plans
· 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, 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
Consolidated Statement of Comprehensive Income for the year ended 31 December
2021
Notes Year ended 31 December 2021 Year ended 31 December 2020
$ $
Revenue 4 54,543,408 37,933,896
Cost of sales (8,964,486) (8,830,250)
Gross profit 45,578,922 29,103,646
Administrative expenses
- Other Income 69,484 93,066
- Share-based payments 7 (442,708) (233,584)
- Amortisation of intangibles 13 (470,226) (524,017)
- Other administrative costs (38,131,195) (23,879,139)
) )
Total administrative expenses (38,974,645) (24,543,674)
Operating profit 6,604,277 4,559,972
PPP loan forgiveness 23 1,869,800 -
Finance income 8 51,092 88,753
Finance expense 9 (969,130) (445,351)
Profit before tax 7,556,039 4,203,374
Taxation expense 10 (1,641,350) (1,273,319)
Profit for the year 5,914,689 2,930,055
Attributable to:
Equity holders of the parent 5,764,952 2,892,974
Non-controlling interests 149,737 37,081
5,914,689 2,930,055
Other Comprehensive Income
Exchange differences arising on translation of foreign operations (221,281) 32,375
Fair value adjustment on listed equity investment (net of deferred tax) (300,049) (236,900)
Total comprehensive profit for the year 5,393,359 2,725,530
Consolidated Statement of Financial Position as at 31 December 2021
Notes 2021 2020
$ $
ASSETS
Non-current assets
Goodwill and indefinite life intangible assets 13 37,268,469 22,159,836
Listed equity investment 24 1,185,039 1,564,254
Other intangible assets 13 3,818,037 1,651,296
Property, plant and equipment 14 7,807,227 5,172,221
Trade and other receivables 17 429,219 581,191
50,507,991 31,128,798
Current assets
Inventories 16 677,218 444,791
Trade and other receivables 17 8,379,894 6,049,067
Cash and cash equivalents 18 23,802,352 6,818,715
32,859,464 13,312,573
TOTAL ASSETS 83,367,455 44,441,371
EQUITY AND LIABILITIES
Equity attributable to holders of the parent
Share capital 21 142,260 116,212
Share premium 21 35,252,633 12,091,069
Shares held in treasury 21 (468,427) (340,327)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 1,092,993 650,286
Accumulated OCI (1.095.492) (874,212)
Reverse acquisition reserve 21 (27,758,088) (27,758,090)
Equity investment reserve 46,672 346,721
Retained earnings 43,552,575 37,787,624
51,766,276 23,020,433
Equity attributable to Non-Controlling interest
Non-controlling Interest 612,528 346,124
Non-current liabilities
Borrowings 23 8,176,893 6,839,981
Deferred consideration 12 8,220,613 3,421,936
Deferred tax liability 20 1,576,872 957,170
17,974,378 11,219,087
Current liabilities
Trade and other payables 19 4,194,031 3,900,465
Borrowings 23 3,325,579 3,713,323
Deferred consideration 12 5,494,663 2,241,939
13,014,273 9,855,727
TOTAL EQUITY AND LIABILITIES 83,367,455 44,441,371
Company Statement of Financial Position as at 31 December 2021
Notes 2021 2020
$ $
ASSETS 15 7,411,852 7,459,645
Non-current assets
Investment in subsidiaries
Trade and other receivables 17 23,270,653 4,019,000
Listed equity investment 24 1,185,039 1,564,254
31,867,544 13,042,900
Current assets
Trade and other receivables 17 4,781,282 3,053,543
Cash and cash equivalents 18 1,865,798 366,737
6,647,080 3,420,280
TOTAL ASSETS 38,514,624 16,463,180
EQUITY AND LIABILITIES
Equity attributable to holders of the parent
Share capital 21 142,260 116,212
Share premium 21 35,252,633 12,091,069
Shares held in treasury 21 (468,427) (340,327)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 1,092,993 650,286
Accumulated OCI (1,834,431) (1,586,208)
Equity investment reserve 46,672 346,721
Retained earnings 3,154,925 3,963,789
38,387,775 16,242,692
Non-current liabilities
Deferred tax liability 20 (5,777) 77,943
(5,777) 77,943
Current liabilities
Trade and other payables 19 132,626 142,545
132,626 142,545
TOTAL EQUITY AND LIABILITIES 38,514,624 16,463,180
Consolidated Statement of Cash Flows for the Year Ended 31 December 2021
Year ended 31 December 2021 $ Year ended 31 December 2020
$
Cash flows from operating activities
Profit before tax 7,556,039 4,203,374
Adjustments for non-cash/non-operating items:
Depreciation of plant and equipment 2,475,069 1,568,034
Amortisation of intangible assets 470,225 524,017
Share based payments 442,708 233,584
PPP loan forgiveness (1,869,800) -
Finance costs 969,130 445,351
Finance income (51,092) (88,753)
Operating cash flows before movements in working capital 9,992,279 6,885,607
Increase in inventories (232,427) (110,780)
Increase in trade and other receivables (1,924,070) (988,875)
(Decrease) / Increase in trade and other payables (684,618) 1,683,009
Cash generated by operations 7,151,164 7,468,962
Income taxes paid (1,021,648) (982,776)
Net cash generated from operating activities 6,129,516 6,486,186
Cash flows from investing activities
Purchase of plant and equipment (517,707) (717,519)
Purchase of intangible assets (2,078,559) -
Acquisition of subsidiaries (979,782) (300,000)
Reacquisition of franchises (5,239,558) (9,229,647)
Finance income 51,092 88,753
Net cash used in investing activities (8,764,514) (10,158,413)
Cash flows from financing activities
Issue of ordinary share capital 21,291 8,128
Premium on issue of ordinary share capital 22,185,641 2,031,084
Share buyback (466,551) (715,911)
Sale of treasury 559,469 1,225,292
shares
Options exercised 714,950 25,083
Finance costs (969,130) (445,351)
Proceeds from borrowings 3,200,000 6,153,836
Repayment of borrowings (1,827,765) (848,421)
Repayment of notes (2,350,676) (1,409,939)
Repayment of lease liabilities (1,448,594) (813,667)
Net cash generated from financing activities 19,618,635 5,210,134
Net increase in cash and cash equivalents 16,983,637 1,537,907
Cash and cash equivalents at the beginning of year 6,818,715 5,280,808
Cash and cash equivalents at end of year 23,802,352 6,818,715
Company Statement of Cash Flows for the Year Ended 31 December 2021
Year ended Year ended
31 December
31 December
2021
2020
$
$
Cash flows from operating activities
Loss before tax (808,865) (636,089)
Adjustments for non-cash/non-operating items:
Share based payment expense 442,708 233,585
Operating cash flows before movements in working capital (366,157) (402,504)
Increase in trade and other receivables (20,934,141) (2,066,470)
(Decrease)/Increase in trade and other payables (215,442) 66,286
Cash used by operations (21,515,740) (2,402,688)
Income taxes paid - -
Net cash used by operating activities (21,515,740) (2,402,688)
Cash flows from investing activities
- -
Net cash used in investing activities - -
Cash flows from financing activities
Issue of ordinary share capital 21,291 8,128
Premium on issue of ordinary share capital 22,185,641 2,031,084
Share buyback (466,551) (715,911)
Sale of treasury shares 559,469 1,225,292
Options exercised 714,950 25,083
Net cash generated from financing activities 23,014,800 2,573,676
Increase in cash and cash equivalents 1,499,061 170,988
Cash and cash equivalents at the beginning of period 366,737 195,749
Cash and cash equivalents at end of period 1,865,798 366,737
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 8 June 2022.
2 Adoption of a new International Financial Reporting
Standards
The following new standards were mandatory for adoption for periods ending 31
December 2021; however, these standards do not affect the Group:
- Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS
39, IFRS 4 and IFRS 16
- Covid-19 Related Rent Concessions (Amendment to IFRS 16)
The Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective and they are not
expected to have a material impact on the Group financial statements.
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 UK
adopted International Accounting Standards (IFRS). The Parent Company's
Financial Statements have also been prepared in accordance with UK adopted
International Accounting Standards as applied by 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.
Trade and other payables in 2020 have been restated to include the appropriate
current and non-current splits of lease liabilities.
The Financial Statements are presented in US Dollars ($), rounded to the
nearest dollar.
Going concern
The Directors have prepared a business plan and cash flow forecast for the
period to December 2023. 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
oversubscribed capital raises in July and November 2021 and expansion of its
credit facilities in February 2021 and April 2022, The Directors believe that
funding will be available on a case-by-case basis for additional
initiatives.
Cash at 31 December 2021 increased to $23.8 million (2020: $6.8 million). At
31 December 2021, total debt (borrowings and deferred consideration from
franchise acquisitions) was $22 million with amortisation of such amount
spread through 2026. Meanwhile, operating cash flows (EBITDA) in 2021
increased by 45% to $10.0 million (2020: $6.9 million). For 2022, the
Directors are monitoring inflationary pressures and investments, such as
Salesforce.com and related software applications, geared to offset inflation
through efficiencies.
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
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 through variants. 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. 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 2021. 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 2021 is $808,865 (2020: $636,089).
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, mainly in the UK, 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.
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 ECLs for trade receivables and contract
assets. ECLs 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
1-6
Customer
lists
5
Salesforce
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 UK adopted
International Accounting 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
2021 2020
$ $
Franchise royalty income 6,803,489 6,691,433
Franchise related activities 9,769,657 9,513,209
US corporate operated locations 31,861,087 17,434,216
International corporate operated locations 6,109,175 4,295,037
Total 54,543,408 37,933,895
Profit/(Loss) before tax Year ended Year ended
31 December 31 December
2021 2020
$ $
Franchise royalty income 1,808,730 1,771,302
Franchise related activities 805,171 682,958
US corporate operated locations 6,007,153 3,795,753
International corporate operated locations 315,740 311,783
Unallocated head office costs (2,927,132) (2,257,323)
PPP loan forgiveness 1,869,800 -
Non-core costs (323,423) (101,099)
Total 7,556,039 4,203,374
Assets Year ended Year ended
31 December 31 December
2021 2020
$ $
Franchise royalty income 27,869,663 10,571,497
Franchise related activities 2,452,933 2,006,569
US corporate operated locations 43,050,953 24,932,417
International corporate operated locations 9,993,906 6,930,887
Total 83,367,455 44,441,371
Amortisation Year ended Year ended
31 December 31 December
2021 2020
$ $
US corporate operated locations 466,216 496,315
International corporate operated locations 4,009 27,702
Total 470,225 524,017
Depreciation Year ended Year ended
31 December 31 December
2021 2020
$ $
Franchise royalty income - -
Franchise related activities - -
US corporate operated 2,009,350 1,288,989
locations
International corporate operated locations 465,719 279,045
Total 2,475,069 1,568,034
Finance Expense Year ended Year ended
31 December 31 December
2021 2020
$ $
US corporate operated locations 484,047 78,031
International corporate activities 13,719 8,769
Unallocated head office costs 471,363 358,553
Total 969,129 445,353
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 2021,
outside the US sales have grown 41% to $6.2 million (2020: $4.4 million).
Sales in the US have grown 44% to $48.3 million (2020: $33.5 million). The
percentage of International sales to total sales has remained constant at 11%
(2020: 11%).
Total Revenue
Year ended 31 December 2021 Year ended 31 December 2020
US International Total US International Total
$ $ $ $ $ $
Franchise royalty income 6,698,729 104,760 6,803,489 6,572,162 119,271 6,691,433
Franchise related activities 9,769,657 - 9,769,657 9,513,209 - 9,513,209
US Corporate owned Stores 31,861,087 - 31,861,087 17,434,216 - 17,434,216
International corporate activities - 6,109,175 6,109,175 - 4,295,037 4,295,038
Total 48,329,473 6,213,935 54,543,408 33,519,587 4,414,308 37,933,895
5 Expenses by nature
The Group's operating profit has been arrived at after charging:
Year ended Year ended
31 December 31 December
2021 2020
Note $ $
Raw materials and consumables used 1,954,849 752,670
Employee costs 6 24,226,020 14,444,268
Depreciation charge 2,475,069 1,568,034
Amortisation charge 470,225 524,017
Marketing costs 293,036 290,049
R&D - (3,034)
Foreign exchange (gain)/loss 1,624 (77,027)
Year ended Year ended
31 December 31 December
2021 2020
$ $
Auditors remuneration
Fees payable to the Company's auditor for audit of Parent Company and 54,000 52,000
Consolidated Financial Statements
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 $158,614 (2020:
$142,336) for the audit of these companies and $38,899 (2020: $28,204) 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
2021 2020
Short-Term employee benefits
Directors fees, salaries and benefits 874,381 774,465
Employee wages and salaries 21,313,711 12,672,270
Employer payroll taxes 1,595,220 763,948
Long-Term employee benefits
Share based payments 442,708 233,584
24,226,020 14,444,268
Information regarding Directors' emoluments are as follows:
Year ended Year ended
31 December 31 December
2021 2020
$ $
Short-Term employee benefits
Directors' fees, salaries and benefits 874,381 774,465
Employer payroll taxes 22,079 20,331
896,460 794,796
The highest paid Director (Executive) received emoluments of $654,385 (2020:
$606,515).
The average number of employees (including Directors) in the Group during the
year was:
Year ended Year ended
31 December 31 December
2021 2020
Directors (executive and non-executive) 5 5
Management 48 26
Field Services 223 150
Franchise Support 20 20
Administration 83 46
379 247
7 Share options
The Company grants share options at its discretion to Directors, management
and advisors. These are accounted for as equity settled options. Should the
options remain unexercised after a period of ten years from the date of grant
the options will expire unless an extension is agreed to by the Board. Options
are exercisable at a price equal to the Company's quoted market price on the
date of grant or an exercise price to be determined by the Board.
Details for the share options and warrants granted, exercised, lapsed and
outstanding at the year-end are as follows:
Number of share options 2021 Number
of share
Weighted average exercise price ($)
options Weighted average exercise price ($)
2021 2020 2020
Outstanding at beginning of year 1,907,500 3.92 1,450,000 3.01
Granted during the year 555,500 10.66 525,000 5.63
Forfeited/lapsed during the year - - - -
Exercised during the year (225,000) 2.54 (67,500) 1.23
Outstanding at end of the year 2,238,000 5.74 1,907,500 3.92
Exercisable at end of the year 682,500 1.58 697,500 1.15
Fair value of share options
During the year, the Group granted 555,500 Share Options to certain Employees,
with exercise prices ranging from of £4.56 to £8.35 ($6.24 to $12.56).
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 $1.93 to $4.11. This is based on risk-free rates of 0.35% to
0.78% and volatility of 34.8% to 40.7%.
The Black Scholes calculations for the options granted during the year
resulted in a charge of $442,708 (2020: $233,584) which has been expensed in
the year.
The weighted average remaining contractual life of the share options as at 31
December 2021 was 7.10 years (2020: 7.12 years).
Options arrangements that exist over the Company's shares at year end and at
the time of the report are detailed below:
Grant At report date 2021 2020 Date of Grant Exercise price Exercise period
From To
ALDHC Plan 67,500 67,500 142,500 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 122,500 122,500 177,500 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 25,000 25,000 45,000 19/12/2016 $1.24 19/12/2019 19/12/2026
2016 Employee 132,500 132,500 132,500 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 08/10/2018 $4.52 08/10/2021 08/10/2028
2019 Employee 425,000 425,000 475,000 04/04/2019 $6.24 04/04/2023 04/04/2029
2019 Acquisition 50,000 50,000 50,000 04/04/2019 $4.59 04/04/2023 04/04/2029
2020 Employee (1) 500,000 500,000 500,000 31/07/2020 $5.60 31/07/2023 31/07/2030
2020 Acquisition (2) 25,000 25,000 25,000 30/09/2020 $6.20 30/09/2024 30/09/2030
2021 Acquisition (3) 45,500 45,500 01/01/2021 $6.80 01/01/2025 01/01/2031
2021 Directors (4) 300,000 300,000 15/03/2021 $10.40 15/03/2024 15/03/2031
2021 Acquisition (5) 100,000 100,000 20/04/2021 $11.38 20/04/2025 20/04/2031
2021 Acquisition (6) 75,000 110,000 01/07/2021 $12.56 01/07/2025 01/07/2031
Total 2,203,000 2,238,000 1,907,500
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 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.
(2) 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.
(3) On 01 January 2021, certain vendors, retained as employees, were
granted options to purchase 45,500 New Ordinary Shares at a price of $6.80
pursuant to the acquisition of franchises acquired in 2020. These options
have a four-year vesting requirement.
(4) 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.
(5) On 20 April 2021, certain vendors, retained as employees, were
granted options to purchase 100,000 New Ordinary Shares at a price of $11.38
pursuant to the acquisition of certain IP Assets. These options have a
four-year vesting requirement.
(6) On 1 July 2021, certain vendors, retained as employees, were granted
options to purchase 110,000 New Ordinary Shares at a price of $12.56 pursuant
to the acquisition of franchises acquired in 2021. These options have a
four-year vesting requirement.
Patrick DeSouza received (i) 180,000 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. 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
2021
2020
$
$
Interest income 51,092 88,753
9 Finance expense
Year ended Year ended
31 December
31 December
2021
2020
$
$
Interest expense 969,130 445,351
10 Taxation
Group Year ended Year ended
31 December
31 December
2021
2020
$
$
Current tax:
Current tax on profits in the year 1,084,022 836,682
Prior year over provision - -
Total current tax 1,084,022 836,681
Deferred tax current year 557,329 436,637
Deferred tax prior year - -
Deferred tax (credit)/expense (note 20) 557,329 436,637
Income tax expense 1,641,350 1,273,319
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 7,556,039 4,203,374
Tax calculated at domestic rate applicable profits in respective countries
(2021: 23.6% versus 2020: 31.7%) 1,457,165 882,709
Tax effects of:
Non-deductible expenses 136,081 65,445
GILTI Inclusion 47,262 15,202
PPP loan forgiveness (392,688) -
Other tax adjustments, reliefs and transfers 136,062 95,620
State taxes net of federal benefit 263,377 190,419
Adjustment in respect of prior year 2,794 17,262
Changes in rates (8,703) 6,662
Taxation expense recognized in income statement 1,641,350 1,273,319
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 £3,739,716 (2020: £5,898,312)
available for offset against future profits. £934,929 (2020: £1,002,713)
represents unrecognized deferred tax assets thereon at 25%. The deferred tax
asset has not been recognized due to uncertainty over timing of utilization.
The effective rate for tax for 2021 is 23.6% (2020: 31.7%). It is anticipated
that the Group will use the effective tax rate of 29.3% (no PPP tax benefit in
the future) 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 2020
31 December 2021 $
$
Profit for the year attributable to equity holders of the Parent ($) 5,764,952 2,892,974
Weighted average number of ordinary shares 15,972,588 14,832,294
Diluted weighted average number of ordinary shares 17,286,616 15,427,122
Profit per share (cents) 36.1 19.5
Diluted profit per share (cents) 33.3 18.8
Adjusting for the PPP loan forgiveness has the following effect:
Profit per share (cents) (11.7) -
Adjusted Profit per share (cents) 24.4 19.5
Diluted profit per share (cents) (10.8) -
Adjusted Diluted profit per share (cents) 22.5 18.8
12 Acquisitions
These can be summarised as follows:
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. 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. The purchase price of $0.66 million is based on 2020
full-year results of approximately $0.66 million in sales and $0.15 million in
adjusted profits.
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. The
purchase price for the IP reflects a 75% equity stake for the Group in the new
Intelliditch subsidiary in exchange for options for 100,000 shares in Water
Intelligence at an exercise price of 822.5 pence and a 25% equity stake in
IntelliDitch for the former owners of FastDitch.
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.
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.
On 5 July 2021, the Group announced the reacquisition of its Northeast Florida
(Jacksonville/Daytona) franchise territory within its ALD franchise
business. Strategically, this reacquisition follows the Central Florida
location reacquisition. The two reacquisitions enable ALD to link corporate
operations along the eastern part of Florida from Jacksonville in the
northeast to fast-growing corporate operations in Orlando and sizeable
Melbourne and Miami operations, to the south. This operational scale should
contribute to both growth and efficiencies. The purchase price of $2.75
million is based on 2020 full-year results of approximately $2 million in
sales and $0.5 million in adjusted profits.
On 8 July 2021, the Group announced the reacquisition of its Las Vegas and
Phoenix franchise territories within its ALD franchise business. Demand in
Las Vegas and Phoenix is especially strong for ALD water leak detection and
repair services, due to a variety of factors such as heat, drought, the number
of swimming pools and higher income levels. Strategically, these
reacquisitions follow the May reacquisition of its Reno, Nevada franchise and
the Group's prior reacquisition of its franchise in Tucson, Arizona. It
enables ALD to link existing corporate operations - Las Vegas with Reno and
Phoenix with Tucson. The combined purchase price of $10.3 million will be
paid over four years and is based on combined 2020 full-year results of
approximately $5.75 million in sales and $1.6 million in adjusted profits.
On 1 November 2021, the Group announced the acquisition of Wat-er-save
Services Limited ("WS"), a UK provider of leak detection, repair and water
infrastructure services to UK commercial customers including universities and
leisure resorts. The acquisition was led by the Group's UK-based Water
Intelligence International ("WII"). Strategically, this acquisition provides
the Group with a more substantial sales footprint in the UK. Financially,
despite Covid-related restrictions, WS executed approximately £0.95 million
of sales and £0.25 million of profit before tax for the year-ended 30 June
2021.The purchase price is £0.7 million.
On 1 December 2021, the Group announced the reacquisition of its South Oregon
franchise territory within its ALD franchise business. Today's acquisition
accelerates the Group's strong growth trajectory by adding scale to its
regional hub of corporate operations in the northwest United States; a
territory where green economy solutions are in high demand. The purchase
price of $1.38 million in cash will be paid over the next twelve months and is
based on a pro forma revenue of $1.15 million and $0.25 million in profit
before tax for full year 2021.
2021 Acquisitions
Sub. Aqu. Intelliditch Sub. Aqu. Wat-er-save Clermont Reno Las Vegas and Phoenix Daytona Medford PlumbRight Adjust-ments Totals
$ $ $ $ $ $ $ $ $ $
Fair value of assets and liabilities acquired
Equipment - 11,199 26,250 133,100 447,000 40,595 163,455 74,305 - 895,904
Vehicles - 34,077 54,868 108,734 490,628 104,434 84,957 90,231 - 967,929
Non-compete - 41,553 30,000 60,000 120,000 90,000 30,000 70,000 - 441,553
Liabilities / Other 116,667 539,854 - (13,001) (560,250) - (35,000) - - 48,269
Net assets acquired 116,667 626,684 111,118 288,833 497,378 235,029 243,412 234,536 - 2,353,655
Consideration
Cash - 1,502,277 330,000 21,000 3,000,000 900,000 688,559 300,000 - 6,741,835
Note payable - 41,553 330,000 267,833 7,150,842 1,850,000 688,559 375,000 (100,000) 10,603,787
Non-controlling interest 116,667 - - - - - - - - 116,667
Total consideration 116,667 1,543,830 660,000 288,833 10,150,842 2,750,000 1,377,117 675,000 (100,000) 17,462,288
Intangible assets arising on acquisition (see note 13) - 917,146 548,882 - 9,653,464 2,514,971 1,133,705 440,464 (100,000) 15,108,633
The intangible assets arising on the above acquisitions of $15,108,633 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.
2020 Acquisitions
Sub. Aqu. Denver Minneapolis San Jose Maryland Seattle Melbourne Florida Baton Rouge Melbourne Australia Brisbane Adjust-ments Totals
Australia
$ $ $ $ $ $ $ $ $ $ $
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 amount of deferred consideration for 2021 acquisitions as well as the
remaining deferred consideration for acquisitions made in 2018, 2019 and 2020
(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 2021 2020
$ $
South Florida 2018 26,466 24,928
Tucson 2019 109,650 105,884
Minneapolis 2020 327,670 327,670
San Jose 2020 223,976 295,137
Seattle 2020 450,000 750,000
Melbourne, Florida 2020 400,000
Baton Rouge 2020 175,000 700,000
Brisbane, Australia 2020 38,320
Clermont 2021 330,000
Las Vegas and Phoenix 2021 1,713,343
Daytona 2021 850,000
Medford 2021 688,559
PlumbRight 2021 200,000
Total current deferred consideration 5,494,663 2,241,939
Non-Current Year ended Year ended
31 December 31 December
Year 2021 2020
acquired $ $
South Florida 2018 117,439 143,905
Tucson 2019 162,018 271,667
Minneapolis 2020 327,672 668,449
San Jose 2020 125,985 353,040
Seattle 2020 300,000 750,000
Melbourne, Florida 2020 350,000 462,375
Baton Rouge 2020 175,000 772,500
Reno 2021 50,000
Las Vegas and Phoenix 2021 5,437,499
Daytona 2021 1,000,000
PlumbRight 2021 175,000
Total non-current deferred consideration 8,220,613 3,421,936
13 Intangible assets
The calculation of amortisation 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 Acquisitions Goodwill relating to Owned & Operated stores Goodwill on franchisor activities Totals
$ $ $ $
Cost
At 1 January 2020 3,039,251 6,995,968 636,711 10,671,930
Additions 267,570 12,801,565 - 13,069,135
At 31 December 2020 3,306,821 19,797,533 636,711 23,741,065
Additions (see note 12) 917,146 14,191,487 - 15,108,633
At 31 December 2021 4,223,967 33,989,020 636,711 38,849,698
Impairment
At 1 January 2020 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
At 31 December 2020 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
At 31 December 2021 1,506,229 75,000 - 1,581,229
Carrying amount
At 31 December 2020 1,800,592 19,722,533 636,711 22,159,836
At 31 December 2021 2,717,738 33,914,020 636,711 37,268,469
The increase in carrying value of Goodwill Acquisitions at 31 December 2021
relate to goodwill additions arising on the acquisitions outlined in Note 12
above during 2021.
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 2021. Details on
additions in 2021 can be found in note 12 above.
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 - 2021 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 is allocated to separate cash generating units.
Goodwill or indefinite life intangible assets on owned & operated stores
is allocated to cash generating units that are expected to benefit from the
synergies of the combination.
Goodwill on Franchisor Activities is considered to be related to a single 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 2021 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 2021
(2020: $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
Product development Covenants Customer Lists Trademarks Patents Website Salesforce Enterprise Solution Development Total
not to compete
$ $ $ $ $ $ $ $ $
Cost
At 1 January 2020 164,880 490,128 350,357 5,295,867 23,692 90,000 - 102,000 6,516,924
Additions - 224,200 - - - - - - 224,200
Disposals - (290,000) (217,500) (62,050) (23,692) (90,000) - - (683,242)
At 31 December 2020 164,880 424,328 132,857 5,233,817 - - - 102,000 6,057,883
Additions 515,351 446,553 - - 116,667 - 1,558,208 - 2,636,779
Disposals (164,880) (200,000) - - - - - (364,880)
At 31 December 2021 515,351 670,881 132,857 5,233,817 116,667 - 1,558,208 102,000 8,329,782
Accumulated amortisation
At 1 January 2020 164,880 290,128 323,784 3,682,108 23,692 82,500 - - 4,567,092
Amortisation expense - 193,124 27,702 261,691 - 7,500 - 34,000 524,017
Disposals (290,000) (217,500) (62,050) (23,692) (90,000) - - (683,242)
Exchange differences - (151) (1,130) - - - - - (1,281)
At 31 December 2020 164,880 193,101 132,857 3,881,749 - - - 34,000 4,406,587
Amortisation expense - 91,976 - 261,691 5,833 - 129,851 (19,125) 470,226
Disposals (164,880) (200,000) - - - - - - (364,880)
Exchange differences - (188) - - - - - - (188)
At 31 December 2021 - 84,889 132,857 4,143,440 5,833 - 129,851 14,875 4,511,745
Carrying amount
At 31 December 2020 - 231,227 - 1,352,068 - - - 68,001 1,651,296
At 31 December 2021 515,351 585,992 - 1,090,377 110,833 - 1,428,357 87,125 3,818,037
All intangible assets have been acquired by the Group.
The calculation of amortisation 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
Equipment & displays Motor Vehicles Leasehold Improvements Right of Right of Total
$
$
$
$ Buildings Use Vehicles Use Offices
$ $ $
Cost
At 1 January 2020 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
Acquired on acquisition of subsidiary 77,684 115,371 - - - - 193,055
Additions 1,587,515 789,876 4,148 - 1,947,086 899,061 5,227,687
Purchase ROU Vehicles - 280,124 - - (280,124) - -
Exchange differences (23,687) (39,043) - 17 (1,517) (7,754) (71,984)
Disposals - (122,810) - - - (538,979) (661,789)
At 31 December 2021 4,693,694 3,350,021 87,820 156,259 3,114,413 2,029,904 13,432,111
Accumulated depreciation
At 1 January 2020 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
Acquired on acquisition of subsidiary 66,485 81,294 - - - - 147,778
Eliminated on disposals - (91,014) - - - (449,014) (540,027)
Purchase ROU Vehicles - 256,007 - - (256,007) - -
Depreciation expense 705,334 560,828 15,789 12,086 428,548 752,483 2,475,069
Exchange differences (10,728) (16,485) - (63) (270) (3,312) (30,858)
At 31 December 2021 2,002,288 1,572,391 38,875 62,787 934,704 1,013,838 5,624,883
Carrying amount
At 31 December 2020 1,810,985 1,544,742 60,587 105,479 686,533 963,896 5,172,221
At 31 December 2021 2,691,406 1,777,630 48,945 93,472 2,179,709 1,016,067 7,807,228
The value of the assets charged as security for the bank debt is $3,341,176
(2020: $2,056,692).
15 Investment in subsidiary undertakings
Company Subsidiary Undertakings
$
Cost
At 31 December 2020 13,860,551
Exchange difference (47,794)
At 31 December 2021 13,812,758
Impairment
At 31 December 2020 6,400,906
Exchange difference -
At 31 December 2021 6,400,906
Carrying amount
At 31 December 2020 7,459,645
At 31 December 2021 7,411,782
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:
Country of incorporation Interest held
%
Registered office address
Water Intelligence International Limited* (leak detection products and 27-28 Eastcastle Street, London, United Kingdom, W1W 8DH England and Wales 100%
services)
Wat-er-save Services Limited Agriculture house, Acland Rd, 100%
Dorchester DT1 1EF
Water Intelligence Australia Pty 1 Farrer Place, Sydney, NSW 2000 Australia 100%
American Leak Detection Holding Corp. (holding company of ALD Inc.) * 199 Whitney Avenue, New Haven, Connecticut 06511 US US 100%
199 Whitney Avenue, New Haven, Connecticut 06511 US US 100%
American Leak Detection, Inc. (leak detection product and services)
Canadian Leak Detection, Inc. 8-4696 Bartlette Rd. Beamsville, Ontario L0R 1B1 Canada 100%
Qonnectis Group Limited (dormant) 27-28 Eastcastle Street, London, United Kingdom, W1W 8DH England and Wales
NRW Utilities Limited (Dormant) 27-28 Eastcastle Street, London, United Kingdom, W1W 8DH England and Wales
* Subsidiaries owned directly by the Parent Company. These subsidiaries -
WII and ALDHC - represent the two principal business lines of the Parent
Company. Wat-er-save, Water Intelligence Australia, Canadian Leak Detection
and American Leak Detection Inc. are also wholly-owned by the two principal
subsidiaries and indirectly owned by the Parent.
The Company's strategy involves acquisitions, especially of franchisees. Not
all acquisitions are 100% owned. American Leak Detection has as a 60% stake
in a reacquired franchise in Bakersfield, California. 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 also has a 51% stake in a
former franchise located in Denver, Colorado. Finally, American Leak
Detection owns 75% of the IntelliDitch subsidiary that was set up as part of
the acquisition of IP assets from FastDitch in 2021.
16 Inventories
Group
Year ended Year ended
31 December
31 December
2021
2020
$
$
Group Inventories 677,218 444,791
During the year ended 31 December 2021, an expense of $8,964,486 (2020:
$8,830,250) was recognized in the Consolidated Statement of Comprehensive
Income, including business to business expenses of $8,288,217 (2020:
$8,024,178). There has been no write down of inventories during 2021.
17 Trade and other receivables
Group Company
Year ended Year ended Year ended Year ended
31 December
31 December
31 December
31 December
2021
2020
2021
2020
$
$
$
$
Trade notes receivable 429,219 581,191 - - -
Due from Group undertakings - - 23,270,653 4,019,000
All trade notes 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
2021
2020
2021
2020
$
$
$
$
Trade receivables 4,414,329 2,843,462 - -
Prepayments 1,928,308 899,903 110,917 3,973
Due from Group undertakings - - 4,670,366 3,049,570
Accrued royalties receivable 513,853 673,832 - -
Trade notes receivable 194,590 212,681 - -
Other receivables 997,709 1,093,994 - -
Due from related party 331,106 325,195 - -
Current portion 8,379,894 6,049,067 4,781,282 3,053,543
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 (2020: 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
2021
2020
$
$
US Dollar 7,108,323 5,229,898
UK Pound 905,624 504,926
Australian Dollar 286,598 293,179
Canadian Dollar 34,100 21,063
8,334,644 6,049,067
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
2021
2020
2021
2020
$
$
$
$
Cash at bank and in hand 23,802,352 6,818,715 1,865,798 366,737
19 Trade and other payables
Group Company
Year ended Year ended Year ended Year ended
31 December
31 December
31 December
31 December
2021
2020
2021
2020
$
$
$
$
Trade payables 723,458 1,526,733 6,881 21,094
Accruals and other payables (Note 2) 3,470,573 2,373,732 125,745 121,452
Due to Group undertakings - - - -
4,194,031 3,900,465 132,626 142,546
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 (2020:16 days).
20 Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group 2021 2020
$ $
Deferred tax (liability)/assets (1,576,872) (957,170)
The movement in deferred tax liabilities is as follows:
2021 Opening balance Recognized in the income statement Recognized in Other Comprehensive Income Closing balance
$ $ $ $
Temporary differences: - - - -
Net operating profit (loss) (non-current) - - - -
Short term temporary differences (957,170) (557,329) (62,373) (1,576,872)
(957,170) (557,329) (62,373) (1,576,872)
2020 Opening balance Recognized in the income statement Recognized in Other Comprehensive Income Closing 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)
At the balance sheet date, the Group's UK trading subsidiaries had unused tax
losses (as reported on the Group's tax returns) of £3,739,716 (2020:
£5,898,312) available for offset against future profits. £934,929 (2020:
£1,002,713) represents unrecognized deferred tax assets thereon at 25%. 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
Ordinary Shares Number Shares held in treasury Number
Total Number
At 31 December 2020 15,434,784 65,538 15,500,322
At 31 December 2021 17,366,688 51,000 17,417,688
.
Group & Company
Share capital Share premium Shares in Treasury
$
$
$
At 31 December 2020 116,212 12,091,069 (340,327)
At 31 December 2021 141,594 35,208,586 (468,425)
At various times during 2021, the Company bought 51,000 shares into treasury
at a purchase price range of 600p to 992p.
On 8 February 2021, the Company issued 6,500 shares to Bobby Knell in lieu of
2019 and 2020 director fees.
On 12 March 2021, the Company issued 20,000 shares pursuant to an exercise of
options.
On 14 July 2021, the Company announced a capital raise, pursuant to which the
Company sold 547,078 new ordinary shares to raise £5.0 million. At the same
time, Patrick DeSouza, Executive Chairman of the Company, fully paid 120,000
of his partly paid shares and, in addition, options over 130,000 ordinary
shares were exercised and sold to incoming investors. All of these shares were
admitted to trading on AIM on 19 July 2021.
On 12 November 2021, the Company announced a capital raise, pursuant to which
the Company sold 1,041,667 new ordinary shares to raise £12.5 million. These
shares were admitted to trading on AIM on 17 November 2021.
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 Lease liability
Year ended Year ended
31 December
31 December
2021
2020
$
$
Lease liabilities in statement of financial position
Amounts due within one year 1,161,879 771,713
Amount due after more than one year 2,048,288 991,720
3,210,167 1,763,433
Amount recognized in the statement of
comprehensive income
Interest on leasehold liabilities 136,986 93,912
Amount recognized in the statement of
cash flows
Repayment of lease liabilities 1,448,594 813,667
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 2021 no trading in
financial instruments was undertaken (2020: 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 2021, 70.39% was held with one
counterparty with a credit rating of Aaa and a further 14.83% 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 2021, trade receivables of $438,284 (2020: $281,805) 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
2021
2020
$
$
60-90 days 196,106 87,621
90+ days 242,178 194,184
438,284 281,805
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
2021
2020
2021
2020
$
$
$
$
Loans and receivables - - - -
Cash and cash equivalents 23,802,352 6,818,715 1,865,798 366,737
Trade and other receivables - current 8,379,894 6,049,067 28,051,935 7,072,544
Trade and other receivables - non-current 429,219 581,191 - -
Financial Liabilities measured at amortised cost
Trade and other payables 4,194,031 3,900,465 132,626 142,545
Borrowings - current 3,325,579 3,713,323 - -
Borrowings - non-current 8,176,893 6,839,981 - -
Deferred consideration - current 5,494,663 2,241,939 - -
Deferred consideration - non-current 8,220,613 3,421,936 - -
Borrowings
Bank Debt
The Group has a commercial banking relationship with People's United Bank
(People's) (acquired in April 2022 by M&T Bank) with various facilities: a
working capital line of credit ("WCL"); acquisition lines of credit ("ALOCs"),
and term loans ("Term Loans").
A $2,000,000 WCL is secured by substantially all of the assets of the Group.
On October 13, 2020, the WCL was extended to a maturity date of December 5,
2021 and bore an annual variable interest rate equal to equal to LIBOR plus
3.00%. On December 4, 2021, the WCL was extended to a maturity date of
December 5, 2023 and bears an annual variable interest rate equal to LIBOR
plus 3.00%. At December 31, 2021 and 2020, the interest rate was 4.00%.
Monthly interest only payments on any unpaid balance were made during 2021 and
2020. The balance outstanding at December 31, 2021 and 2020 was $226,737, and
is included within line of credit on the consolidated balance sheets.
In addition to the $2,000,000 line of credit, People's had provided the Group
with two acquisition lines of credit (ALOC 1 and ALOC 2). 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 at December 31, 2021
and 2020 was $3,497,907 and $4,521,685, respectively 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 line bears interest at a rate equal to LIBOR plus 3.00%. As of December
31, 2021 and 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, the
New ALOC advance 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.
The balance outstanding at December 31, 2021 and 2020 was $1,831,546 and
$2,309,342, respectively and is included within notes payable on the balance
sheets.
In February 2021, the Group was advanced $3,200,000 from the New ALOC which
converted the New ALOC into a new term loan ("New Term Loan"). The New Term
Loan bears interest at a rate equal to 3.64% and requires installments
consisting of principal and interest amounting to $53,333 to be paid monthly
beginning in March 2021 until maturity in February 2026. The New Term Loan is
secured by substantially all of the assets of the Group. The balance
outstanding at December 31, 2021 and 2020 was $2,666,667 and $0, respectively
and is included within notes payable on the balance sheets.
To summarize the above, the total amount of prior borrowings that have been
refinanced at December 31, 2021 and 2020 was $3,497,907 and $4,521,685
respectively. In addition, the total amount of borrowings under new ALOC
facilities at December 31, 2021 and 2020 was $4,498,213 and $2,309,341
respectively.
As noted in the subsequent events, the Group expanded its credit facilities in
April 2022. The interest rate for the new acquisition line of credit was
established using the SOFR index. Additionally, the existing working capital
line of credit interest rate was amended upon renewal in December 2021 to be
calculated using the SOFR index. Therefore, the Group will not be impacted
by the IBOR reform.
In connection with the People's line of credit, ALOC, and term note
facilities, the Group is required to comply with certain financial and
non-financial covenants. 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, 2021.
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. The gain on the loan forgiveness was
recognized in 2021, with the related expenses recognized in 2020.
Current Non-Current
Financial Instruments Year ended Year ended Year ended Year ended
31 December
31 December
31 December
31 December
2021
2020
2021
2020
$
$
$
$
Term loans 1,106,366 1,074,507 2,676,484 3,585,440
PPP Loan - 1,449,769 - 420,031
Working Capital Line of Credit - - 226,737 226,737
Acquisition Line of Credit 1,117,795 477,795 3,380,418 1,831,546
Less: Loan Closing Costs (60,461) (60,461) (155,034) (215,495)
Lease Liabilities 1,161,879 771,713 2,048,288 991,721
Total 3,325,579 3,713,323 8,176,893 6,839,981
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.
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 £
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 2021 were $104,760 (2020: $119,271).
No foreign exchange contracts were in place at 31 December 2021 (2020: 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
2021
2020
2021
2020
$
$
$
$
Assets
Sterling, Australian and Canadian Dollars 4,288,235 1,685,233 29,917,733 7,439,281
Liabilities
Sterling, Australian and Canadian Dollars 1,146,338 1,053,196 132,626 142,545
As shown above, at 31 December 2021 the Group had Sterling, Australian and
Canadian denominated monetary net assets of $4,288,235 (2020: $1,685,233). If
the foreign currency weakens by 10% against the US dollar, this would decrease
net assets by $428,824 (2020: $168,523) with a corresponding impact on
reported losses. Changes in exchange rate movements resulted in a loss from
exchange differences on a translation of foreign exchange of $221,281 in 2021
(2020: gain of $33,375), 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 majority of borrowings are subject to fixed rates with
only the WCL subject to variable rates. The fixed rate borrowings at the year
end are $8,065,568 (2020: $8,563,132) and the variable rate borrowings are
$226,767 for both years.
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the year ended 31
December 2021 would not materially change if market interest rates had been 1%
higher/lower throughout 2021 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 2023. 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 corporate-operated
profits and franchisee 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 $ $ $
$
2021
Payables 4,194,030 - - 4,194,030
Lease liabilities 607,899 553,980 2,048,288 3,210,167
Borrowings 1,092,915 1,070,786 6,128,605 8,292,306
Deferred consideration 4,558,239 936,424 8,220,613 13,715,276
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
Interest expected to be paid on liabilities are shown in the table below
0-6 months 6-12 months >12 months Total
Group $ $ $
$
2021
Payables - - - -
Lease liabilities 79,609 80,041 250,157 409,807
Borrowings 220,481 277,735 942,856 1,441,072
Deferred consideration 365,666 304,101 646,268 1,316,034
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 borrowings Short-term borrowings Lease Liabilities Total
$ $ $ $
At 1 January 2021 5,848,261 2,941,610 1,763,433 10,553,304
Cash flows
- Repayment (1,827,765) - (1,448,594) (3,276,359)
- Proceeds 3,200,000 - - 3,200,000
Non-cash
- New Leases - - 2,895,328 2,895,328
- PPP loan forgiveness (420,031) (1,449,769) - (1,869,800)
- Reclassification (671,860) 671,860 - -
As at 31 December 2021 6,128,605 2,163,701 3,210,167 11,502,473
Long-term borrowings Short-term borrowings Lease Liabilities Total
$ $ $ $
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 2020 5,848,261 2,941,610 1,763,433 10,553,304
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 in active markets Significant observable inputs Significant unobservable inputs
Total (Level 1) (Level 2) (Level 3)
Assets measured at fair value Date of valuation $000 $000 $000 $000
Listed equity investments
SEEEN investment 31 1,185 1,185 - -
December 2021
SEEEN investment 31 1,564 1,564 - -
December 2020
To estimate fair value, the lower end of the bid-offer spread as at 31
December 2021 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 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 23, 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 $18,937
and $18,062 for the years December 31, 2021 and 2020, respectively. The
guarantee fee expense for the PSS guarantee amounted to $67,000 and $38,219
for the years ended December 31, 2021 and 2020, respectively. During 2021 the
Company paid expenses on behalf of PSS in the amount of $54,374. The related
receivable/prepaid balance remaining is $331,106 and $325,195 at December 31,
2021 and 2020, respectively.
During the year, the Company had the following transactions with its
subsidiary companies:
Water Intelligence International Limited $
Balance at 31 December 2020 3,049,570
Net loans to subsidiary -
Other expenses recharged and exchange differences 1,620,796
Balance at 31 December 2021 4,670,366
ALDHC $
Balance at 31 December 2020 -
Loans prepaid by WI capital raise -
Balance at 31 December 2021 -
ALD Inc. $
Balance at 31 December 2020 4,019,000
Loans incurred due to WI capital raise 19,205,100
Loans paid to WI -
Other expenses recharged and exchange differences 46,552
Balance at 31 December 2021 23,270,653
27 Subsequent events
On 19 January 2022, the Group announced the reacquisition of its Fort Worth,
Texas franchise territory within the Group's ALD franchise business. The
Fort Worth operation is fast-growing and expected to accelerate further by
adding new service locations in north and west Texas during 2022. Moreover,
this reacquisition reinforces the Group's strategy of establishing regional
corporate hubs in the US that have scale to fuel growth in nearby corporate
and franchise locations. The purchase price of $7.7 million in cash is to be
paid over three years.. The purchase price is based on 2021 pro forma of $3.6
million in revenue and $1.2 million in profit before tax.
On 3 February 2022, the Group announced the sale of certain territory in rural
North Carolina to an existing, fast-growing franchisee of American Leak
Detection (ALD). The purchase price for the territory is $90,000, all of
which is recognised as revenue at 100% profit margin. It is also expected that
the franchise owner will be purchasing additional equipment from ALD to launch
service vehicles to develop the territory. Finally, the commercialization of
such "greenfield" territory will also add royalty income to the Group's ALD
business unit during 2022.
On 7 April 2022, the Group announced the expansion of its acquisition line of
credit to include an additional $15 million for further acquisitions of its
franchises. As part of the facility, the Group entered into swap arrangements
that maintain a fixed interest rate of approximately 5.5% on amounts drawn
under the facility and are amortised over a term of five years. The covenants
and guarantee requirements for the new facility remain the same all other
credit facilities with People's Bank, now operating post-acquisition as part
of M&T Bank.
On 12 May 2022, the Group announced the reacquisition of its American Leak
Detection Central Texas franchise. The franchise includes the cities of
Abilene, Lubbock and Midland which are west of recently launched
corporate-operated locations of Fort Worth (via franchise acquisition) and
Wichita Falls (greenfield). The purchase price of $0.75 million in cash is
based on the franchise's 2021 Statement of Income of $0.65 million in revenue
and $0.21 million in profit before tax.
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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