REG - Water Intelligence - Audited Results for Year Ended 31 December 2023
27/06/2024 07:00
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RNS Number : 0633U Water Intelligence PLC 27 June 2024
Audited Results for Year Ended 31 December 2023
Strong EPS Growth
Water Intelligence plc (AIM: WATR.L) ("Water Intelligence" or the "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 2023.
2023 and YTD to May Overview
Water Intelligence continues to perform strongly despite high interest rates
and persistent inflation. For 2023, revenue increased, margins improved and,
as a result, basic earnings per share grew by 23% and fully diluted earnings
per share by 29%. EPS Adjusted yielded essentially the same percentage
increases.
During 2023 and 1H 2024, prior investments in proprietary new offerings have
begun to yield commercial results feeding additional future growth streams.
The Group's balance sheet remains strong providing financial resources to
execute its long-term "Build and Buy" growth plan. Market demand for the
Group's minimally invasive leak detection and repair solutions remains strong
reinforced by increased public sector spending forecast in US and EU for aging
water and wastewater infrastructure.
In terms of market capture, 2023 Network Sales (direct corporate sales and
indirect gross sales to third parties from which franchise royalty is derived)
grew 3% to approximately $170 million.
Financial Performance
2023
· Group Revenue grows by 7% to $76 million (2022: $71.3 million)
American Leak Detection subsidiary
o Franchise royalty remained at $6.7 million (2022: $6.7 million) (without
franchise acquisitions reducing pool of royalty income, franchise royalty
would have grown 3%)
o Franchise Related Activities (including insurance channel) grow by 6% to
$11.2 million (2022: $10.6 million)
o US Corporate locations grow by 7% to $50.5 million (2022: $47.3 million)
o US same store sales grow by 1% to $47 million (2022: $46.7 million)
Water Intelligence International subsidiary
o International corporate locations grow by 14% to $7.6 million (2022: $6.7
million)
· EBITDA Adjusted** grows by 9% to $13.4 million (2022: $12.4 million)
o EBITDA Adjusted margins grow to 17.7% (2022: 17.3%)
· Statutory EBITDA grows by 7% to $11.8 million (2022: $11.1 million)
· PBT Adjusted** grows by 12% to $8.7 million (2021: $7.8 million)
o PBT Adjusted margins grow to 11.5% (2022: 10.9%)
· Statutory PBT grows by 13% to $6.2 million (2022: $5.5 million)
· Basic EPS grows by 23% to 25.3 cents (2022: 20.5 cents)
o Basic EPS Adjusted grows by 23% to 36 cents (2022: 29.3 cents)
· Fully diluted EPS grows by 29% to 24.7 cents (2022: 19.2 cents)
o Fully diluted EPS Adjusted grows by 28% to 35 cents (2022: 27.4 cents)
** EBITDA Adjusted and PBT Adjusted all adjusted for non-core costs and
non-cash expense of share-based payments; PBT Adjusted also adjusted for
non-cash expense of amortization.
· Balance Sheet at 31 December 2023
o Cash at $15.8 million
o Cash net of bank debt at $1.3 million
o Cash net of bank debt and deferred franchise acquisition payments $(7.0)
million
o Total Net Debt to EBITDA Adjusted Ratio: 0.53
2023 Corporate Development:
o Expansion of Acquisition Credit Facilities (additional $5 million
available at a capped interest rate of approximately 8% through 2028 with
interest rates to adjust lower if market rate falls)
o Franchise Acquisitions: Nashville, Tennessee; Covina, California
o Salesforce and related web applications continue to be developed and
implemented across all US locations (automating all aspects of workflow:
scheduling and delivery; marketing follow-up; e-commerce; highest level of
data security in Salesforce Cloud)
o New Service Offerings developed and commercialized: Municipal and
Residential Pulse (sewer diagnostic tools); Municipal LS1 (snapshot survey
tool) and Ditch Lining Water Management product installation in Avon, Colorado
o Building of new state of the art training facility in Bridgeport,
Connecticut to train more technicians and host more R&D, especially for
insurance-related products
YTD through May 2024
· Group financial performance, as communicated in the Q1 Trading
Update, continues to grow revenue and profits consistently
· Balance Sheet strong as at 31 May with Cash of $10.1 million and
Total Net Debt to EBITDA Adjusted Ratio of 0.79
· Group has available cash resources for further Corporate Development
to accelerate growth
o Acquisitions in Pittsburgh, Pennsylvania and Fresno, California will add
to 2H
o Sale of new franchise in Albany, New York
o Outstanding Performance Results for VersaLiner Product after 6 month
deployment
o State of the Art Bridgeport Training Facility to go live 1 July
Commenting on the Group's performance, Executive Chairman, Dr. Patrick DeSouza
remarked:
"We are performing well despite macroeconomic headwinds in terms of high
interest rates and persistent inflation. In this environment, we are
especially pleased to grow our profit margins and earnings per share. Market
demand for our minimally-invasive leak detection and repair solutions remains
strong given increasing customer problems with aging infrastructure and
anomalous weather conditions from climate change such as droughts and freezes.
With our consistent ability to grow cash from operations and our strong
balance sheet, we have the resources to execute an exciting growth plan for
our competitive strategy. We continue to invest confidently in that growth
plan and are enthusiastic about new offerings for our customers which are all
showing high performance data.
We discuss the direction of our capital allocation for 2024 and beyond more
fully in the Chairman's Statement. As part of such discussion, we underscore
our EPS growth and value of our shares. As always, we appreciate the support
of our stakeholders in furthering our mission of preserving the world's most
precious resource."
Enquiries:
Water Intelligence plc
Patrick DeSouza, Executive Chairman
Tel: +1 203 654 5426
Laura Bass, Director of Strategic Finance
Tel: +1 203 584-8240
Grant Thornton UK LLP - Nominated Adviser Tel:+44 (0)20
7383 5100
Philip Secrett
Harrison Clarke
Ciara Donnelly
RBC Capital Markets - Joint Broker
Tel: +44 (0)207 653 4000
Jill Li
Elizabeth Evans
Daniel Saveski
Dowgate Capital Ltd - Joint Broker
Tel: +44 (0)20 3903 7721
Stephen Norcross
Chairman's Statement
Overview
At our annual Convention this coming October, we will be celebrating an
important milestone: the fiftieth birthday of our core business - American
Leak Detection (ALD). ALD pioneered the use of technology to pinpoint water
leaks so that minimally-invasive solutions might be provided for customers.
What is remarkable is not just that our business has stood the test of time,
growing year after year, but also that our best days are still ahead as we
launch the next phase of our corporate growth trajectory. Our sustained
financial performance in growing profits and earnings per share and our strong
balance sheet reinforce our confidence in our strategic growth plan. Below
we discuss the direction of our capital allocation in realizing increased
shareholder value.
Market demand for minimally invasive water solutions is only increasing,
driven by water scarcity and deteriorating water infrastructure. We are
well-positioned to capture such demand for Our Next 50 - the theme of the
Convention - because of our current set of offerings and also because of new
service offerings emerging from various investments that we have made in
proprietary technology. These new business lines will reinforce our organic
growth going forward as we market the solutions more widely through the rest
of 2024 and 2025. We are energized by the opportunities to extend our
brand as a trusted partner for our customers by handling more of their
water-related infrastructure problems.
Towards the Next 50. Water Intelligence remains a growth company. As part
of our communication efforts to launch the Next 50, we are refreshing our
Group websites and using a new "video moments" technology to highlight our
forward-looking opportunities and how we plan to seize them for our
shareholders and partners.
We have a strong fifty-year track record of Build and Buy, investing in and
digesting new opportunities to scale our business. ALD began its corporate
journey fifty years ago in a narrow fashion by deploying proprietary acoustic
technologies for residential pipes and swimming pools in the US. Today, we
have a much more developed story. Water Intelligence, after merging with ALD
in 2010, through both organic growth and selective acquisitions, has built a
multinational platform with a broad range of offerings for the home, for
commercial properties and for municipalities addressing various clean water
and wastewater-related issues.
To illustrate: In the UK, after acquiring Water Intelligence International
(WII) in 2016, IP assets from Reese Group (UK) in 2018 and Water Save Ltd (UK)
in 2021, the Group extended its proprietary solutions to include wastewater
solutions for larger diameter pipes covering commercial properties and
municipal infrastructure. Today WII cross-sells a range of solutions to our
ALD customers across geographies. As the Group continues to scale - now 150+
ALD locations across 46 states of the US with both corporate and franchise
locations - we have successfully enhanced ALD's market capture by establishing
national channels with insurance companies, property management and
municipalities. Created by acquisition and strong follow-on execution, WII
is contributing additional offerings for our core ALD business, particularly
with respect to municipal customers. Our investment in a Salesforce.com
customer relationship management software enables us to generate significant
data for these national customers in terms of our service level agreements.
Our Group's network sales (gross sales directly from corporate locations and
indirectly from franchisee gross sales under our ALD brand) are approaching
$185 million.
Our Build and Buy" approach to digesting such new opportunities remains
consistent: We prudently balance bedrock principles, such as delivering
quality customer service for our offerings, with the rapid pace of adding new
business lines based on emerging technologies or adding new geographies given
the global nature of water infrastructure problems. In executing this
approach, we seek to leverage our key competitive attribute of an installed
base of operating locations across 46 states of the US and in the UK, Canada
and Australia. Our installed base enables us to lend support to neighboring
operating locations and to maintain quality should the need arise. Moreover,
the growth of our installed based with new business lines and new geographies
reinforces our ultimate strategic goal of becoming a multinational
distribution platform or a "one stop shop" that can handle all of our
customer's water-related needs. As a distribution platform, we are defining
our brand by promoting "continuous customer engagement" as a trusted partner
instead of being a "one and done" vendor. Companies that provide such
continuous engagement are valued highly.
In thinking about the Next 50, we remain passionate about our core mission -
preserving the world's most precious resource. Over time, however, in keeping
with our evolving corporate development, we have extended our mission beyond
water savings to include the public health dimension of water with new
technology-based solutions for wastewater blockages and storm water run-off
into clean water channels. In pursuing our corporate mission, we are mindful
of the public good given the importance of water to all communities. For
example, in prior years we focused just on the US and worked in places such as
Flint, Michigan where we provided solutions for lead in the water. During
2023 and now in 2024, we have broadened our horizons and contributed both time
and resources to a non-profit organization building wells and water
infrastructure for villages in India. It is our sense of mission and belief
in quality of service as a trusted partner, even as we pursue growth, that
sets our brand apart.
Financial Overview for 2023. In executing our competitive strategy, we
continue to remain on a consistent upward trajectory in terms of performance.
For 2023, Group revenue increased 7% to $76 million (2022: $71.3 million).
EBITDA Adjusted (earnings before interest, taxes, depreciation and
amortization adjusted for non-cash and non-recurring costs) grew by 9% to
$13.4 million (2022: $12.4 million). Profit before Tax Adjusted (adjusted
for non-cash, non-recurring costs and amortization) grew 12% to $8.7 million
(2022: $7.8 million). Margins improved despite persistent inflation in the
United States: Adjusted EBITDA margins increased to 17.7% (2022: 17.3%).
Adjusted PBT margins increased to 11.5% (2022: 10.9%).
Our financial performance translated into increasing shareholder value.
Statutory profit before tax (PBT) grew 13% to $6.2 million (2022: $5.5
million). As a result, statutory basic earnings per share (EPS) grew 23% to
25.3 cents (2022: 20.5 cents) and fully diluted EPS grew 29% to 24.7 cents
(2022: 19.2 cents). Hence our operating foundation is delivering for our
shareholders.
Our operating performance reinforces our consistent growth path. In reflecting
upon our trailing five-year cycle, our compounded annual growth rate from 2018
to 2023 - across volatility induced by Covid and stagflation - has remained
strong with +24% growth in terms of revenue and +29% growth in terms of profit
before tax.
Financial Performance and KPIs. Four KPIs, identified below, reflect our
execution through franchise-operated and corporate-operated locations.
Our franchise System sales continue to grow despite the number of
reacquisitions of franchise locations during 2022 and 2023 which reduces the
pool of franchisee sales. KPI #1 - ALD royalty income - is a proxy for
System-wide franchise sales. Franchise royalty remained at $6.7 million
(2022: $6.7 million). Had those same locations remained as franchises instead
of being converted to corporate stores, royalty income would have grown by
3%. KPI #2 - Franchise-related Activity - measures Group support of
franchise growth through the sale of equipment and additional territory and
the development of channel sales such as insurance. Franchise-related Activity
grew 6% to $11.2 million (2022: $10.6 million).
Our corporate operations also grew both in the US and internationally even
after one adjusts for franchise reacquisitions. KPI #3 - US Corporate sales
- grew 7% to $50.5 million (2022: $47.3 million). If we exclude those
acquired locations in 2022 and 2023 and just consider "same store" corporate
sales, same store locations grew modestly by 1% to $47 million (2022: $46.7
million). KPI #4 - International Corporate sales - grew by 14% to $7.6
million (2022: $6.7 million). International sales are led by our wholly-owned
subsidiary Water Intelligence International (WII). WII, though smaller today
than ALD in terms of sales, is leading the way in new product development,
commercializing our wastewater solutions technology with UK water utilities.
Market capture of the demand for wastewater solutions is expected to grow
strongly in the US in 2025 especially as we commercialize our proprietary
technology for the residential market.
Capital Allocation and the "Next 50". Our balance sheet is strong and
supports our reinvestment to sustain our growth trajectory and to increase
market share. Cash on our balance sheet at year-end was $15.8 million with
significant untapped credit capacity indicated by a Total Net Debt to EBITDA
Adjusted Ratio of 0.53.
As noted above, our Build and Buy plan for our Next 50 reflects both the
success of our historic approach to corporate development as well as our
strategic vision. As discussed, we have two criteria for our investments:
first, balance the importance of core values such as quality of service and
product delivery with rapid additions of new business lines; and second,
leverage our installed base of 150+ locations to mitigate against execution
risk and transform our business model into a distribution platform that
focuses on continuous customer engagement with the over 200,000 customers
annually that we reach from these locations. Our vision carries with it a
higher equity multiple.
Four Groups of Investments. We have four groups of investments which
metaphorically form a simple "layer cake" for ALD's 50(th) birthday.
Allocation of capital decisions around these four groups reflect the two
principles cited above and seeks to manage risk by building on what we already
execute well.
The first group of investment represents the foundational and broadest level
of any layer cake - straight-forward organic growth by adding more trucks and
trained technicians to capture increasing market demand for the offerings that
we already have in place. We need to scale these operations in an efficient
way. We have already made significant investments for these purposes so
there is little additional need for heavy lifting in terms of new
investment.
Since 2H 2023, we have been building a state-of-the-art training center in
Bridgeport, Connecticut. This location was chosen because many of the
national insurance companies have headquarters in the northeast corridor of
the US. A showcase center would not only distinguish us for our current
national customers but would also be helpful in gaining new partnerships. Our
Bridgeport Center is outfitted with examples of all types of water and
wastewater leaks for any size pipe - residential, commercial, municipal. As
a result, we can train more technicians from around the country for various
situations that their respective geography faces. The training center will be
live on 1 July. Our Center will also leverage video moments technology to
speed up training in the classroom and on the job. Finally, for this
foundational layer of organic growth, we have also invested significant sums
already in Salesforce customer management software and related applications.
This operating system is currently being used by our corporate locations and
both franchise and corporate locations for our insurance channel. We will
complete System-wide adoption by year-end. We will then evaluate any
incremental new investment to further enhance our execution platform.
The second group of investment, in building upon our foundation layer,
represents organic growth of a different kind: new proprietary service
offerings that leverage investments that we have made in technologies. Below
we describe our ready-to-go new products: LeakVue 2; Pulse; Leak Survey 1
and VersaLiner. We have tested extensively new service offerings associated
with these products with outstanding results. We now look forward to
rolling-out these solutions with their accompanying "go to market" investments
such as manufacturing and marketing (of course, producing accompanying sales
and profits).
To start, we have invested in upgrading our devices for detecting "hard to
find leaks" in swimming pools, an area in which ALD has been focused since its
beginning. Swimming pools, especially those with water features, are more
complicated than customers realize after making a significant investment. We
have upgraded our patented LeakVue device to extract more data quicker and
more accurately from larger swimming pools. With our device, we can solve
difficult problems quickly enabling us to achieve more volume by the same
technician but also to maintain our pricing. We have begun training all of
our locations in the use of the technology and will be setting up partnerships
with national pool service companies.
Further, we have beta tested in various communities a proprietary product
called Pulse for pinpointing residential wastewater blockages much faster than
conventional means. In this case, we would be creating a new service offering
that addresses the needs expressed by our residential customers and by
warranty companies that sell monthly subscriptions to homeowners. We see high
demand for our Pulse residential solution based on sales traction from a
different version of Pulse that generates sales and profits from municipal
customers in the UK and EU.
Moreover, building on the current success of Pulse for municipal customers, we
have designed a derivative product from the intellectual property that
municipalities can use for quick water surveys for their respective
infrastructure networks. Provisionally named Leak Survey 1 or LS1, the product
enables junior staff to execute a survey rapidly and to extract significant
relevant data about the water or wastewater network. The product is geared to
lower the labor costs for municipal survey work.
Finally, we have developed a technology solution - VersaLiner - for open
channel water conveyance. This product is different from LeakVue 2, Pulse
and LS1 because it is not building on current offerings but rather is a new
offering that broadens our base of customers around the world both in
agribusiness and municipalities. We executed our first commercial job with
VersaLiner in Q4 2023 in Avon, Colorado. Our customer and partners wanted to
see performance data after one winter/spring cycle of the ground thawing and
moving. On 10 June 2024, as a Subsequent Event, we released outstanding
performance results from the first commercial job for our patented water
management technology. We will be teaming up with various large-scale
contractors and distribution partners. The capital expenditure required would
be to create additional tooling to increase the range of open channel
solutions. To reiterate, with respect to each of these four products, we have
laid the groundwork for our return-on-investment calculation by testing it
with customers and making early sales before we roll them out.
Our third group of investments or third level of our metaphorical layer cake
focuses on growth by acquisition; an activity that has been part of our growth
plan. Over the years, we have acquired ALD franchisees and converted them into
corporate locations to enhance our ability to grow. We have also acquired
third parties such as Water Intelligence International and Water Save to build
out our UK presence. Importantly, in each of the areas of acquisition, we
have gained integration experience so that we may be able to execute
operations efficiently post-transaction across geographies and groups of
customers. In doing so, we can ensure quality of service delivery and have
confidence in an acquisition-led growth component.
With respect to our ALD franchisees, currently, there is approximately $100
million in gross sales to third parties represented by royalty income. Both
franchise locations and corporate locations operate under the same brand and
all have similarly trained technicians, marketing and operations. For our
customers there is no difference between corporate and franchise service
delivery. As a result, with these acquisitions, we are able to integrate
operations rapidly. In 2023 and 1H 2024, we have continued to execute
franchise acquisitions.
However, to be clear with respect to capital allocation, we value and want to
grow our franchise System. Our strategy is to create a virtuous cycle where
we acquire a territory, perhaps split the territory for greater coverage and
incentivize new franchisees to build territories and reap the rewards. While
our priority to date has been acquiring franchises, now that there is a blend
of corporate and franchise locations throughout the US to provide operational
support for growth, we will begin again to also sell new franchises and
reestablish a cycle of franchise development and royalty growth. During 1H
2024 as a Subsequent Event, we sold a new franchise in Albany, New York. We
have been experiencing increasing demand for purchasing franchise territories
as potential franchisees see a track record of franchisees growing a territory
and then achieving an exit value for their asset.
Beyond franchisees, we have used acquisitions of third parties to deepen our
service offerings not only for Water Intelligence International, as noted
above, but also for ALD. Over the last few years, we have both hired
plumbers and acquired plumbing companies to extend our capabilities from leak
detection to repair. In addition, as an offshoot to acquiring franchisees
and plumbing companies, increasingly we have the opportunity to acquire
product companies that need sales channels. With our installed base of
locations and customers and national channels, we have the opportunity to
create the distribution platform with continuous customer engagement that is
at the heart of our strategic vision. To be sure, given our prior investment
in video commerce technology that we can leverage for customer engagement, we
are more likely to set up reseller agreements rather than acquire product
companies.
Fourth, at the very top of this conceptual layer cake, are our shareholders.
Over the years, we have grown earnings per share for all shareholders with
minimal dilution. 2023 was no different. As noted above, fully diluted EPS
grew by 29% (2023: 24.7 cents vs. 2022: 19.2 cents. With our consistent
growth trajectory and our ability to put significant free cash flow to work,
our shareholders may be concerned that the share price does not trade at
levels that reflect either EPS growth or fair value. Hence, one use of capital
for which we will be seeking regulatory approval and asking our shareholders
for authorization is to repurchase some of our shares and provide liquidity
for our shareholders.
Direction
We are optimistic about the Next 50. We have a Build and Buy growth plan and
available capital that enables us to leverage our installed base of operations
and customers. Our execution experience over the Last 50 encourages both
organic growth by adding service teams and offerings, as well as acquisitions
and integration of operations. As part of our journey, we also have
experience with investing and commercializing new technologies to further
define our brand as a trusted partner with fresh solutions.
Most importantly, we remain passionate about our mission to preserve the
world's most precious resource. We will confidently put capital to work to
launch the Next 50 and thus realize the full value of our strategic vision of
a distribution platform that brings to our customers various solutions for
water-related infrastructure.
Dr. Patrick DeSouza
Executive Chairman
Strategic Report
Business Review and Key Performance Indicators
The Chairman's Statement provides an overview of the year and an outlook for
Water Intelligence plc and its subsidiaries, together referred to as the
"Group". The business indicators offered below are meant to capture for the
Board not only the state of performance but also the evolution of our business
model as a platform company with multiple sales channels. As a "One-stop Shop"
for our growing base of customers, we offer a matrix of clean water and
waste-water solutions for residential, commercial and municipal infrastructure
problems. With such offerings, we can both cross-sell services from different
business units or up-sell technology products from partners.
The Water Intelligence platform has two wholly-owned subsidiaries: American
Leak Detection (ALD) and Water Intelligence International (WII). These
business units generated approximately $170 million of gross sales to
third-parties during 2023 (both direct sales provided by corporate locations
and indirect sales provided by franchisees from which royalty income is
derived). The two subsidiaries are distinguished by the degree of
franchise-operated and corporate-operated locations and their respective
priorities with respect to residential, business-to-business and municipal
customers.
ALD, our core business, is largely a franchise business with strategic
corporate-operated locations. ALD is a leader in using technology to
pinpoint and repair water leaks without destruction. Solutions target both
residential and business-to-business customers, such as insurance companies,
which value our "minimally invasive" value proposition. During 2023 ALD
generated approximately $162 million of gross sales to end-users. That
critical mass of gross sales is derived both from direct sales via
corporate-operated locations and indirect sales measured by royalty income
from franchisees.
WII, our international-based operation, focuses on municipal solutions to the
worldwide problem of failing water infrastructure. During 2023 WII generated
approximately $7.6 million of sales to customers. Like ALD, WII's solutions
are also technology-based. WII is exclusively a corporate-run unit that leads
the Group's international expansion. WII does have the capability to execute
ALD service offerings and is currently doing so at our corporate-operated
locations in Australia. WII also cross-sells complementary municipal offerings
and residential wastewater solutions to ALD customers in the US.
The Group's business model and growth strategy is evaluated through key
performance indicators (KPIs). The KPIs capture both corporate-operated and
franchise-operated organic growth from ALD and WII solutions. They also
capture acquisition-led growth, especially by selectively converting ALD
franchises into corporate-operated locations. Such re-acquisitions of
franchisee operations enable some amount of the approximately $100 million in
highly profitable franchisee gross sales to end-users, currently recorded as
royalty income, to be converted to the Group's direct Statement of Income.
In evaluating such acquisition-led growth, it is also important to separate
continuing operating costs from non-recurring costs or transaction costs.
Finally, we have a KPI that provides guidance as to the availability of
capital to execute our growth plan. Because of the monthly recurring royalty
income from the franchise business, the Group is able to be efficient in its
capital formation by mixing in non-dilutive bank debt. As a result, the
Group manages to the right balance in capital formation between debt and
equity by monitoring the level of bank borrowings.
Six key performance indicators (KPIs) are used by the Board to monitor the
above described business model: (i) growth in ALD franchise royalty income,
(ii) growth in ALD franchise-related activities that include both business to
business sales and sales of parts and equipment, (iii) growth in ALD
corporate-operated locations in the United States, (iv) growth in WII
corporate activities located outside the United States, (v) non-core costs and
(vi) net borrowings from banks which are subject to financial covenants. These
six indicators are reported to the Board and used to assist the Board in the
management of the business.
Evaluation of Strategic Plan Drawn From 6 KPIs:
i. Royalty income is a measure of the health of the ALD franchise System
which represents the majority of gross sales under the ALD brand. The change
in royalty income must be evaluated against the number of franchise
reacquisitions in any given year which reduces the pool of available royalty
income for the subsequent year.
ii. Franchise-related Activities are a measure of the services and
products sold by Corporate to its franchises to fuel growth in the franchise
System. ALD's Business-to-Business Channel leverages for customers our
national execution presence under one brand and is led by insurance companies.
iii. ALD Corporate-operated locations add to critical mass of Group
revenue and profits. Selective reacquisitions from our franchise System
further unlock equity value for the Group in two ways. First, reacquisitions
set up corporate regional hubs from which corporate may help grow both
franchise and corporate units. Second, reacquisitions add growing revenue
and profits directly onto the accounts of the Group.
iv. WII complements our ALD brand which is focused largely on residential
and commercial customers, by contributing municipal sales to the Group's
overall sales presence in the US and international geographies.
v. Non-core costs (transactions costs and non-recurring costs) should be
taken into account in evaluating on-going operating performance.
vi. Credit facilities enable the Group to fuel expansion and preserve
shareholder equity. Because of the quality of monthly recurring royalty
income, the Group is attractive to banks enabling the Group to optimize
capital formation.
(i) Franchise Royalty Income.
ALD receives royalty income from franchisees based on a percentage of gross
sales to third parties. During 2023 approximately $100 million of such gross
sales may be attributed to the franchise System. The Group derived
approximately $6.7 million in royalty income from such gross sales. There are
currently 78 franchises operating in over 100 locations across 46 states of
the US, with additional locations in Australia and Canada. Some franchisees
operate multiple locations in their territory.
Part of the Group's growth strategy to unlock shareholder value by selectively
reacquiring franchises and operating the business as a corporate location. By
executing such conversions, the Group is trading off a portion of the pool of
available royalty income to directly aggregate and grow the underlying revenue
and profits from those locations. Royalty income in 2023 remained constant in
comparison with 2022. It is important to note that this is attributable to a
number of reacquisitions during 2022 which had the effect of reducing the
eligible pool of royalty income for 2023. Without such reacquisitions in 2022,
royalty income would have grown 3% indicating that on a like-for-like basis
the franchise System is still growing, driven especially by the growth of the
insurance channel noted in KPI #2.
Performance from royalty income is as follows:
Year ended Year ended Change
31 December 2023
31 December 2022
%
$'000
$'000
Total USA 6,638 6,637 0%
International 101 110 (9)%
Total Group Royalty Income 6,739 6,747 0%
Profit before tax (see note 4) 2,156 1,957
10%
(ii) Franchise-related Activities.
US franchise-related activities capture what Corporate Administration
("Corporate") does to grow the franchise System. It is also one indication of
the reinvestment of franchisees in the Group's growth plan.
Parts and equipment sold to franchisees by Corporate enables franchisees to
further grow their respective operations.
Business-to-Business channels, such as insurance, capture the market demands
of national customers. These customers place significant value on ALD's
nationwide brand, service standardization and delivery footprint - an
important aspect of competitive strategy when one considers that the market
for service providers is fragmented. Jobs for franchisees are sourced by
Corporate from insurance companies using a centralized processing system.
Important to note is that national channel jobs executed by Corporate
locations are not counted in the Group's Business-to-Business sales. Hence
the 6% growth of Business-to-Business sales understates the contribution of
insurance relationships for Network Sales.
Finally, Sales of Franchise Units represent the decision to develop a new
territory through a franchisee as opposed to corporate operations. It should
be noted that the Group's current priority is to add corporate-operated
locations as opposed to franchisee-operated locations. Given the rising
value of franchise territory because of franchise reacquisitions, demand for
additional territory is rising among franchisees. The Group reviews annually
its priority on establishing new corporate locations as opposed to selling new
franchise territories.
Revenue from franchise-related activities in 2023 grew by 5% compared to 2022
largely because of the growth of the Group's business-to-business channel.
Profits before tax decreased 4% in 2023 compared with 2022 largely because of
the high margin surrounding the sale of franchise territory in 2022.
Performance from franchise-related activities are as follows:
Year ended Year ended Change
31 December 2023
31 December 2022
%
$'000
$'000
Parts and equipment sales 670 668 0%
Business-to-Business sales 10,480 9,893 6%
Sales of Franchise Units 13 63 (79)%
Total Revenue Franchise Activities 11,163 10,624 5%
Profit before tax (see note 4) 925 965 (4)%
(iii) US Corporate Operated Locations (ALD).
Corporate-run locations, both greenfield and initiated after reacquisition of
franchise locations, contribute revenue and profits to the Group. In
addition, such operations also support the franchise System with strategy,
marketing and execution support in further developing territories. Performance
of US corporate-run locations after reacquisition is also an indication of the
success of the Group's strategy to capture more market demand for our
minimally invasive leak detection and repair solutions. The Group directly
operates 44 locations, an increase of 3 locations (2022: 41).
As set forth below, ALD Corporate-operated revenue grew 7% to $50.5 million
(2022: $47.3 million). Meanwhile profits before tax increased by 2% to a $8.4
million (2022: $8.2 million). Revenue and profit growth was adversely
affected by the sharp rise in US interest rates leading to write-offs with
respect to the new construction market. $325,000 of non-recurring costs are
identified in the table of Non-core Costs below. However, there were
additional expense amounts not placed in non-core costs because we do expect
the housing market to rebound and we have kept some staff available.
Much like the pro forma adjustment for royalty income in KPI #1 based on the
number of franchisees reacquired in the prior year, so also we can separate
out corporate locations owned prior to January 2022 so that a comparison may
be made for "same store sales" as a measure of organic growth post franchise
reacquisition. Corporate-operated "same store" revenue grew 1% to $47
million (2022: $46.6 million) and profit before tax decreased 1% to $8 million
(2022: $8.1 million). See above for adverse effect of write-offs in the new
construction market.
Performance from corporate-operated locations is as follows:
Year ended Year ended Change
31 December 2023
31 December 2022
%
$'000
$'000
Revenue 50,460 47,297 7%
Locations owned prior to 1 January 2022 46,999 46,654 1%
Profit before tax (see note 4) 8,412 8,253 2%
Locations owned prior to 1 January 2022 7,950 8,053 (1)%
(iv) International Corporate Operated Locations (WII)
The Group continues to strengthen its multinational presence through its
UK-based WII subsidiary. WII focuses largely on municipal solutions while
maintaining core residential and commercial offerings. In the UK, WII executes
municipal work for all major utilities and residential and commercial projects
through its Wat-er-Save subsidiary. In this way, WII has multinational
operating scope by managing corporate locations established in Australia and
Ontario, Canada after ALD franchisee reacquisitions.
WII sales grew 14% during 2023 to $7.6 million. (2022: $6.7 million) and
profits increased by 418% to $0.44 million (2022: $0.09 million). Much of
the increase in profits is attributable Wat-er-Save Services Limited which
encourages the Group to increase ALD residential and commercial offerings in
the UK.
Performance from Water Intelligence International is as follows:
Year ended Year ended Change
31 December 2023
31 December 2022
%
$'000
$'000
UK 3,952 3,437 15%
Australia 2,611 2,038 28%
Canada 1,050 1,191 (12)%
Total Revenue from International Corporate Activities 7,613 6,666 14%
Profit before tax (see note 4) 443 86 418%
(v) Non-Core Costs.
During 2023, the Group incurred non-core costs relating to transactions or
non-recurring expenses. As discussed herein, understanding non-core costs, as
distinct from continuing operating costs, helps the Board evaluate capital
allocation choices made to accelerate operations organically and to scale
through acquisition. In 2023, there were $1,069,00 of non-core costs (2022:
$840,000). The increase in non-core costs was entirely the result of the
sharp rise in US interest rates stopping new construction and leading to
write-offs.
Please see table below for details:
Year ended Year ended
31 December 2023 31 December 2022
$'000 $'000
New construction industry related costs 325 -
Technology upgrades 368 450
Transaction-related legal and other costs 376 243
Australian flood conditions - 147
Total 1,069 840
(vi) Net Bank Borrowings.
Management of financial resources is important for making various decisions
regarding the reinvestment rate for the growth of operations. As noted
herein, the monthly recurring income from franchise royalty provides the Group
with attractive attributes for using bank debt to complement equity sources of
capital. The Group's objective for risk management purposes is to be prudent
with respect to bank financial covenants. Net cash after Bank Borrowings is
positive and amortisation of such debt extends through 2028.
Group
Year ended Year ended
31 December
31 December
2023
2022
$'000
$'000
Lines of credit: acquisition and working capital - -
Bank borrowings 14,461 16,425
14,461 16,425
Less: Cash and cash investments
Held in US Dollars 13,512 20,514
Held in £ Sterling 1,479 1,779
Held in CDN Dollars 451 359
Held in AU Dollars 316 362
15,758 23,014
Total Net Bank Borrowings/(Cash) (1,297) (6,589)
Principal Risks and Uncertainties
The Group's objectives, policies and processes for measuring and managing risk
are described in note 23. The principal risks and uncertainties to which the
Group is exposed include:
Foreign Currency Risk
The Group's activities expose it to the financial risk of changes in foreign
currency exchange rates as it undertakes certain transactions denominated in
foreign currencies. There has been no change to the Group's exposure to market
risks. The Group monitors exposure to foreign exchange rate changes on a daily
basis by a daily review of the Group's cash balances in the US, UK, Canada and
Australia.
Interest Rate Risk
The Group's interest rate risk arises from its working capital and term loan
borrowings.
Whilst borrowing issued at variable rates would expose the Group to cash flow
risks, as at year-end, the Company is only subject to a variable rate on its
working capital line of credit. As of the report date, all other credit
facilities in use are at fixed interest rates.
Credit Risk
The Group's credit risk is primarily attributable to its cash and cash
equivalents and trade receivables. The credit risk on other classes of
financial assets is considered insignificant.
Liquidity Risk
The Group manages its liquidity risk primarily through the monitoring of
forecasts and actual cash flows.
Other Risks
There is a risk that existing and new customer relationships and R&D will
not lead to sales growth and increased profits. The Group is reliant on a
small number of skilled managers. The Group is reliant on effective
relationships with its franchisees, especially in the US. Finally, there are
continuing risks given the sharp rise in interest rates during 2023 but the
existence of persistent inflation. The Group is monitoring risks associated
with stagflation or recession for 2024 and 2025.
Corporate Governance statement S172 of the UK's Companies Act
Each director must act in a way that, in good faith, would most likely promote
the success of the Group for the benefit of its stakeholders. The Board of
Directors consider, both individually and together, that they have acted in
the way they consider, in good faith, would be most likely to promote the
success of the company for the benefit of its members as a whole (having
regard to the stakeholders and matters indicated in S172) in the decisions
taken during the year ended 31 December 2023. Following is an overview of how
the Board performed its duties during 2023.
Shareholders and Banking Relationships
The Executive Chairman, Chief Financial Officer, members of the Board and
senior executives on the management team have regular contact with major
shareholders and banking relationships. The Board receives regular updates
on the views of shareholders which are taken into account when the Board makes
its decisions. During March 2022 and December 2023, the Group expanded its
credit facilities. During July and November 2021, the Company raised capital
largely from its current shareholders. The Group received feedback during each
process.
Employees
The Board recognizes the importance of skilled human capital for a technology
and services-led business. The Board works through its human resources
director to provide on-going training and benefits. It also provides
advancement opportunities in its various corporate-operated locations. As
noted herein, the Group has taken a variety of steps to address the COVID-19
pandemic in terms of its employees and stakeholders
Franchisees
The Group holds an annual convention for its franchisees which includes
education and training sessions. During October 2023, the Group held its
annual convention in Charleston, South Carolina. Franchisees have an
Advisory Committee that provides input to the Board with quarterly meetings.
Moreover, two of our Board members, Bobby Knell and Phil Meckley are leaders
in the franchise System.
Customers
ALD has a reputation for high quality service delivery across the United
States for over forty years. Given the importance of our reputation with
customers, especially insurance companies, the Board pays significant levels
of attention to the quality of our service delivery. Management gathers data
that it shares with the Board on customer satisfaction.
Community and Environment
The Group's brand stands for the conservation of water and the importance of
providing solutions to potable and non-potable water leaks. Through our
advertising and marketing the Group seeks to communicate to the public both
the importance of sustainability, particularly with respect to water loss
through leakage, and the importance for public health of remediating sewer
blockages as consumers dispose of sanitary wipes in toilets during Covid-19.
The Group took an active role not only in providing leak detection services to
local government in Flint, Michigan - a community known for its lead in the
water crisis - but also in working to educate community members on the
importance of on-going water monitoring. During 2023, the Group donated to a
non-profit group that is providing water and water infrastructure to rural
villages in India. The Board has also sought to be active with respect to
education and water. During 2019 and 2020, members of the Board have worked
with Columbia University to contribute to its "Year of Water" education
campaign.
By order of the Board
Patrick DeSouza
Executive Chairman
Director's Report
The Directors present their report on the affairs of Water Intelligence plc
and its subsidiaries, referred to as the Group, together with the audited
Financial Statements and Independent Auditors' report for the year ended 31
December 2023.
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 services and product solutions 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.
2023 was marked by sustained and balanced multinational growth for both ALD
and WII. Total revenue for Water Intelligence grew 7% to $76 million (2022:
$71.3 million). ALD revenue grew 6% to $68.4 million (2022: $64.6
million). WII revenue grew 14% to $7.6 million (2022: $6.7 million). The
splits between ALD and WI revenue remained consistent during 2022 when
compared with 2022 with approximately 90% of total revenue attributable to ALD
and 10% of total revenue attributable to WII.
Statutory profit before taxes (PBT) increased by 13% to $6.2 million (2022:
$5.5 million). When profit before taxes is adjusted for amortization, non-cash
share-based payments and non-core costs, PBTA grew 12% to $8.7 million (2022:
$7.8 million). Statutory earnings before interest, taxes and depreciation
(EBITDA) grew 7% to $11.8 million (2022: $11.1 million). When EBITDA is
adjusted for non-cash expenses of share-based payments and non-core or
non-recurring costs, EBITDA Adjusted increased by 9% to $13.4 million (2022:
$12.4 million).
Going Concern
The Directors have prepared a business plan and cash flow forecast for the
period to December 2025. 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 with growth in WII. Moreover, given the Group's
strong cash position at year-end and after oversubscribed capital raises in
2021 and expansion of its credit facilities in December 2023, the Directors
believe that funding will be available on a case-by-case basis for additional
initiatives.
Cash and cash investments at 31 December 2023 was $15.8 million. On 31
December 2023, total debt (borrowings and deferred consideration from
franchise acquisitions) was $22.8 million with amortisation of such amount
through 2028. Meanwhile, operating cash flows (EBITDA) in 2023 increased by 6%
to $11.8 million. Cash on the balance sheet plus an ability to generate
significant cash relative to the amount of debt that comes due in any one year
between 2023 and 2028 are important variables for Director considerations.
Moreover, the Directors consider various scenarios that may influence cash
availability such as inflationary pressures, the threat of recession from
rising interest rates and the use of cash for investments, such as
Salesforce.com and related software applications, geared to create operational
efficiencies that enhance future organic cash generation.
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
technology and technology-based products not pure R&D. Expenditure on pure
research, all of which is undertaken by third parties not related to the
Group, was $0 (2022: $0). The Group has relationships at various leading
universities such as Columbia and Yale to assist with pure research. The Group
remains committed to anticipate market demands and has spent money on product
development during the year which has been capitalised.
Dividends
The Directors do not recommend the payment of a dividend (2022: $nil).
Share Price
On 31 December 2023, the closing market price of Water Intelligence plc
ordinary shares was 405.0 pence. The highest and lowest prices of these shares
during the year to 31 December 2023 were 680.0 pence and 312.0 pence
respectively.
Capital Structure
Details of the authorised and issued share capital are shown in Note 21. No
person has any special rights of control over the Company's share capital and
all issued shares are fully paid.
Future Developments
Future developments are outlined throughout the Chairman's Statement.
Financial Risk Management
Financial risk management is outlined in the principal risks and uncertainties
section of the Strategic Report.
Subsequent Events
On 9 May 2024, the Group announced the reacquisition of its Fresno, California
franchise territory within the Group's ALD franchise business. As Fresno is
located between the Bay Area and Los Angeles in the Central Valley of
California, the reacquisition reinforces the Group's strategy of establishing
regional corporate hubs in the US that fuel growth in adjacent franchise
locations. The cash consideration for the acquisition is $2.9 million based
on 2023 revenue of $1.8 million, adjusted profit before tax of $0.6 million
and the transfer of all operating assets to the Group.
On 9 May 2024, the Group announced the sale of a new franchise for Albany and
Saratoga, New York within the Group's ALD franchise business. Albany and
Saratoga are key cities in upstate New York and comprise part of what is known
as the Capital District of New York. The upfront consideration for launching
this territory is $0.1 million. ALD expects to receive royalty income from
sales starting in July after the completion of training. More broadly, in
terms of ALD's growth strategy, located between this new franchise location in
Albany and ALD's corporate location on the Canadian side of Niagara Falls,
there are several large cities - Buffalo, Syracuse, and Rochester - in upstate
New York around which ALD can deliver future growth, whether through corporate
operations or selling more franchises.
Directors
The Directors who served the Company during the year and up to the date of
this report were as follows:
Executive Directors
Patrick DeSouza - Executive Chairman
Non-Executive Directors
Laura Hills
Bobby Knell
Michael Reisman Retired as of 6 November 2023
C. Daniel Ewell
Phil Meckley Appointed as of 6 November 2023
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
2023
Salary, Fees & Bonus Benefits Total
$ $ $
Executive Directors
P DeSouza 595,000 28,000 623,000
Non-Executive Directors
L Hills - - -
D Ewell - - -
B Knell 40,000 - 40,000
M Reisman (retired 06/11/2023) - - -
P Meckley (appointed 06/11/2023) - - -
635,000 28,000 663,000
* In lieu of cash compensation, to be added to the above table, all of the
directors received a combination of stock options awards and fully paid-up
shares. The value of the options awarded on 7 July 2023 at an exercise price
of $6.35 to all directors in respect of their first half compensation was: P
DeSouza $19.9k, L Hills $19.9K, D Ewell $39.9k, B Knell $19.9k, M Reisman
$19.9. In addition, in relation to their second half payments, as announced on
15 February 2024, certain directors were issued fully paid-up Ordinary Shares
and the value of these Ordinary Shares issued were: P DeSouza $37.5k, L Hills
$37.5K, D Ewell $37.5k, P Meckley $10k.
2022
Salary, Fees & Bonus Benefits Total
$ $ $
Executive Directors
P DeSouza 591,473 - 591,473
Non-Executive Directors
L Hills 49,231 - 49,231
D Ewell - - -
B Knell - - -
M Reisman - - -
640,704 - 640,704
*In lieu of cash compensation, all of the directors were awarded stock options
with an exercise price of $8.18 as announced on 7, February 2023. (See Note 7)
The value of the options is as follows: P DeSouza $56k, L Hills $28k, D
Ewell $28k, B Knell $56k, M Reisman $28k, for a total of $196k.
Directors' interests
The Directors who held office at 31 December 2023 and subsequent to year end
had the following direct interest in the voting rights of the Company at 31
December 2023 and at the date of this report, excluding the shares held by
Plain Sight Systems, Inc.
Number of shares at 31 December 2023 % held at 31 December 2023 Number of shares at 26 June 2024 % held at 26 June 2024
Patrick DeSouza*/** 4,867,110 25.0 4,874,760 25.0
Laura Hills 122,723 0.7 130,373 0.7
Bobby Knell 27,000 0.1 27,000 0.1
Dan Ewell 33,670 0.2 41,320 0.2
Phil Meckley - - 2,050 0.0
*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 report were as follows:
Number of shares % held
Plain Sight Systems, Inc. 2,430,410 12.5
Canaccord Genuity Group Inc. 2,134,432 11.0
Berenberg Asset Management 1,259,992 6.5
George D. Yancopoulos 880,920 4.5
Amati AIM VCT 814,660 4.2
Herald Investment Trust 642,526 3.3
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 U.K. 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 one executive and four
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. Dan Ewell, Bobby Knell and Phil Meckley 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 2023 and 31 December 2023
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 5/6 2/2
Michael Reisman 3/4 2/2 2/2
Dan Ewell 6/6 2/2
Laura Hills 6/6
Phil Meckley 2/2
Board Committees
The Board has established an Audit Committee and a Remuneration Committee with
delegated duties and responsibilities.
(a) Audit Committee
Dan Ewell, Non-Executive Director, is Chairman of the Audit Committee. The
other member of the Committee is Laura Hills. 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
Bobby Knell, Non-Executive Director, is Chairman of the Remuneration
Committee. The other member of the Committee is Laura Hills. 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). He is a graduate of
Columbia College, the Yale Law School and Stanford Graduate School.
Laura Hills, Non-Executive Director
Term of office: Appointed 7 June 2021 as Executive Director but returned to
non-executive director which she originally was appointed since 6 March 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, Independent Non-Executive Director
Term of office: Appointed 7 June 2021, having previously been an executive
director, non-executive director since 12 March 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;
retired 6 November 2023.
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.
Phillip Meckley, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 6 November 2023
Background and suitability for the role: Mr. Meckley currently owns
fast-growing franchises in California and Texas. He brings over twenty-five
years of operating experience in growing ALD locations and has provided
significant leadership to the entire franchise System. In addition, Phil and
his wife Robin have provided leadership with respect to ALD's charitable
efforts to help disadvantaged communities in various parts of the world solve
water infrastructure issues, most recently in rural India.
The Group has a non-Board Chief Financial Officer, Pat Lamarco Jr., 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.
The Company Secretary is responsible for ensuring that Board procedures are
followed and that all applicable rules and regulations are complied with. 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 Dan
Ewell, 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 Board is 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 for oversight at the Board
level. Ms. 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 Laura Hills.
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 2023 annual accounts
and the interim accounts to 30 June 2023. The Committee reviewed with the
independent auditor its judgements as to the acceptability of the Company's
accounting principles.
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 Laura Hills and Bobby
Knell, with Bobby Knell 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 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 2023, which comprise:
· the Group statement of comprehensive income for
the year ended 31 December 2023;
· the Group and Parent Company statements of
financial position as at 31 December 2023;
· 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
material accounting policies.
The financial reporting framework that has been applied in the preparation of
the financial statements is applicable law and UK-adopted international
accounting standards.
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 2023 and of the
Group's profit for the period then ended;
· have been properly prepared in accordance with
UK-adopted international accounting standards;
· 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 and the Parent Company 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 as applied to listed entities, 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 directors'
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's and Parent Company's ability to continue to adopt
the going concern basis of accounting included:
· review and challenge of management's business
plan and cash flow forecasts covering a minimum of 12 months from the date of
approval of these financial statements;
· tested the mathematical accuracy of the model
used by management in their assessment;
· discussed with management and evaluated their
assessment of the group and the company's liquidity requirement;
· assessed the reasonableness of management's
budget/forecasts, including comparison to actual results achieved in the year;
and
· Assessing the completeness and accuracy of the
matters described in the going concern disclosures within the significant
accounting policies as set out in Note 3.
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's and 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 in 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 $370,000 (2022: $330,000), based
on approximately 6% of Group profit before tax (2022: 6% of Group profit
before tax).
Materiality for the Parent Company financial statements was based on an
asset-based figure which was restricted to $120,000 (2022: $100,000) for the
parent.
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 is set based on the audit materiality as
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. This is set at £259,000 (2022: $231,000) for the group and
$84,000 (2022: $70,000) for the parent.
Where considered appropriate performance materiality may be reduced to a lower
level, such as, for related party transactions and directors' remuneration.
We agreed with the Audit Committee to report to it all identified errors in
excess of $18,500 (2022: $16,500). 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, parent company and 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 reviewed the
group audit under our direction. We have remotely reviewed the US work to
carry out our review of component auditor working papers and have met with
group 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
Revenue is recognised in accordance with the accounting policy set out in the Our audit procedures included:
financial statements in Note 3. Revenue is a key performance indicator for the
Group. · Evaluated the design and implementation of controls around
revenue;
· Evaluating that the accounting policies are appropriate and in
accordance with International Financial Reporting Standard 15 'Revenue from
Contract with Customers' and performed audit procedures to provide evidence
that revenue was accounted for in accordance with the policy as detailed in
note 4;
· Testing a sample of revenue transaction across the operating
companies of the Group across each revenue stream by agreeing amounts to
supporting documentation to ensure that the transactions are correctly
accounted for, that the performance obligations have been satisfied and to
cash receipts; and
· Assessing the appropriateness of the related disclosures in the
financial statements.
Impairment on goodwill and indefinite life intangible assets We reviewed management's assessment of the carrying value of the group's
intangible assets. Our procedures included:
The carrying value of goodwill and indefinite life intangible assets relates
to goodwill on franchisor activities, goodwill on acquisitions and owned · Evaluated the design and implementation of controls around
stores goodwill for which an annual impairment review is required to be impairments;
performed. Recoverability of these involves judgement regarding the future
performance of the cash generating units to which these assets are allocated, · Reviewing the discounted cash-flow forecasts for the group and
consequently, we consider their recoverability to have a higher risk of the relevant cash generating units to ensure that the cash generating units
material misstatement were appropriately identified and an assessment of the key assumptions, which
principally included discount rate and growth rates as discussed in Note 13;
This is set out in the financial statements in Note 3 and 13.
· We have checked the arithmetic accuracy of the forecast;
· Applied stress tests to the model for reasonable possible changes
in the assumptions; and
· Performed a shadow calculation of the discount rate using our
internal valuation specialist.
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 contained within the
annual report. 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.
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 this gives rise
to a material misstatement in the financial statements themselves. 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.
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.
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 however the primary
responsibility for the prevention and detection of fraud lies with management
and those charged with governance of the Parent Company.
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 our audit planning process, we assessed the different
areas of the financial statements, including disclosures, for the risk of
material misstatement. This included considering the risk of fraud where
direct enquiries were made of management and those charged with governance
concerning both whether they had any knowledge of actual or suspected fraud
and their assessment of the susceptibility of fraud. We considered the risk
was greater in areas that involve significant management estimate or
judgement. Based on this assessment we designed audit procedures to focus on
the key areas of estimate or judgement, this included specific testing of
journal transactions, both at the year end and throughout the year.
· We used data analytic techniques to assist in identifying any
unusual transactions or unexpected relationships.
Owing to the inherent limitations of an audit, there is an unavoidable risk
that some material misstatements of the financial statements may not be
detected, even though the audit is properly planned and performed in
accordance with the ISAs (UK).
The potential effects of inherent limitations are particularly significant in
the case of misstatement resulting from fraud because fraud may involve
sophisticated and carefully organised schemes designed to conceal it,
including deliberate failure to record transactions, collusion or intentional
misrepresentations being made to us.
A further description of our responsibilities is available on the Financial
Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
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 Charlton (Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Statutory Auditor
London
Consolidated Statement of Comprehensive Income for the year ended 31 December
2023
Notes Year ended 31 December 2023 Year ended 31 December 2022
$ $
Revenue 4 75,974,552 71,333,461
Cost of sales (10,362,197) (9,659,600)
Gross profit 65,612,355 61,673,861
Administrative expenses
- Other income 59,422 130,405
- Share-based payments 7 (571,970) (462,097)
- Amortisation of intangibles 13 (841,516) (968,086)
- Other administrative costs (57,074,745) (53,528,825)
) )
Total administrative expenses (58,428,809) (54,828,603)
Operating profit 7,183,546 6,845,258
Finance income 8 699,819 229,550
Finance expense 9 (1,643,978) (1,570,592)
Profit before tax 6,239,387 5,504,216
Taxation expense 10 (1,605,585) (1,837,737)
Profit for the year 4,633,802 3,666,479
Attributable to:
Equity holders of the parent 4,398,681 3,566,540
Non-controlling interests 235,121 99,939
4,633,802 3,666,479
Other Comprehensive Income
Subsequently reclassified to the P&L
Exchange differences arising on translation of foreign operations 199,826 (409,371)
Cash flow hedge movement (171,912) 448,177
Not subsequently reclassified to the P&L
Fair value adjustment on listed equity investment (net of deferred tax) (21,927) (690,885)
Total comprehensive profit for the year 4,639,789 3,014,400
Attributable to:
Equity holders of the parent 4,404,668 2,914,461
Non-controlling interests 235,121 99,939
4,639,789 3,014,400
Profit per share attributable to equity holders of Parent Cents Cents
Basic 11 25.3 20.5
Diluted 11 24.7 19.2
The results reflected above relate to continuing activities.
Consolidated Statement of Financial Position as at 31 December 2023
Notes 2023 2022
$ $
ASSETS
Non-current assets
Goodwill and indefinite life intangible assets 13 49,791,203 44,966,672
Listed equity investment 24 447,231 474,613
Other intangible assets 13 7,840,157 6,019,360
Interest rate swap 23 276,265 448,177
Property, plant and equipment 14 10,538,135 9,224,955
Trade and other receivables 17 207,990 287,572
69,100,981 61,421,349
Current assets
Inventories 16 723,315 759,070
Trade and other receivables 17 11,063,253 11,393,584
Investments 18 6,875,250 -
Cash and cash equivalents 18 8,882,627 23,014,454
27,544,445 35,167,108
TOTAL ASSETS 96,645,426 96,588,457
EQUITY AND LIABILITIES
Equity attributable to holders of the parent
Share capital 21 143,192 143,192
Share premium 21 35,417,072 35,417,072
Shares held in treasury 21 (1,139,404) (1,139,404)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 2,254,347 1,555,090
Foreign exchange reserve (1,305,037) (1,504,863)
Reverse acquisition reserve 21 (27,758,088) (27,758,088)
Equity investment reserve (666,140) (644,213)
Cash flow hedge reserve 276,265 448,177
Retained earnings 51,495,814 47,097,133
59,719,171 54,615,246
Equity attributable to Non-Controlling interest
Non-controlling Interest 610,375 598,636
Non-current liabilities
Borrowings 22/23 12,510,867 15,334,813
Deferred consideration 12 3,632,074 7,164,421
Deferred tax liability 20 2,618,605 1,915,581
18,761,546 24,414,815
Current liabilities
Trade and other payables 19 5,997,028 6,331,107
Borrowings 22/23 6,805,131 5,519,560
Deferred consideration 12 4,752,175 5,109,093
17,554,334 16,959,760
TOTAL EQUITY AND LIABILITIES 96,645,426 96,588,457
Company Statement of Financial Position as at 31 December 2023
Notes 2023 2022
$ $
ASSETS 15 6,994,345 6,626,279
Non-current assets
Investment in subsidiaries
Trade and other receivables 17 22,673,254 22,605,908
Listed equity investment 24 447,231 474,613
30,114,830 29,706,800
Current assets
Trade and other receivables 17 4,620,777 4,349,554
Cash and cash equivalents 18 1,105,607 1,384,624
5,726,384 5,734,178
TOTAL ASSETS 35,841,214 35,440,978
EQUITY AND LIABILITIES
Equity attributable to holders of the parent
Share capital 21 143,192 143,192
Share premium 21 35,417,072 35,417,072
Shares held in treasury 21 (1,139,404) (1,139,404)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 2,254,347 1,555,090
Foreign exchange reserve (2,585,747) (3,269,732)
Equity investment reserve (666,140) (644,213)
Retained earnings 1,526,798 2,406,266
35,951,268 35,469,421
Non-current liabilities
Deferred tax liability (190,069) (174,698) 77,943
(190,069) (174,698)
Current liabilities
Trade and other payables 19 80,015 146,255
80,015 146,255
TOTAL EQUITY AND LIABILITIES 35,841,214 35,440,978
The loss for the financial year in the financial statements of the parent
Company was $879,468 (2022: loss $748,659), which related entirely to Plc
costs.
Consolidated Statement of Cash Flows for the Year Ended 31 December 2023
Year ended 31 December 2023 $ Year ended 31 December 2022
$
Cash flows from operating activities
Profit before tax 6,239,387 5,504,216
Adjustments for non-cash/non-operating items:
Depreciation of plant and equipment 3,745,773 3,236,683
Amortisation of intangible assets 841,516 968,086
Share based payments 571,970 462,097
Finance costs 1,643,978 1,570,591
Finance income (699,819) (229,550)
Operating cash flows before movements in working capital 12,342,805 11,512,123
Decrease / (Increase) in inventories 35,755 (81,852)
Decrease / (Increase) in trade and other receivables 409,913 (2,820,793)
(Decrease) / Increase in trade and other payables (490,886) 1,932,825
Cash generated by operations 12,297,587 10,542,303
Income taxes paid (897,106) (1,670,816)
Net cash generated from operating activities 11,400,481 8,871,487
Cash flows from investing activities
Purchase of plant and equipment (1,269,867) (1,202,705)
Disposal of plant and equipment 191,178 -
Purchase of intangible assets (3,370,700) (2,424,395)
Acquisition of subsidiaries - (3,850,000)
Reacquisition of franchises (4,203,500) (1,600,000)
Purchase of investments (6,875,250) -
Purchase of listed equity investment - (153,700)
Purchase of non-controlling interest - (98,000)
Finance income 699,818 229,550
Net cash used in investing activities (14,828,321) (9,099,250)
Cash flows from financing activities
Share buyback - (86,826)
Options exercised - (418,780)
Dividend paid to non-controlling interest - (37,812)
Contribution from non-controlling interest 73,500 -
Distribution to non-controlling interest (296,882) -
Finance costs (1,360,057) (1,202,378)
Proceeds from borrowings 2,811,353 12,356,696
Repayment of borrowings (4,986,658) (3,815,204)
Repayment of notes (5,229,265) (5,759,978)
Repayment of lease liabilities (1,715,978) (1,595,853)
Net cash (used) from financing activities (10,703,987) (560,135)
Net (decrease) in cash and cash equivalents (14,131,827) (787,898)
Cash and cash equivalents at the beginning of year 23,014,454 23,802,352
Cash and cash equivalents at end of year 8,882,627 23,014,454
Company Statement of Cash Flows for the Year Ended 31 December 2023
Year ended Year ended
31 December
31 December
2023
2022
$
$
Cash flows from operating activities
Loss before tax (879,468) (748,659)
Adjustments for non-cash/non-operating items:
Share based payment expense 571,970 462,097
Operating cash flows before movements in working capital (307,498) (286,562)
(Increase)/Decrease in trade and other receivables (271,281) 1,096,473
Increase/(Decrease) in trade and other payables 299,762 (631,779)
Cash used by operations (279,017) 178,132
Income taxes paid - -
Net cash used by operating activities (279,017) 178,132
Cash flows from investing activities
Purchase of listed equity investment - (153,700)
Net cash used in investing activities - (153,700)
Cash flows from financing activities
Share buyback - (86,826)
Options exercised - (418,780)
Net cash generated from financing activities - (505,606)
(Decrease) in cash and cash equivalents (279,017) (481,174)
Cash and cash equivalents at the beginning of period 1,384,624 1,865,798
Cash and cash equivalents at end of period 1,105,607 1,384,624
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 26 June
2024.
2 Adoption of a new International Financial Reporting
Standards
No new standards and interpretations adopted by the UK endorsement board had a
significant impact on the consolidated financial statements.
Standards, amendments, and interpretations to published standards not yet
effective
The Directors have considered those standards and interpretations, which have
not been applied in the financial statements but are relevant to the Group's
operations, that are in issue but not yet effective and do not consider that
they will have a material impact on the future results of the Group
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 except for certain
financial instruments at fair value 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.
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 2025. 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 December 2023 the Directors believe that funding will be
available on a case-by-case basis for additional initiatives.
Cash and cash investments at 31 December 2023 was $15.8 million. At 31
December 2023, total debt (borrowings and deferred consideration from
franchise acquisitions) was $22.8 million with amortisation of such amount
through 2028. Meanwhile, operating cash flows (EBITDA) in 2023 increased by 6%
to $11.8 million (2022: $11.1 million). Cash on the balance sheet plus an
ability to generate significant cash relative to the amount of debt that comes
due in any one year between 2023 and 2028 are important variables for Director
considerations. Moreover, the Directors consider various scenarios that may
influence cash availability such as inflationary pressures, the threat of
recession from rising interest rates and the use of cash for investments, such
as Salesforce.com and related software applications, geared to create
operational efficiencies that enhance organic cash generation.
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.
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 2023. 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 non-controlling 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 2023 is $879,468 (2022: $748,659).
Inventories
The inventories, consisting primarily of equipment, parts, and supplies, are
recorded at the lower of cost (FIFO) or net realisable value.
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 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.
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.
Investments in equity instruments are initially designated at FVTOCI and are
initially measured at fair value plus transaction costs. Subsequently, they
are measured at fair value with gains and losses arising from changes in fair
value recognised in other comprehensive income and accumulated in the
investment's revaluation reserve. The cumulative gain or loss is not
reclassified to profit or loss on disposal of the equity investments, instead,
it is transferred to retained earnings.
The Group enters into a variety of derivative financial instruments to manage
its exposure to interest rate, including interest rate swaps.
Derivatives are recognised initially at fair value at the date a derivative
contract is entered into and are subsequently remeasured to their fair value
at each reporting date. The resulting gain or loss is recognised in profit or
loss immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in profit or
loss depends on the nature of the hedge relationship.
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 CRM
platform
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
2023 2022
$ $
Franchise royalty income 6,738,816 6,746,928
Franchise related activities 11,163,422 10,624,268
US corporate operated locations 50,459,736 47,296,711
International corporate operated locations 7,612,578 6,665,554
Total 75,974,552 71,333,461
Profit/(Loss) before tax Year ended Year ended
31 December 31 December
2023 2022
$ $
Franchise royalty income 2,156,421 1,956,609
Franchise related activities 925,126 964,667
US corporate operated locations 8,411,622 8,252,651
International corporate operated locations 443,180 85,599
Unallocated head office costs (4,627,640) (4,915,011)
Non-core costs (1,069,322) (840,299)
Total 6,239,387 5,504,216
Assets Year ended Year ended
31 December 31 December
2023 2022
$ $
Franchise royalty income 24,761,073 29,945,794
Franchise related activities 3,028,788 3,166,036
US corporate operated locations 52,394,708 47,356,148
International corporate operated locations 16,460,857 16,120,479
Total 96,645,426 96,588,457
Amortisation Year ended Year ended
31 December 31 December
2023 2022
$ $
US corporate operated locations 797,292 942,911
International corporate operated locations 44,224 25,175
Total 841,516 968,086
Depreciation Year ended Year ended
31 December 31 December
2023 2022
$ $
Franchise royalty income - -
Franchise related activities - -
US corporate operated 3,185,141 2,665,878
locations
International corporate operated locations 560,632 570,805
Total 3,745,773 3,236,683
Finance Expense Year ended Year ended
31 December 31 December
2023 2022
$ $
US corporate operated locations 716,739 756,164
International corporate activities 15,603 11,282
Unallocated head office costs 911,636 803,146
Total 1,643,978 1,570,592
Geographic Information
As noted herein, the Group has two wholly-owned subsidiaries - ALD and WII.
ALD, the Group's core business, 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. For 2023, outside the US
sales have grown 15% to $7.7 million (2022: $6.7 million). Sales in the US
have grown 5% to $68.3 million (2022: $64.5 million). The percentage of
International sales to total sales has increased to 10% (2022: 9%).
Total Revenue
Year ended 31 December 2023 Year ended 31 December 2022
US International Total US International Total
$ $ $ $ $ $
Franchise royalty income 6,638,442 100,374 6,738,816 6,636,512 110,416 6,746,928
Franchise related activities 11,163,422 - 11,163,422 10,624,268 - 10,624,268
US Corporate owned Stores 50,459,736 - 50,459,736 47,296,711 - 47,296,711
International corporate activities - 7,612,578 7,612,578 - 6,665,554 6,665,554
Total 68,261,600 7,712,952 75,974,552 64,557,491 6,775,970 71,333,461
5 Expenses by nature
The Group's operating profit has been arrived at after charging:
Year ended Year ended
31 December 31 December
2023 2022
Note $ $
Raw materials and consumables used 4,178,795 4,826,483
Employee costs 6 30,530,324 29,050,991
Depreciation charge 3,745,773 3,236,683
Amortisation charge 841,516 968,086
Marketing costs 216,257 213,260
R&D - -
Foreign exchange loss 4,561 38,896
Year ended Year ended
31 December 31 December
2023 2022
$ $
Auditors remuneration
Fees payable to the Company's auditor for audit of Parent Company and 72,000 54,000
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 $161,478 (2022:
$214,863) for the audit of these companies and $34,483 (2022: $40,499) 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
2023 2022
Short-Term employee benefits
Directors fees, salaries and benefits 663,000 640,704
Employee wages and salaries 26,923,972 25,809,809
Employer payroll taxes 2,371,382 2,138,381
Long-Term employee benefits
Share based payments 571,970 462,097
30,530,324 29,050,991
Information regarding Directors' emoluments are as follows:
Year ended Year ended
31 December 31 December
2023 2022
$ $
Directors' fees, salaries and benefits 663,000 640,704
Employer payroll taxes 20,857 20,039
683,857 660,743
The highest paid Director (Executive) received emoluments of $595,000 (2022:
$591,473).
In lieu of cash compensation, to be added to the above table, all of the
directors received a combination of stock options awards and fully paid-up
shares. The value of the options awarded on 7 July 2023 at an exercise price
of $6.35 to all directors in respect of their first half compensation was: P
DeSouza $19.9k, L Hills $19.9k, D Ewell $39.9k, B Knell $19.9k, M Reisman
$19.9k. In addition, in relation to their second half payments, as announced
on 15 February 2024, certain directors were issued fully paid up Ordinary
Shares and the value of these Ordinary Shares issued were: P DeSouza $37.5k, L
Hills $37.5K, D Ewell $37.5k, P Meckley $10k
The average number of employees (including Directors) in the Group during the
year was:
Year ended Year ended
31 December 31 December
2023 2022
Directors (executive and non-executive) 5 5
Management 55 44
Field Services 305 271
Franchise Support 19 19
Administration 98 97
482 436
7 Share options
The Company grants share options at its discretion to Directors, management
and advisors. These are accounted for as equity settled options. Should the
options remain unexercised after a period of ten years from the date of grant
the options will expire unless an extension is agreed to by the Board. Options
are exercisable at a price equal to the Company's quoted market price on the
date of grant or an exercise price to be determined by the Board.
Details for the share options and warrants granted, exercised, lapsed and
outstanding at the year-end are as follows:
Number of share options 2023 Number
of share
Weighted average exercise price ($)
options Weighted average exercise price ($)
2023 2022 2022
Outstanding at beginning of year 2,228,000 6.02 2,238,000 5.74
Granted during the year 545,000 6.70 95,000 12.04
Forfeited/lapsed during the year - - (35,000) 12.56
Exercised during the year - - (70,000) 2.36
Outstanding at end of the year 2,773,000 6.15 2,228,000 6.02
Exercisable at end of the year 1,102,500 3.52 627,500 1.59
Fair value of share options
During the year, the Group granted 545,000 Share Options pursuant to certain
employees, with exercise prices ranging from £5.00 to £6.60 ($6.35 to
$8.18).
The fair value of options granted during the current year has been calculated
using the Black Scholes model which has given rise to fair values per share
ranging from $1.45 to $2.69. This is based on risk-free rate of 3.61% and
volatility of 37.2% to 47.4%.
The Black Scholes calculations for the options granted during the year
resulted in a charge of $571,970 (2022: $462,097) which has been expensed in
the year.
The weighted average remaining contractual life of the share options as at 31
December 2023 was 6.1 years (2022: 6.02 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 2023 2022 Date of Grant Exercise price Exercise period
From To
ALDHC Plan 67,500 67,500 67,500 01/12/2013 $1.14 01/12/2013 01/12/2024
2013 Directors 100,000 100,000 100,000 01/08/2013 $1.30 01/08/2013 01/08/2024
2015 Options 117,500 117,500 117,500 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 25,000 19/12/2016 $1.24 19/12/2019 19/12/2026
2016 Employee 82,500 82,500 82,500 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
2019 Employee 425,000 425,000 425,000 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 485,000 485,000 485,000 31/07/2020 $5.60 31/07/2024 31/07/2030
2020 Acquisition 25,000 25,000 25,000 30/09/2020 $6.20 30/09/2024 30/09/2030
2021 Acquisition 45,500 45,500 45,500 01/01/2021 $6.80 01/01/2025 01/01/2031
2021 Directors 300,000 300,000 300,000 15/03/2021 $10.40 15/03/2025 15/03/2031
2021 Acquisition 100,000 100,000 100,000 20/04/2021 $11.38 20/04/2025 20/04/2031
2021 Acquisition 75,000 75,000 75,000 01/07/2021 $12.56 01/07/2025 01/07/2031
2022 Acquisition 20,000 20,000 20,000 31/05/2022 $10.30 31/05/2026 31/05/2032
2022 Acquisition 75,000 75,000 75,000 30/06/2022 $12.50 30/06/2026 30/06/2032
2023 Directors (1) 105,000 105,000 - 06/02/2023 $8.18 06/02/2027 06/02/2033
2023 Directors (2) 90,000 90,000 - 04/07/2023 $6.35 04/07/2027 04/07/2033
2023 Employee (3) 350,000 350,000 - 04/07/2023 $6.35 04/07/2027 04/07/2033
Total 2,773,000 2,773,000 2,228,000
All share options are equity settled on exercise. The amounts at the Report
Date reflect all share options that have been either exercised or forfeited.
(1) On 6 February 2023, in lieu of compensation board members received
options to purchase 105,000 New Ordinary Shares at a price of $8.18. These
options have a four-year vesting requirement.
(2) On 4 July 2023, certain directors were granted options to purchase
90,000 New Ordinary Shares at a price of $6.35. These options have a
four-year vesting requirement.
(3) On 4 July 2023, certain employees were granted options to purchase
350,000 New Ordinary Shares at a price of $6.35. 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
2023
2022
$
$
Interest income 699,819 229,550
9 Finance expense
Year ended Year ended
31 December
31 December
2023
2022
$
$
Interest expense 1,453,399 1,381,162
Interest on lease liabilities 190,579 189,430
Total interest expense 1,643,978 1,570,592
10 Taxation
Group Year ended Year ended
31 December
31 December
2023
2022
$
$
Current tax:
Current tax on profits in the year 875,062 1,262,651
Adjustment in respect of prior year 23,045 (696)
Total current tax 898,107 1,261,955
Deferred tax current year 707,478 575,782
Deferred tax prior year - -
Deferred tax expense (note 20) 707,478 575,782
Income tax expense 1,605,585 1,837,737
The tax on the Group's profit 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 6,239,387 5,504,216
Tax calculated at domestic rate applicable profits in respective countries
(2023: 17% versus 2022: 23%) 1,037,228 1,242,058
Tax effects of:
Non-deductible expenses 188,271 95,621
Other tax adjustments, reliefs and transfers (22,278) 154,095
State taxes net of federal benefit 359,308 339,601
Adjustment in respect of prior year 23,045 (696)
Changes in rates 20,011 7,058
Taxation expense recognized in income statement 1,605,585 1,837,737
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 £3,830,192 (2022: £3,449,063)
available for offset against future profits. £957,548 (2022: £862,266)
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 across all jurisdictions for tax for 2023 is 17% (2022:
23%).
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 2022
31 December 2023 $
$
Profit for the year attributable to equity holders of the Parent ($) 4,398,681 3,566,540
Weighted average number of ordinary shares 17,358,688 17,360,189
Diluted weighted average number of ordinary shares 17,833,235 18,554,459
Profit per share (cents) 25.3 20.5
Diluted profit per share (cents) 24.7 19.2
12 Acquisitions
These can be summarised as follows:
The Group announced the reacquisition of its Nashville, Tennessee franchise
territory within the Group's ALD franchise business. The acquisition is
pursuant to the Group's growth strategy of creating regional hubs and adds
further corporate scale to operations in the Midwest, United States. The cash
consideration for the acquisition is $3.25 million based on a 2022 Adjusted
Income Statement of $2.4 million in revenue and $550,000 in profit before tax
and includes the transfer of all operating assets to the Group. The date of
acquisition was February 1, 2023.
The Group announced the reacquisition of its Covina, California franchise
territory within the Group's ALD franchise business. The purchase price of
$1.5 million in cash at closing includes all assets required to conduct
operations, including trucks and equipment. The purchase price is based on the
trailing twelve months pro forma of $1.3 million in revenue and $0.3 million
in profit before tax, as well as total assets of $0.2 million. The transaction
is accretive for the Group's shareholders. The date of acquisition was July
19, 2023.
The Group announced the reacquisition of its Pittsburgh, Pennsylvania
franchise territory within the Group's ALD franchise business. The purchase
price of $0.5 million is based on pro forma sales of $0.5 million and net
income of $0.12 million. The Group believes that the Pittsburgh location was
underperforming as a franchise and sees an opportunity to increase its growth
trajectory. The date of acquisition was September 29, 2023.
The Group acquired its Western Colorado franchise territory within the Group's
Colorado ALD LLC subsidiary business. The cash consideration for the
acquisition is $0.15 million and includes the transfer of all operating assets
to the Group. The date of acquisition was September 1, 2023
The Group acquired Evergreen Plumbing Company within the Group's ALD franchise
business. The cash consideration for the acquisition is $0.13 million and
includes the transfer of all operating assets to the Group. The date of
acquisition was November 22, 2023.
Net sales from the date of acquisition through December 31, 2023 attributable
to these acquisitions was approximately $2,442,569. Net income from the date
of acquisition through December 31, 2023 attributable to these acquisitions
was approximately $212,005.
Nashville: Sales $1,880,882, net income $141,637
Covina: Sales $ 446,765, net income $ 58,145
Pittsburgh: Sales $ 114,922, net income $ 12,223
Sales and net income for Western Colorado and Evergreen Plumbing cannot be
determined as they were combined with existing locations.
It is not feasible to obtain revenue and net income that would have been
included if the full year was consolidated.
2023 Acquisitions
Nashville Covina Pittsburgh Western Colorado Evergreen Plumbing Totals
$ $ $ $ $ $
Fair value of assets and liabilities acquired
Equipment 176,824 66,750 53,995 26,750 15,425 339,744
Vehicles 256,392 96,110 22,302 - 24,575 399,379
Non-compete 30,000 - 30,000 60,000 60,000 180,000
Liabilities / Other (200,154) - - - - (200,154)
Net assets acquired 263,062 162,860 106,297 86,750 100,000 718,969
Consideration
Cash 2,125,000 1,500,000 363,500 150,000 65,000 4,203,500
Note payable 1,125,000 - 150,000 - 65,000 1,340,000
Total consideration 3,250,000 1,500,000 513,500 150,000 130,000 5,543,500
Intangible assets arising on acquisition (see note 13) 2,986,938 1,337,140 407,203 63,250 30,000 4,824,531
The intangible assets arising on the above acquisitions of $4,824,531 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
2022 Acquisitions
Sub. Aqu. Fort Worth Central Texas Shanahan Adjustments Totals
$ $ $ $ $
Fair value of assets and liabilities acquired
Equipment 366,109 38,562 143,931 - 548,602
Vehicles 330,877 50,480 175,220 - 556,577
Non-compete 132,434 30,000 60,000 - 222,434
Liabilities / Other (140,080) - 572,711 - 432,631
Net assets acquired 689,340 119,042 951,862 - 1,760,244
Consideration
Cash 3,850,000 700,000 900,000 50,000 5,500,000
Note payable 3,850,000 50,000 100,000 (41,553) 3,958,447
Total consideration 7,700,000 750,000 1,000,000 8,447 9,458,447
Intangible assets arising on acquisition (see note 13) 7,010,660 630,958 48,138 8,447 7,698,203
The intangible assets arising on the above acquisitions of $7,698,203 is
included in additions to goodwill and indefinite life intangible assets for
owned & operated stores (see note 13).
The amount of deferred consideration for 2023 acquisitions as well as the
remaining deferred consideration for acquisitions made in 2018, 2019, 2020,
2021 and 2022 can be summarized as follows:
Current Year ended Year ended
31 December 31 December
Year acquired 2023 2022
$ $
South Florida 2018 29,831 28,101
Tucson 2019 48,468 113,550
Minneapolis 2020 - 327,670
San Jose 2020 51,074 49,074
Seattle 2020 - 100,000
Melbourne, Florida 2020 - 350,000
Baton Rouge 2020 - 175,000
Las Vegas and Phoenix 2021 1,862,802 1,640,698
Daytona 2021 150,000 850,000
PlumbRight 2021 - 175,000
Fort Worth 2022 1,270,000 1,300,000
Nashville 2023 1,125,000 -
Pittsburgh 2023 150,000
Evergreen Plumbing 2023 65,000
Total current deferred consideration 4,752,175 5,109,093
Non-Current Year ended Year ended
31 December 31 December
Year 2023 2022
acquired $ $
South Florida 2018 59,510 89,341
Tucson 2019 - 48,468
San Jose 2020 21,313 72,386
Seattle 2020 300,000 300,000
Las Vegas and Phoenix 2021 1,976,251 3,954,226
Daytona 2021 - 150,000
Fort Worth 2022 1,275,000 2,550,000
Total non-current deferred consideration 3,632,074 7,164,421
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 2022 4,223,967 33,989,020 636,711 38,849,698
Additions 7,010,660 687,543 - 7,698,203
At 31 December 2022 11,234,627 34,676,563 636,711 46,547,901
Additions (see note 12) - 4,824,531 - 4,824,531
At 31 December 2023 11,234,627 39,501,094 636,711 51,372,433
Impairment
At 1 January 2022 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
At 31 December 2022 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
At 31 December 2023 1,506,229 75,000 - 1,581,229
Carrying amount
At 31 December 2022 9,728,398 34,601,563 636,711 44,966,672
At 31 December 2023 9,728,398 39,426,094 636,711 49,791,203
The increase in carrying value of Goodwill Acquisitions at 31 December 2023
relate to goodwill additions arising on the acquisitions outlined in Note 12
above during 2023.
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 2023. Details on
additions in 2023 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 - 2023 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 2023 were as follows:
%
Pre-tax 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 2023
(2022: $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 Salesforce Enterprise Solution Development Total
not to compete
$ $ $ $ $ $ $ $
Cost
At 1 January 2022 515,351 670,881 132,857 5,233,817 116,667 1,558,208 102,000 8,329,782
Additions 598,058 222,434 572,711 - 18,242 1,758,095 - 3,169,540
Disposals - - - - - - - -
At 31 December 2022 1,113,409 893,315 705,568 5,233,817 134,908 3,316,304 102,000 11,499,322
Additions 3,370,700 180,000 - - - - - 3,550,700
Completed development (888,232) - - - - - - (888,232)
Disposals - (7,164) - - - (167,513) - (174,677)
Reallocation 1,590,583 - - - - (1,590,583) - -
At 31 December 2023 5,186,460 1,066,151 705,568 5,233,817 134,908 1,558,208 102,000 13,987,113
Accumulated amortisation
At 1 January 2022 - 84,889 132,857 4,143,440 5,833 129,851 14,875 4,511,745
Amortisation expense - 167,818 25,454 261,691 8,469 479,154 25,500 968,086
Disposals - - - - - - - -
Exchange differences - 113 - - 19 - - 131
At 31 December 2022 - 252,819 158,311 4,405,131 14,321 609,005 40,375 5,479,962
Amortisation expense - 195,481 38,181 261,691 9,021 311,642 25,500 841,516
Disposals - (7,164) - - - (167,513) - (174,677)
Exchange differences - 182 - - (28) - - 155
At 31 December 2023 - 441,318 196,492 4,666,822 23,314 753,134 65,875 6,146,956
Carrying amount
At 31 December 2022 1,113,409 640,496 547,257 828,686 120,588 2,707,298 61,625 6,019,360
At 31 December 2023 5,186,460 624,833 509,076 566,995 111,594 805,074 36,125 7,840,157
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.
$1.6m of Salesforce costs were re-allocated to Product
development as these costs were still in progress
14 Property, plant and equipment
Equipment & displays Motor Vehicles Leasehold Improvem-ents Right of Right of Total
$
$
$
$ Buildings Use Vehicles Use Offices
$ $ $
Cost
At 1 January 2022 4,693,694 3,350,021 87,820 156,259 3,114,413 2,029,904 13,432,111
Acquired on acquisition of subsidiary 366,109 330,877 - - - - 696,986
Additions 781,433 1,008,632 - - 1,005,570 1,427,888 4,223,523
Purchase ROU Vehicles - 315,140 - - (315,140) - -
Exchange differences (79,908) (72,121) - (7,354) (3,055) (21,887) (184,325)
Disposals (29,103) (187,367) (15,000) - - (1,032,961) (1,264,431)
At 31 December 2022 5,732,225 4,745,181 72,820 148,905 3,801,787 2,402,944 16,903,863
Additions 796,986 2,449,710 - - - 1,115,204 4,361,900
Capitalised costs 888,232 - - - - - 888,232
Purchase ROU Vehicles - 517,540 - - (517,540) - -
Exchange differences 33,502 25,336 - (66) 1,143 5,688 65,603
Disposals (2,000) (380,208) - (148,839) (19,048) (514,782) (1,064,878)
At 31 December 2023 7,448,945 7,357,559 72,820 - 3,266,342 3,009,054 21,154,720
Accumulated depreciation
At 1 January 2022 2,002,288 1,572,391 38,875 62,787 934,704 1,013,838 5,624,883
Eliminated on disposals (8,790) (115,844) (7,046) - - (953,584) (1,085,264)
Purchase ROU Vehicles - 315,140 - - (315,140) - -
Depreciation expense 946,921 648,080 16,026 4,127 790,553 830,975 3,236,683
Exchange differences (47,251) (34,097) - (2,301) (1,252) (12,491) (97,393)
At 31 December 2022 2,893,168 2,385,670 47,855 64,613 1,408,865 878,738 7,678,909
Eliminated on disposals (233) (267,409) - (66,749) (19,048) (493,226) (846,665)
Purchase ROU Vehicles - 458,495 - - (458,495) - -
Depreciation expense 1,069,236 952,173 15,117 2,174 742,943 964,130 3,745,773
Exchange differences 24,061 13,408 - (38) 946 191 38,568
At 31 December 2023 3,986,232 3,542,337 62,972 - 1,675,211 1,349,833 10,616,585
Carrying amount
At 31 December 2022 2,839,057 2,359,511 24,965 84,292 2,392,922 1,524,208 9,224,955
At 31 December 2023 3,462,713 3,815,222 9,848 - 1,591,131 1,659,221 10,538,135
2022 depreciation was reallocated
Included within additions are additions of $739,123 (2022: $408,193), which
were acquired on the acquisition of franchises.
15 Investment in subsidiary undertakings
Company Subsidiary Undertakings
$
Cost
At 31 December 2022 13,027,185
Exchange difference 368,066
At 31 December 2023 13,395,251
Impairment
At 31 December 2022 6,400,906
Exchange difference -
At 31 December 2023 6,400,906
Carrying amount
At 31 December 2022 6,626,279
At 31 December 2023 6,994,345
The Directors annually assess the carrying value of the investment in the
subsidiary and in their opinion no further impairment provision is currently
necessary. See notes 12 and 13 for the assumptions and sensitivities in
assessing the carrying value of the goodwill and acquired intangible assets
that underpins the varying value of the investments.
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%
Colorado ALD LLC 199 Whitney Avenue, New Haven, Connecticut 06511 US US 51%
American Leak Detection Irrigation, Inc 199 Whitney Avenue, New Haven, Connecticut 06511 US US 75%
Qonnectis Group Limited (dormant) 27-28 Eastcastle Street, London, United Kingdom, W1W 8DH England and Wales 100%
NRW Utilities Limited (Dormant) 27-28 Eastcastle Street, London, United Kingdom, W1W 8DH England and Wales 100%
* 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 had a 60% stake in
a reacquired franchise in Bakersfield, California. American Leak Detection
purchased the remaining 40% in 2022. 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
2023
2022
$
$
Group Inventories 723,315 759,070
During the year ended 31 December 2023, an expense of $10,362,197 (2022:
$9,659,600) was recognized in the Consolidated Statement of Comprehensive
Income, including business to business expenses of $9,677,633 (2022:
$9,142,777). There has been no write down of inventories during 2023.
17 Trade and other receivables
Group Company
Year ended Year ended Year ended Year ended
31 December
31 December
31 December
31 December
2023
2022
2023
2022
$
$
$
$
Trade notes receivable 207,990 287,572 - - -
Due from Group undertakings - - 22,673,254 22,605,908
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
2023
2022
2023
2022
$
$
$
$
Trade receivables 7,204,731 7,211,414 - -
Prepayments 1,180,945 1,226,295 11,170 19,745
Prepaid taxes 850,007 835,164 - -
Due from Group undertakings - - 4,609,607 4,329,809
Accrued royalties receivable 608,891 566,731 - -
Trade notes receivable 209,716 256,613 - -
Other receivables 717,435 988,215 - -
Due from related party 291,528 309,152 - -
Current portion 11,063,253 11,393,584 4,620,777 4,349,554
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 35 days (2022: 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
2023
2022
$
$
US Dollar 9,373,691 10,261,789
UK Pound 1,176,455 807,038
Australian Dollar 454,421 286,546
Canadian Dollar 58,686 38,211
11,063,253 11,393,584
The maximum exposure to credit risk at the reporting date is the carrying
value of each class of receivable mentioned above.
18 Cash and cash equivalents
Group Company
Year ended Year ended Year ended Year ended
31 December
31 December
31 December
31 December
2023
2022
2023
2022
$
$
$
$
Cash at bank and in hand 8,882,627 23,014,454 1,105,607 1,384,624
Cash with period over 90 days 6,875,250 - - -
19 Trade and other payables
Group Company
Year ended Year ended Year ended Year ended
31 December
31 December
31 December
31 December
2023
2022
2023
2022
$
$
$
$
Trade payables 1,401,653 1,519,128 4,642 305
Accruals and other payables 4,595,375 4,811,979 75,373 145,950
5,997,028 6,331,107 80,015 146,255
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 38 days (2022:16 days).
20 Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group 2023 2022
$ $
Deferred tax (liability)/assets (2,618,605) (1,915,581)
The movement in deferred tax liabilities is as follows:
2023 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 (1,915,581) (707,478) 4,454 (2,618,605)
(1,915,581) (707,478) 4,454 (2,618,605)
2022 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 (1,576,872) (575,782) 237,073 (1,915,581)
(1,576,872) (575,782) 237,073 (1,915,581)
Deferred tax recognized in OCI is purely related to the revaluation of the
listed shares.
As also set forth, in Note 10, at the balance sheet date, the Group's UK
trading operations had unused tax losses of £3,830,192 (2022: £3,449,063)
available for offset against future profits. £957,548 (2022: £862,266)
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 2022 17,358,688 129,000 17,487,688
At 31 December 2023 17,358,688 129,000 17,487,688
Group & Company
Share capital Share premium Shares in Treasury
$
$
$
At 31 December 2022 143,192 35,417,072 (1,139,404)
At 31 December 2023 143,192 35,417,072 (1,139,404)
The Group has ordinary B shares of 2,080,000 issued and unpaid shares in 2023
and 2022
The ordinary shares and ordinary B shares have a par value of $0.01
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
2023
2022
$
$
Lease liabilities in statement of financial position
Amounts due within one year 1,394,147 1,427,510
Amount due after more than one year 2,025,653 2,593,065
3,419,800 4,020,575
Amount recognized in the statement of
comprehensive income
Interest on leasehold liabilities 190,579 189,430
Amount recognized in the statement of
cash flows
Repayment of lease liabilities 1,715,978 1,595,853
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 2023 no trading in
financial instruments was undertaken (2022: none). The Group did enter into
interest rate swap agreements as detailed in the derivatives section below.
The Group uses financial instruments including cash, loans, 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 2023 the Group held significant cash,
cash equivalents and cash investments with 2 counterparties, 16.92% was held
with one counterparty with a credit rating of A+ and a further 56.23% was held
with another counterparty with a credit rating of BBB+.
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 2023, trade receivables of $1,137,671 (2022: $1,948,729)
were past due but not impaired. These relate to corporate store 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
2023
2022
$
$
60-90 days 361,416 331,989
90+ days 776,255 1,616,740
1,137,671 1,948,729
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
2023
2022
2023
2022
$
$
$
$
Loans and receivables
Cash and cash equivalents 8,882,627 23,014,454 1,105,607 1,384,624
Investments 6,875,250 - - -
Trade and other receivables - current 11,063,253 11,393,584 4,620,777 4,349,554
Trade and other receivables - non-current 207,990 287,572 22,673,254 22,605,908
Financial Liabilities measured at amortised cost
Trade and other payables 5,997,028 6,331,107 80,015 146,255
Borrowings - current 6,805,131 5,519,560 - -
Borrowings - non-current 12,510,867 15,334,813 - -
Deferred consideration - current 4,752,175 5,109,093 - -
Deferred consideration - non-current 3,632,074 7,164,421 - -
Borrowings
Bank Debt
The Group has a commercial banking relationship with M&T Bank (M&T)
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 December 5, 2023, the WCL was extended to a maturity date of December 5,
2025 and bore an annual variable interest rate equal to SOFR plus 3.00%. At
December 31, 2023 and 2022, the interest rate was 8.35% and 4.17%,
respectfully. Monthly interest only payments are to be made on any unpaid
balance. The balance outstanding at both December 31, 2023 and 2022 was $0.
In October 2020, M&T 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, 2023 and 2022 was $1,450,352
and $2,474,130, respectively and is included within notes payable on the
balance sheets.
In October 2020, M&T provided the Group with an ALOC ("ALOC") in the
amount of $6,000,000. The ALOC has a two year draw period. The line bears
interest at a rate equal to LIBOR plus 3.00%. As of December 31, 2023 and
2022, 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 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 M&T's five year cost of funds interest rate; with a floor of
3.25%. ALOC is secured by substantially all of the assets of the Group. The
balance outstanding at December 31, 2023 and 2022 was $875,957 and $1,353,751,
respectively and is included within notes payable on the balance sheets.
In February 2021, the Group was advanced $3,200,000 from the ALOC which
converted the 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, 2023 and 2022 was $1,386,667 and $2,026,667, respectively and is
included within notes payable on the balance sheets.
In March 2022, M&T provided the Group with a new ALOC ("New ALOC") in the
amount of $15,000,000. The New ALOC has a two year draw period. As part of the
agreement, M&T advanced the Group $9,463,647 related to the New ALOC. The
line bears interest at a rate equal to 5.39% and requires installments
consisting of principal of $157,727 plus interest to be paid monthly beginning
in April 2022 until maturity in March 2027. The balance outstanding at
December 31, 2023 and 2022 was $6,151,371 and $8,044,100, respectively and is
included within notes payable on the balance sheets. In May 2022 and
December 2022, the Group was advanced $600,000 and $2,125,000, respectively,
from the New ALOC. The advances bear interest at a rate equal to 2.85% plus
SOFR and require monthly installments consisting of interest only to be paid
until the end of the first draw period. This total balance of $2,725,000 was
repaid in 2023. In March 2023, the Group was advanced $5,536,353 from the
New ALOC which converted into a new term loan ("2023 Term Loan"). The 2023
Term Loan bears interest at a rate equal to 5.68% and requires installments
consisting of principal of $92,273, plus interest, to be paid monthly
beginning in April 2023 until maturity in March 2028. The balance outstanding
at December 31, 2023 and 2022 was $4,798,173 and $0, respectively and is
included within notes payable on the balance sheets. The New ALOC has
related swap agreements which mature at the same time as the underlying loans.
As noted above, the Group expanded its credit facilities in March 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 2023 to be calculated using
the SOFR index. Therefore, the Group will not be impacted by the IBOR
reform.
In December 2023, the New ALOC was amended to increase the line to
$20,000,000; however, all other terms are the same except the draw period end
date is now December 3, 2025. As part of the agreement, any New ALOC advances
would be converted into term loans 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 SOFR. The New ALOC has a
related swap agreement which matures at the same time as the underlying loans.
The New ALOC is secured by substantially all of the assets of the Group.
In connection with the M&T 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 minimum to be tested quarterly. The Group was in compliance with
those requirements at December 31, 2023.
Current Non-Current
Financial Instruments Year ended Year ended Year ended Year ended
31 December
31 December
31 December
31 December
2023
2022
2023
2022
$
$
$
$
Working Capital Line of Credit - - - -
External borrowings 5,491,647 4,162,819 10,606,671 12,869,822
Less: Loan Closing Costs (80,663) (70,769) (121,457) (128,074)
Lease Liabilities 1,394,147 1,427,510 2,025,653 2,593,065
Total 6,805,131 5,519,560 12,510,867 15,334,813
Capital risk management
In managing its capital, the Group's primary objective is to maintain a
sufficient funding base to enable working capital, research and development
commitments and strategic investment needs to be met and therefore to
safeguard the Group's ability to continue as a going concern in order to
provide returns to shareholders and benefits to other stakeholders. In making
decisions to adjust its capital structure to achieve these aims, through new
share issues, the Group considers not only its short-term position but also
its long term operational and strategic objectives.
The capital structure of the Group currently consists of cash and cash
equivalents, short and medium term borrowings and equity comprising issued
capital, reserves and retained earnings. Other than with respect to Bank Debt,
the Group is not subject to any externally imposed capital requirements. See
KPI in Strategic Report.
Material 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 2023 were $100,374 (2022: $110,416).
No foreign exchange contracts were in place at 31 December 2023 (2022: 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
2023
2022
2023
2022
$
$
$
$
Assets
Sterling, Australian and Canadian Dollars 3,736,952 3,462,037 28,399,637 28,340,086
Liabilities
Sterling, Australian and Canadian Dollars 1,144,750 1,066,160 80,015 146,255
As shown above, at 31 December 2023 the Group had Sterling, Australian and
Canadian denominated monetary current assets of $3,736,952 (2022: $3,462,037).
If the foreign currency weakens by 10% against the US dollar, this would
decrease net assets by $373,695 (2022: $346,204) with a corresponding impact
on reported losses. Changes in exchange rate movements resulted in a gain from
exchange differences on a translation of foreign exchange of $199,826 in 2023
(2022: loss of $409,340), resulting primarily from the share issuance from
prior years in Pound Sterling and subsequent intercompany transfers 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. Borrowings for which there are
interest rate swaps at year-end are $10,949,543 (2022: $10,769,100) and
borrowings for which there are no interest rate swaps are 4,946,654 (2022:
6,064,698).
Interest rate sensitivity analysis
The gains/losses recorded by both the Group and the Company for the year ended
31 December 2023 would not materially change if market interest rates had been
1% higher/lower throughout 2023 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 2025. 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.
Group 0-6 months 6-12 months 1-2 years 2-5 years >5 years Total
$ $ $ $ $ $
2023
Payables 5,997,028 - - - - 5,997,028
Lease liabilities 776,522 617,625 1,062,989 962,664 - 3,419,800
Borrowings 2,705,869 2,705,113 4,782,400 5,702,815 - 15,896,197
Deferred consideration 3,551,079 1,201,096 3,604,235 27,840 - 8,384,250
Group 0-6 months 6-12 months 1-2 years 2-5 years >5 years Total
$ $ $ $ $ $
2022
Payables 6,331,107 - - - - 6,331,107
Lease liabilities 773,239 654,271 1,929,195 663,870 - 4,020,575
Borrowings 2,045,305 2,046,745 7,520,762 5,220,986 - 16,833,798
Deferred consideration 3,245,144 1,863,949 7,136,582 27,839 - 12,273,514
Interest expected to be paid on liabilities are shown in the table below
0-6 months 6-12 months >12 months Total
Group $ $ $
$
2023
Payables - - - -
Lease liabilities 79,756 59,265 112,691 251,712
Borrowings 304,289 257,946 604,426 1,166,661
Deferred consideration 129,849 89,442 34,344 253,635
Derivatives
The Group recognized that there was inherent risk related to interest rates in
the economic environment. Therefore, the Group utilized interest rate swaps
to fix its future rates and thereby eliminated the risk against the numerous
increases in interest rates that occurred.
The Group entered into a swap agreement with M&T Bank which fixed the
Daily Simple SOFR interest at 2.39% through March 30, 2027. The interest rate
swap had a notional amount of $9,463,647, an effective date of March 30, 2022,
and a fair value of $162,660 at December 31, 2023, which was included as an
asset on the balance sheets.
The Group entered into an additional swap agreement with M&T Bank which
fixed the Daily Simple SOFR interest at 2.68% through March 30, 2028. The
interest rate swap had a notional amount of $5,536,353, an effective date of
March 30, 2023, and a fair value of $113,605 at December 31, 2023, which was
included as an asset on the balance sheets.
The interest rate swaps meet the criteria necessary to qualify as effective
cash flow hedges as defined in the accounting standards. Accordingly, the
Group has reflected the changes in the fair value within other comprehensive
income in the statement of comprehensive income.
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 2023 12,741,748 4,092,050 4,020,575 20,854,373
Cash flows
- Repayment (4,986,658) - (1,715,978) (6,702,636)
- Proceeds 2,811,353 - - 2,811,353
Non-cash
- New Leases - - 1,115,203 1,115,203
- New Loans 1,237,705 1,237,705
- Reclassification (1,318,933) 1,318,933 - -
As at 31 December 2023 10,485,215 5,410,983 3,419,800 19,315,998
Long-term borrowings Short-term borrowings Lease Liabilities Total
$ $ $ $
At 1 January 2022 6,128,605 2,163,701 3,210,167 11,502,473
Cash flows
- Repayment (3,815,204) - (1,595,853) (5,411,057)
- Proceeds 12,356,696 - - 12,356,696
Non-cash
- New Leases - - 2,406,261 2,406,261
- Reclassification (1,928,349) 1,928,349 - -
As at 31 December 2022 12,741,748 4,092,050 4,020,575 20,854,373
The New non-cash loans in the period are related to the financing for motor
vehicles acquired in the period and these are all fixed term borrowings
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 $ $ $ $
Listed equity investments
SEEEN investment 31 447,231 447,231 - -
December 2023
SEEEN investment 31 474,613 474,613 - -
December 2022
Derivative financial assets
Interest rate swap 31 276,265 - 276,265 -
December 2023
Interest rate swap 31 448,177 - 448,177 -
December 2022
To estimate fair value, the lower end of the bid-offer spread as at 31
December 2023 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 M&T Bank. 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 $17,747
and $19,089 for the years December 31, 2023 and 2022, respectively. The
guarantee fee expense for the PSS guarantee amounted to $123,748 and $99,146
for the years ended December 31, 2023 and 2022, respectively. During 2023 the
Company paid expenses on behalf of PSS in the amount of $88,377. The related
receivable/prepaid balance remaining is $291,528 and $309,152 at December 31,
2023 and 2022, respectively.
During the year, the Company had the following transactions with its
subsidiary companies:
Water Intelligence International Limited $
Balance at 31 December 2022 4,329,809
Net loans to subsidiary -
Other expenses recharged and exchange differences 279,797
Balance at 31 December 2023 4,609,606
ALDHC $
Balance at 31 December 2022 -
Loans prepaid by WI capital raise -
Balance at 31 December 2023 -
ALD Inc. $
Balance at 31 December 2022 22,605,908
Loans incurred due to WI capital raise -
Loans paid to WI -
Other expenses recharged and exchange differences 67,346
Balance at 31 December 2023 22,673,254
27 Exemption from audit by parent guarantee
The following subsidiaries of this entity are exempt from the requirement of
the Companies Act 2006 relating to the audit of individual financial
statements by virtue of s479A:
Name of
subsidiary
Company number
Water Intelligence International Limited
03634838
Wat-er-save Services
Limited
02498598
28 Subsequent events
On 9 May 2024, the Group announced the reacquisition of its Fresno, California
franchise territory within the Group's ALD franchise business. As Fresno is
located between the Bay Area and Los Angeles in the Central Valley of
California, the reacquisition reinforces the Group's strategy of establishing
regional corporate hubs in the US that fuel growth in adjacent franchise
locations. The cash consideration for the acquisition is $2.9 million based
on 2023 revenue of $1.8 million, adjusted profit before tax of $0.6 million
and the transfer of all operating assets to the Group.
As at the date of issuance the acquisition's acquisition accounting has not
been completed and the disclosures required by IFRS 3 par B66 can not be
provided
On 9 May 2024, the Group announced the sale of a new franchise for Albany and
Saratoga, New York within the Group's ALD franchise business. Albany and
Saratoga are key cities in upstate New York and comprise part of what is known
as the Capital District of New York. The upfront consideration for
launching this territory is $0.1 million. ALD expects to receive royalty
income from sales starting in July after the completion of training. More
broadly, in terms of ALD's growth strategy, located between this new franchise
location in Albany and ALD's corporate location on the Canadian side of
Niagara Falls, there are several large cities - Buffalo, Syracuse, and
Rochester - in upstate New York around which ALD can deliver future growth,
whether through corporate operations or selling more franchises.
29 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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