REG - Water Intelligence - Final Results <Origin Href="QuoteRef">WATRI.L</Origin> - Part 2
16/05/2017 07:05
- Part 2: For the preceding part double click ID:nRSP1969Fa
ALDHC of tax losses generated by the parent company, which eliminates on consolidation. Excluding this, a loss before tax
of $422,016 was included within the Consolidated Statement of Comprehensive Income.
Inventories
The inventories, consisting primarily of equipment, parts, and supplies, are recorded at the lower of cost (FIFO) or market
value.
Provisions
A provision shall be recognised only in the event that certain criteria are met, these being:
· An obligation has arisen as a result of the Group or Company's past activities;
· A cash outflow will be required to settle the obligation; and
· A reliable estimate can be made of the obligation.
3 Significant accounting policies continued
Taxation
Income tax expense represents the sum of the current tax and deferred tax charge for the year.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other
periods and it further excludes items that are never taxable or deductible. The Group's and Company's liability for current
tax is calculated using tax rates that have been enacted or substantively enacted by the year end.
Deferred tax
Deferred income taxes are provided in full, using the liability method, for all temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Deferred income taxes are
determined using tax rates that have been enacted or substantially enacted and are expected to apply when the related
deferred income tax asset is realised or the related deferred income tax liability is settled.
The principal temporary differences arise from depreciation or amortisation charged on assets and tax losses carried
forward. Deferred tax assets relating to the carry forward of unused tax losses and are recognised to the extent that it is
probable that future taxable profit will be available against which the unused tax losses can be utilised. The carrying
amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Foreign currencies
(i) Functional and presentational currency
Items included in the Financial Statements are measured using the currency of the primary economic environment in which
each entity operates ("the functional currency") which is considered by the Directors to be Pounds Sterling (£) for the
Parent Company and US Dollars ($) for ALDHC. The Financial Statements have been presented in US Dollars which represents
the dominant economic environment in which the Group operates and is the functional currency of the Group. The effective
exchange rate at 31 December 2016 was £1 = US$1.2305 (2015: £1 = US$1.4804). The average exchange rate for the year 31
December 2016 were £1 = US$1.3562 (2015: £1 = US$1.3559).
(ii) 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.
(iii) 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 equity.
3 Significant accounting policies continued
Leases
Assets held under finance leases are initially recognised as assets at their fair value at the inception of the lease or,
if lower, at the present value of the minimum lease payments. The corresponding liability to the lesser is included in the
consolidated statements of financial position as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss,
unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the
Company's general policy on borrowing costs.
Contingent rentals are recognised as expenses in the periods in which they are incurred.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a
liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis,
except where another systematic basis is more representative of the time pattern in which economic benefits from the leased
asset are consumed.
Revenue recognition
Revenue is recognised at the fair value of the consideration received or receivable.
Service revenue is recognised when the services are rendered and complete. This also applies to services rendered by any
Business to Business channel.
Advance collections from franchise sales are included in deferred income until all requirements are performed.
In particular, the Group receives royalties from franchisees in various percentages of their gross monthly sales. Royalties
are paid monthly and recognised under the accrual method of accounting.
Sales of other goods and products, in particular corporate run stores, are sold by the Group are recognised at fair value
of the consideration received or receivable following delivery of the goods or services.
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. The Group manages its capital to ensure that entities in
the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation
of the debt and equity balance.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active
market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective
interest method, less any impairment.
Cash and cash equivalents
Cash and cash equivalent 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.
3 Significant accounting policies continued
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each year end. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial
asset, the estimated future cash flows of the investment have been affected.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into.
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.
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.
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 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. 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.
3 Significant accounting policies continued
Amortisation is computed using the straight-line method over the definite estimated useful lives of the assets as follows:
Years
Covenants not to compete
3
Customer lists
5
Trademarks
20
Patents
10
Product development
2
Any amortisation is included within administrative expenses in the statement of comprehensive income.
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.
A geographical segment is identified by reference to revenues from external customers (i) attributed to the entity's
country of domicile and (ii) attributed to all foreign countries in total from which the entity derives revenues. If
revenues from external customers attributed to an individual foreign country are material (more than 10%) those revenues
are disclosed separately.
Pension contributions
There are no pension schemes in the Group.
3 Significant accounting policies continued
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 and lenders by way of
issue of share options. The fair value of these payments is calculated either using the Black Scholes option pricing model
or by reference to the fair value of any fees or remuneration settled by way of granting of options. The expense is
recognised on a straight-line basis over the period from the date of award to the date of vesting, based on the best
estimate of the number of shares that will eventually vest.
Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with International Financial Reporting Standards requires the use of
judgements together with accounting estimates and assumptions that affect the reported amounts of assets and liabilities
and the reported amounts of income and expenses during the reporting period. Although these judgements and estimates are
based on management's best knowledge of current events and actions, the resulting accounting treatment estimates will, by
definition, seldom equal the related actual results.
The key judgements in respect of the preparation of the financial statements are in respect of the accounting for
acquisitions, determination of separately identifiable assets on acquisition, the determination of cash generating units,
the evaluation of segmental information, the evaluation of whether there is any indication of any impairment in
investments, intangibles, goodwill or receivables and whether deferred tax assets should be recognized for tax losses.
The estimates and assumptions that have a risk of causing material adjustment to the carrying amounts of assets and
liabilities within the next financial year are the fair value of assets arising on acquisition, carrying value of the
goodwill, the carrying value of the other intangibles, the carrying value of the investments, and the deferred taxation
provision. 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) Corporate Owned Stores, (iii) Franchise-related activities (including product and equipment
sales and Business-to-Business sales), (iv) International corporate activities 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. In 2016, 94.4% (2015: 99.6%) of
its revenue came from American Leak Detection, which includes royalties from franchisees and corporate-operated stores,
with the remaining 5.6% of revenue coming from its UK based wholly-owned ALD International Limited subsidiary (2015:
0.4%).
No single customer accounts for more than 10% of the Group's total external revenue.
4 Segmental Information continued
The following is an analysis of the Group's revenues and results from operations and assets by business segment.
Revenue
Year ended Year ended
31 December 31 December
2016 2015
$ $
Franchise royalty income 5,543,207 5,221,331
Corporate owned stores 4,216,584 2,614,274
Franchise related activities 1,731,849 968,336
International corporate activities 683,597 38,409
Total 12,175,237 8,842,349
Profit/(Loss) before tax
Year ended Year ended
31 December 31 December
2016 2015
$ $
Franchise royalty income 1.219,247 1,186,132
Corporate owned stores 324,423 148,040
Franchise related activities 226,934 126,442
International corporate activities 139,004 (69,807)
Unallocated head office costs (841,137) (407,367)
One-Time cost (296,000) (11,000)
Total 772,471 972,440
Assets
Year ended Year ended
31 December 31 December
2016 2015
$ $
Franchise royalty income 6,814,156 7,868,133
Corporate owned stores 2,186,759 791,928
Franchise related activities 327,502 (1,751,747)
International corporate activities 166,405 43,722
Total 9,494,823 6,952,036
4 Segmental Information continued
Amortization
Year ended Year ended
31 December 31 December
2016 2015
$ $
Franchise royalty income 266,438 270,492
International corporate activities 27,248 -
Total 295,606 270,492
Depreciation
Year ended Year ended
31 December 31 December
2016 2015
$ $
Franchise royalty income 3,734 21,221
Corporate owned stores 71,885 -
Franchise related activities - 14
International corporate activities 5,661 420
Total 81,279 21,655
Finance Expense
Year ended Year ended
31 December 31 December
2016 2015
$ $
International corporate activities 17,671 -
Unallocated head office costs 154,415 135,102
Total 172,086 135,102
For the purpose of monitoring segmental performance, no liabilities are reported to the Group's Chief Operating Decision
Maker.
Geographic Information
The breakdown of segmental information into US and International begins to capture the Group's effort to be multinational
company. The acquisitions of NRW (UK) and the former franchisee in Sydney, Australia take a significant step in this
direction.
Total Revenue
Year ended 31 December 2016 Year ended 31 December 2015
US International Total US International Total
$ $ $ $ $ $
Franchise royalty income 5,312,542 230,665 5,543,207 4,993,714 227,616 5,221,330
Corporate owned Stores 4,216,584 - 4,216,584 2,614,274 - 2,614,274
Franchise related activities 1,731,849 - 1,731,849 968,336 - 968,336
International corporate activities - 683,597 683,597 - 38,409 38,409
Total 11,260,975 914,262 12,175,237 8,576,324 266,026 8,842,349
5 Expenses by nature
The Group's operating profit has been arrived at after charging:
Year ended Year ended
31 December 31 December
2016 2015
Note $ $
Raw materials and consumables used 954,234 793,369
Employee costs 6 6,002,080 3,902,956
Operating lease rentals 121,813 3,841
Depreciation charge 81,279 21,655
Amortization charge 295,606 270,492
Marketing costs 333,827 532,846
R & D 14,989 13,878
Foreign exchange (gain)/loss 3,016 (226)
Year ended Year ended
31 December 31 December
2016 2015
$ $
Auditors remuneration
Fees payable to the Company's auditor for audit of Parent Company and Consolidated Financial Statements 39,318 37,010
Fees payables to the Company's auditor for other services (assurance related services) 12,925 -
The Group auditors are not the auditors of the US subsidiary companies. The fees paid to the auditor of the US subsidiary
companies were $92,085 (2015: $88,012) for the audit of these companies and $nil (2015: $nil) for other services.
6 Employees and Directors
The Directors of the Company are considered to be the key management of the business.
Year ended Year ended
31 December 31 December
2016 2015
$ $
Short-Term employee benefits
Directors fees, salaries and benefits 644,208 593,000
Wages and Salaries 4,943,189 3,039,404
Social Security Costs 377,224 235,320
Long-Term employee benefits
Share based payments 37,459 35,232
6,002,080 3,902,956
6 Employees and Directors continued
Information regarding Directors emoluments are as follows:
Year ended Year ended
31 December 31 December
2016 2015
$ $
Short-Term employee benefits
Directors' fees, salaries and benefits 644,208 593,000
Social Security Costs 19,190 14,445
Long-Term employee benefits
Share based payments 36,176 16,034
699,574 623,479
The highest paid Director received emoluments of $447,019 (2015: $404,490).
The average number of employees (including Directors) in the Group during the year was:
Year ended Year ended
31 December 31 December
2016 2015
$ $
Directors (executive and non-executive) 5 5
Management 6 6
Field Services 57 23
Franchise Support 16 26
Administration 5 3
89 63
Share options
The Group has a number of share options schemes as shown in the tables below.
The Company grants share options at its discretion to Directors, management, advisors and lenders. These are accounted for
as equity settled options. Share options are granted with vesting periods of between one and three years from the date of
grant. 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 2016 Weighted average exercise price ($)2016 Number Weighted average exercise price ($)2015
of share
options2015
Outstanding at beginning of year 1,152,000 1.05 734,500 1.26
Granted during the year 730,000 1.33 417,500 0.67
Forfeited/lapsed during the year (117,000) 1.21 - -
Exercised during the year - - - -
Outstanding at end of the year 1,765,000 1.12 1,152,000 1.05
Exercisable at end of the year 1,765,000 1.12 1,152,000 1.05
Fair value of share options
During the year, the Group granted 730,000 Share Options to Directors and to certain Employees, with exercise prices
ranging from of £0.62 to £1.25 ($0.92 to $1.56).
The fair value of options granted during the year has been calculated using the Black Scholes model which has given rise to
fair values per share ranging from 0.2528p to 0.3194p. This is based on risk-free rates ranging from 0.239% to 0.369% and
volatility ranging from 62% to 69%. The Black Scholes calculations for the Options granted during the year resulted in a
charge of $37,459 (2015: $35,232) which has been expensed in the year.
The weighted average remaining contractual life of the Share Options is 8.34 years (2015: 8.08 years). The following
options arrangements exist over the Company's shares:
Scheme 2016 2015 Date of Grant Exercise price Exercise periodFrom To
Third Party - 67,000 12/09/2013 $1.18 12/09/2013 12/09/2016
ALDHC Plan (1) 417,500 417,500 01/12/2013 $1.14 01/12/2013 01/12/2023
Directors (2) 250,000 250,000 01/08/2013 $1.30 01/08/2013 01/08/2023
2015 Options (3) 417,500 417,500 08/06/2015 $0.67 08/06/2015 08/06/2025
2016 Directors (4) 200,000 - 13/06/2016 $1.29 13/06/2016 13/06/2026
2016 Directors (4) 50,000 - 13/06/2016 $0.92 13/06/2016 13/06/2026
2016 Employee (5) 220,000 - 19/12/2016 $1.24 19/12/2016 19/12/2026
2016 Employee (5) 210,000 - 19/12/2016 $1.56 19/12/2016 19/12/2026
Total 1,765,000 1,152,000
All share options are equity settled on exercise.
7 Share options continued
(1) Under ALDHC's 2006 Employee, Director and Consultant Stock Plan ("ALDHC Option Plan"), certain directors and employees
of ALD, were granted options to acquire an aggregate of 738,750 shares in ALDHC with an exercise price of $1.14 per share.
Of these grants, the Executive Chairman had been granted an option to purchase 250,000 shares. Following Admission, all
options under the ALDHC Option Plan were to be cancelled or waived in return for the grant of options over New Ordinary
Shares with the same economic value as existing options under the ALDHC Option Plan. The conversion to options over 417,500
New Ordinary Shares in respect of these options has been completed in 2013, the balance being attributable to leavers
between 2010 and 2013 or options that have not been taken up. These Options have all vested in full.
(2) In recognition of three years of deferred compensation and additional services rendered, each member of the board,
after consultation with the NOMAD, received an option to purchase 50,000 New Ordinary Shares pursuant to the Option Plan in
2013. The Director options have an exercise price of $1.30 per share or 67% above the highest share price for 2013. These
Options have all vested in full.
(3) On 5 June 2015, the Group granted 417,500 Share Options to the Executive Chairman and David Silverstone, both
directors of the Company, and to certain Employees, all with an exercise price of $0.67. 100,000 of these Share Options
relate to the Executive Chairman's compensation and an additional 50,000 of these Share Options relate to the Executive
Chairman's personnel guarantee of the loan with Liberty Bank in 2014. 40,000 of these Share Options relate to compensation
payable to David Silverstone.
(4) On 13 June 2016, each member of the board received an option to purchase 50,000 New Ordinary Shares. The Director
options have an exercise price of $1.26 per share which is 5% higher than the highest share price for 2015. These Options
have a three-year vesting requirement. Stephen Leeb's 50,000 options lapsed on his resignation as a Director during 2016.
On 13 June 2016, the Executive Chairman, a director of the Company, was also granted 50,000 Share Options with an exercise
price of $0.92 related to the Executive Chairman's personnel guarantee of the loan with Liberty Bank in 2015.
(5) On 19 December 2016, certain employees were granted an option to purchase 220,000 New Ordinary Shares at a price of
$1.24 and 210,000 New Ordinary Shares at a price of $1.56 based on 2016 performance and as an incentive for future
performance. These options have a three-year vesting requirement.
8 Finance income
Year ended Year ended
31 December 31 December
2016 2015
$ $
Interest income 12,264 17,326
9 Finance expense
Interest payable
Year ended Year ended
31 December 31 December
2016 2015
$ $
Bank loans 172,086 135,102
10 Taxation
Group Year ended Year ended
31 December 31 December
2016 2015
$ $
Current tax:
Current tax on profits in the year 53,466 522,557
Prior year over provision - -
Total current tax 53,467 522,557
Deferred tax current year 240,632 (130,870)
Deferred tax prior year - -
Deferred tax expense/(credit) (note 21) 240,632 (130,870)
Income tax expense 294,098 391,687
The tax on the Group's loss before tax differs from the theoretical amount that would arise using the weighted average tax
rate applicable to profits of the consolidated entities as follows:
Profit before tax on ordinary activities 772,299 972,440
Tax calculated at domestic rate applicable profits in respective countries
(2016: 35% versus 2015: 34%) 270,365 330,630
Tax effects of:
Non-deductible expenses 56,891 54,235
State taxes net of federal benefit 33,962 82,534
Adjustment in respect of prior year (77,702) -
Deferred tax not recognised 11,156 (75,712)
Adjust deferred tax rate to 35% 35,614 -
Changes in rates (36,188)
Taxation expense recognised in income statement 294,098 391,687
The Group is subject to income taxes in two 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. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the current and deferred income tax assets and liabilities in the period in which such
determination is made.
The effective rate for tax for 2016 is 38% (2015: 40%).
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 31 December 2016 $ Year ended 31 December 2015 $
Profit for the year attributable to shareholders of the Company ($) 478,200 580,753
Weighted average number of ordinary shares 10,690,410 10,605,321
Diluted weighted average number of ordinary shares 10,825,113 10,648,128
Profit per share (cents) 4.5 5.5
Diluted profit per share (cents) 4.4 5.5
12 Acquisitions
During 2016, the Group purchased franchisee operations in South New Jersey, Cincinnati, Ohio, Northwest Arkansas and
Sydney, Australia, as well as, a municipal business in the UK - NRW Utilities Limited. As discussed in the Chairman's
Statement, these acquisitions not only are expected to contribute revenue and earnings but also strengthen the Group's
corporate execution capabilities in the US, UK and Australia. In the US and Australia such corporate presence supports the
American Leak Detection franchise system. In the UK, the acquisition builds on the Group's existing municipal business and
provides operational leadership for the Group's multinational objectives.
These can be summarised as follows:
New Jersey Ohio Arkansas NRW Australia Totals
$ $ $ $ $ $
Fair value of assets and liabilities acquired
Customer relationships (see note 13) - - - 132,857 - 132,857
Accounts receivable - - - 173,319 - 173,319
Equipment 1,250 83,450 21,516 15,427 57,866 179,509
Cash - - - 17,658 - 17,658
Liabilities - - - (201,558) - (201,558)
Net assets acquired 1,250 83,450 21,516 137,703 57,866 301,785
Consideration 95,000 367,340 250,000 615,080 411,869 1,739,289
Goodwill on acquisition (see note 13) 93,750 283,890 228,484 477,377 354,003 1,437,504
Goodwill arising on New Jersey, Ohio and Arkansas of $606,124 is included additions to goodwill for owned & operated stores
(see note 13). Goodwill arising on NRW and Australia of $831,380 is included in additions to goodwill for goodwill
acquisitions (see note 13).
12 Acquisitions continued
On February 19, 2016 American Leak Detection reacquired the franchise territory located in Southern New Jersey for
$95,000.
On April 30, 2016 American Leak Detection reacquired the franchise territory located in Cincinnati, Ohio for total
consideration of $400,000. As of May 2, 2017, ALD has paid $220,000 and has $180,000 in deferred payments remaining which
are evenly divided into 3 installments of $60,000 to be paid over each of the next three years on May 1.
On September 30, 2016 American Leak Detection reacquired the franchise territory located in Northwest Arkansas for a total
$150,000 amounting to sixty percent (60%) of the equity value of the territory. As part of the agreement, ALD has the
right to purchase the remaining forty percent (40%) for $100,000 once total sales pass $250,000 annually.
On 1 September 2016 the Group acquired NRW Utilities Limited ('NRW'), a UK-based water services business for a total
consideration of £575,173. The consideration is comprised of an initial payment of £275,173, which includes the repayment
of a vendor loan amounting to £75,173. The initial payment is made at signing and draws on the Group's existing cash
reserves. Additional payments amounting to £300,000 are to be made in 2017 and 2018. On 9 February 2017, the Group made an
early payment of £110,000 reducing total deferred payments to £190,000. (See Subsequent Events)
On 2 November 2016 the group acquired Advanced Leak Detection (ADV) and Australian Watermain (AWL), the latter pending a
regulatory clearance that has subsequently been obtained. Both Australian Companies, located in Sydney, were owned by a
former franchisee of American Leak Detection - a core business unit of Water Intelligence. The total consideration for the
transaction was US$434,000. Of the total consideration, $105,409 is allocated at Closing, $102,470 is to be paid on the
first anniversary of Closing and $226,065 is to be paid on the second anniversary of Closing. An adjustment in the Closing
amount in favor of Water Intelligence shall be made depending on the amount of additional time needed for regulatory
clearance for AWL.
The amount of deferred consideration (after discounting anticipated cash flows to evaluate the fair value), can be
summarized as follows:
Current Year ended Year ended
31 December 31 December
2016 2015
$ $
T&M Tech LLC (South Michigan Franchise) 62,115 59,781
New Jersey - -
Ohio 58,212 -
Arkansas - -
NRW 307,540 -
Australia 134,379 -
Total current deferred consideration 562,246 59,781
Non-Current Year ended Year ended
31 December 31 December
2016 2015
$ $
T&M Tech LLC (South Michigan Franchise) 215,094 277,208
New Jersey - -
Ohio 159,128 -
Arkansas - -
NRW 61,508 -
Australia 176,495 -
Total non-current deferred consideration 612,225 277,208
13 Intangible assets
Goodwill table
Group Goodwill Acquisitions Owned & Operated stores Franchisor activities Totals
$ $ $ $
Cost
At 1 January 2015 1,493,729 239,500 636,711 2,369,940
Additions - 595,616 - 595,616
Reclassification (see below) - 72,200 - 72,200
At 31 December 2015 1,493,729 907,316 636,711 3,037,756
Additions (see note 12) 831,380 606,124 - 1,437,504
At 31 December 2016 2,325,109 1,513,440 636,711 4,475,260
Impairment
At 1 January 2015 1,493,729 75,000 - 1,568,729
Impairment in year - - - -
At 31 December 2015 1,493,729 75,000 - 1,568,729
Impairment in year - - - -
At 31 December 2016 1,493,729 75,000 - 1,568,729
Carrying amount
At 31 December 2015 - 832,316 636,711 1,469,027
At 31 December 2016 831,380 1,438,440 636,711 2,906,531
The carrying value of Goodwill Acquisitions at 31 December 2016 relate to goodwill additions arising on the acquisition of
NRW and Australia in 2016 (as detailed in note 12).
Goodwill Owned & Operated stores comprises legacy owned stores together with additions arising from reacquisitions of
franchise operations in 2015 and 2016. Additions in 2016 relate to New Jersey, Ohio and Arkansas (see note 12).
Goodwill on Franchisor Activities relates to the royalty income franchise business.
Where appropriate consideration of separately identifiable intangible assets have 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 2016 and
2015 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 their 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.
13 Intangible assets continued
There is no separately identified intangible considered to arise from the customer list of the 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 is allocated to appropriate cash generating
units which can be summarised as follows:
Goodwill Acquisitions - NRW and Australia - are separately categorized as cash generating units.
Goodwill on Owned & Operated stores are categorized as cash generating units that are expected to benefit from the
synergies of the combination,
Goodwill on Franchisor Activities is considered as one cash generating unit by reference to revenues and activities derived
from the franchise royalty income and franchise related activities segments (see note 4).
The cash generating units to which goodwill has 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 2017 were as
follows:
%
Discount rate
15
Short term revenue growth
5
Long term revenue growth
3.5
Tax rate
35
Discount rate sensitivity step
2
Perpetual growth rate sensitivity step
1
This has resulted in no impairment charge being required in 2016 (2015: $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.
13 Intangible assets continued
Other Intangible assets table
Product development Covenants Customer Lists Trademarks Patents Territory servicing rights Total
not to compete
$ $ $ $ $ $ $
Cost
At 1 January 2015 164,880 270,000 217,500 5,293,817 23,692 88,000 6,057,889
Additions - 20,000 - - - - 20,000
Reclassification - - - - - (88,000) (88,000)
At 31 December 2015 164,880 290,000 217,500 5,293,817 23,692 - 5,989,889
Additions (see note 12) - - 132,857 - - - 132,857
Exchange differences - - - - - - -
Reclassification - - - - - - -
At 31 December 2016 164,880 290,000 350,357 5,293,817 23,692 - 6,122,746
Accumulated amortisation
At 1 January 2015 164,880 270,000 217,500 2,371,602 23,692 7,000 3,054,674
Amortisation expense - - - 261,692 - 8,800 270,492
Reclassification - - - - - (15,800) (15,800)
At 31 December 2015 164,880 270,000 217,500 2,633,294 23,692 - 3,309,366
Amortisation expense - 6,667 27,248 261,691 - - 295,606
Exchange differences - - (677) - - - (677)
At 31 December 2016 164,880 276,667 244,071 2,894,985 23,692 - 3,604,295
Carrying amount
At 31 December 2015 - 20,000 - 2,660,523 - - 2,680,523
At 31 December 2016 - 13,333 106,286 2,398,832 - - 2,518,451
All intangible assets have been acquired by the Group.
Customer list additions relate to the acquisitions during the year of NRW, as detailed note 12.
The brought forward items as at 1 January 2015 for Territory Servicing rights, arose from the reacquisition of the New York
Franchise on 25 March 2015. This amount was reassessed in 2015 and as such, reclassified, at is net carrying value, as at
31 December 2015 as goodwill (see goodwill table above) for consistency in treatment with further such acquisitions that
have arisen during 2015 and 2016. No adjustment was been made to amortisation up to this date on the basis of the amount
being immaterial.
14 Property, plant and equipment
The calculation of amortization of intangible assets requires the use of estimates and judgement, related to the expected
useful lives of the assets.
An impairment review is undertaken annually or whenever changes in circumstances or events indicate that the carrying
amount may not be recovered.
Equipment & displays $ Motor Vehicles Leasehold Improvements Total
$ $ $
Cost
At 1 January 2015 444,284 157,781 123,418 725,483
Acquired on acquisition of subsidiary 150,571 122,771 - 273,342
Additions 62,673 3,640 - 66,313
Exchange differences (103) - - (103)
Disposals - (35,657) - (35,657)
At 31 December 2015 657,425 248,535 123,418 1,029,378
Acquired on acquisition of subsidiary 47,693 20,871 - 68,564
Additions 254,096 93,843 - 347,939
Exchange differences (279) - - (279)
Disposals - - - -
At 31 December 2016 958,935 363,249 123,418 1,445,602
Accumulated depreciation
At 1 January 2015 402,948 141,169 123,418
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