REG - Water Intelligence - Final Results <Origin Href="QuoteRef">WATRI.L</Origin> - Part 3
16/05/2017 07:05
- Part 3: For the preceding part double click ID:nRSP1969Fb
667,535
Acquired on acquisition of subsidiary 150,571 117,840 - 268,411
Eliminated on disposals - (35,657) - (35,657)
Depreciation expense 17,607 4,048 - 21,655
Exchange differences (14) - - (14)
At 31 December 2015 571,112 227,400 123,418 921,930
Acquired on acquisition of subsidiary 2,839 2,807 - 5,646
Eliminated on disposals - - - -
Depreciation expense 62,587 18,692 - 81,279
Exchange differences (148) (33) - (181)
At 31 December 2016 636,390 248,866 123,418 1,008,674
Carrying amount
At 31 December 2015 86,313 21,135 - 107,448
At 31 December 2016 322,545 114,383 - 436,928
The calculation of depreciation on property, plant and equipment requires the use of estimates and judgement, related to
the expected useful lives of the assets. The depreciation expense in the year to 31 December 2016 is not material to the
accounts, and therefore any change in estimate related to expected useful lives would not have a material effect on the
Financial Statements.
The value of the assets charged as security for the bank debt is $393,354 (2015: $105,802).
15 Investment in subsidiary undertakings
Company Subsidiary Undertakings
$
Cost
At 31 December 2015 14,533,507
Exchange difference (1,374,697)
At 31 December 2016 13,158,810
Impairment
At 31 December 2015 6,400,906
Exchange difference -
At 31 December 2016 6,400,906
Carrying amount
At 31 December 2015 8,132,601
At 31 December 2016 6,757,904
The Directors annually assess the carrying value of the investment in the subsidiary and in their opinion no impairment
provision is currently necessary. See notes 12 and 13 for the assumptions and sensitivities in assessing the carrying value
of the investment.
The net carrying amounts noted above relate to the US incorporated subsidiaries.
The subsidiary undertakings during the year were as follows:
Registered office address Country of incorporation Interest held
%
Qonnectis Group Limited (holding company of ALD International Limited) * 201 Temple Chambers 3-7 Temple Avenue, London, EC4Y 0DT England and Wales 100%
Water Intelligence International Limited (leak detection products and services) 201 Temple Chambers 3-7 Temple Avenue, London, EC4Y 0DT England and Wales 100%
American Leak Detection Holding Corp.
(holding company of ALD Inc.) * 199 Whitney Avenue, New Haven, Connecticut 06511 U.S. US 100%
American Leak Detection, Inc. (leak detection product and services) US 100%
NRW Utilities Limited 201 Temple Chambers 3-7 Temple Avenue, London, EC4Y 0DT England and Wales 100%
Water Intelligence Australia Pty 201 Temple Chambers 3-7 Temple Avenue, London, EC4Y 0DT Australia 100%
* Subsidiaries owned directly by the Parent Company.
16 Inventories
Group
Year ended Year ended
31 December 31 December
2016 2015
$ $
Group Inventories 327,501 275,204
During the year ended 31 December 2016 an expense of $1,586,095 (2015: $793,369) was recognized in the Consolidated
Statement of Comprehensive Income. There has been no write down of inventories during the year.
17 Trade and other receivables
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016 2015 2016 2015
$ $ $ $
Trade notes receivable 42,445 37,576 - - -
All non-current receivables are due within five years from the end of the reporting period.
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016 2015 2016 2015
$ $ $ $
Trade receivables 879,820 357,557 - -
Prepayments 494,713 256,143 27,840 74,096
Due from Group undertakings - - 1,092,595 496,988
Accrued royalties receivable 428,983 432,033 - -
Trade notes receivable 122,197 82,240 - -
Other receivables 164,644 111,524 38,008 106,509
Due from related party 115,722 111,307 - -
Current portion 2,206,079 1,350,804 1,158,443 677,593
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.
The average credit period taken on sales is 26 days (2015: 25 days).
As at the 31 December 2015, trade receivables of $70,395 (2015: $41,171) were past due but not impaired. These relate to a
number of customers for whom there is no history of default. The ageing analysis of these trade receivables is as follows:
Ageing of past due but not impaired receivables
Year ended Year ended
31 December 31 December
2016 2015
$ $
60-90 days 27,404 3,661
90+ days 42,991 37,510
70,395 41,171
Average age (days) 92 92
17 Trade and other receivables continued
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
2016 2015
$ $
US Dollar 2,140,231 1,240,142
UK Pound 65,848 110,662
2,206,079 1,350,804
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned
above. The Group does not hold any collateral as security.
18 Cash and cash equivalents
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016 2015 2016 2015
$ $ $ $
Cash at bank and in hand 1,056,888 1,031,454 268,785 18,937
19 Trade and other payables
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016 2015 2016 2015
$ $ $ $
Trade payables 494,263 227,033 15,041 9,796
Accruals and other payables 456,462 436,583 84,727 55,885
Due to Group undertakings - - 1,283,315 880,966
950,725 663,616 1,383,083 946,647
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs and are payable
within 3 months. The average credit period taken for trade purchases is 16 days (2015: 16 days).
20 Deferred Tax
The analysis of deferred tax assets is as follows:
Group 2016 2015
$ $
Deferred tax (liability)/assets (305,081) (64,449)
The movement in deferred tax assets is as follows:
2016 Opening balance Recognized in the income statement Closing balance
$ $ $
Temporary differences: - - -
Net operating profit (loss) (non-current) - - -
Short term timing differences (64,449) (240,632) (305,081)
- - -
2015 Opening balance Recognized in the income statement Closing balance
$ $ $
Temporary differences: - - -
Net operating profit (loss) (non-current) - - -
Short term timing differences (195,319) 130,870 (64,449)
(195,319) 130,870 (64,449)
At the balance sheet date, the Group's UK trading subsidiaries had unused tax losses of £3,459,553 (2015 £3,459,553)
available for offset against future profits. £590,866 (2015 £590,866) represents unrecognized deferred tax assets thereon
at 17%. 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 Deferred Shares Number
At 31 December 2015 10,617,650 808,450,760
At 31 December 2016 11,473,833 -
.
Group & Company
Share Capital Share Premium Capital Redemption
$ $ $
At 31 December 2015 12,733,307 4,829,377 6,517,644
At 31 December 2016 64,257 926,787 -
Following a general meeting held on 29 March 2016, where shareholders voted to approve the matter, a share capital
reorganisation was undertaken on 30 March 2016 pursuant to which every 230 ordinary shares of 1p each were consolidated
into 1 ordinary share of £2.30 nominal value and then subdivided back into ordinary shares of 1p each. Undertaking this
exercise enabled the Company to significantly decrease the number of persons on its shareholder register and reduce the
associated costs and administrative burden of maintaining a large shareholder base with no material interest in the
Company. The total number of shares in issue following completion of the share capital reorganisation was 10,617,720
ordinary shares of 1p each.
On 20 April 2016, following approval by shareholders at the general meeting held on 29 March 2016 and the High Court of
Justice of England and Wales, the Company undertook a capital reduction exercise pursuant to which:
· the share premium account of the Company was cancelled;
· the capital redemption account of the Company was cancelled;
· the issued share capital of the Company was reduced by cancelling all the issued deferred shares; and
· the amount of US$7,500,000 standing to the credit of the merger reserve was capitalised and applied in paying up
bonus shares which were then cancelled.
Accordingly, for the purposes of the Company's balance sheet, on 20 April 2016, the share premium account and capital
redemption account were reduced to zero, the merger reserve was reduced by US$7,500,000 and the share capital of the
Company was reduced by £8,084,507.60 (US$12,679,741).
In total, this exercise generated US$31,497,995 to be credited against the negative distributable reserves of the Company
thereby creating positive distributable reserves. Having positive distributable reserves means that the Company will be
able to pay dividends and buy back shares in the future should it be deemed desirable to do so.
In November 2016, the Company issued new ordinary shares as part of a capital raise. Upon closing of the financing the
number of ordinary shares outstanding was 11,473,833.
22 Obligations under operating leases
The future aggregate minimum lease payments under non-cancellable operating leases are set out below.
2016 Land & Buildings Other Total
$ $ $
No later than one year 136,256 105,220 241,476
Later than one year, and not later than five years 73,459 229,392 302,851
Total 209,715 334,612 544,327
2015 Land & Buildings Other Total
$ $ $
No later than one year - 48,990 48,990
Later than one year, and not later than five years - 154,548 154,548
Total - 203,538 203,538
The operating lease commitments above apply to the Group; the Company has no operating leases. All leases relate to
vehicles.
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 2016 no trading in financial instruments was undertaken (2015:
none) and the Group did not have any derivative or hedging instruments.
The Group uses financial instruments including cash, loans and finance leases, as well as trade receivables and payables
that arise directly from operations.
Due to the simple nature of these financial instruments, there is no material difference between book and fair values,
discounting would not give a material difference to the results of the Group and the Directors believe that there are no
material sensitivities that require additional disclosure.
Fair value of financial assets and financial liabilities
The estimated difference between the carrying amount and the fair values of the Group's financial assets and financial
liabilities is not considered material.
Credit risk
The Group's principal financial assets are bank balances, cash, trade and other receivables. The Group's credit risk is
primarily attributable to its trade receivables. 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.
23 Financial instruments continued
Credit risk management
Credit risk refers to the risk that a counter-party 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. Disclosures related to credit risk associated
with trade receivables is presented in Note 17.
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
2016 2015 2016 2015
$ $ $ $
Loans and receivables - - - -
Cash and cash equivalents 1,056,888 1,031,454 268,785 18,937
Trade and other receivables - current 2,206,079 1,350,804 1,158,443 526,084
Trade and other receivables - non-current 42,445 37,576 - -
Financial Liabilities measured at amortised cost
Trade and other payables 950,725 663,616 1,383,083 946,647
Borrowings - current 492,453 591,450 - -
Borrowings - non-current 1,327,593 1,459,027 - -
Deferred consideration - current 562,246 59,781 - -
Deferred consideration - non-current 612,225 277,208 - -
Borrowings
Bank Loan
The Group had a commercial banking relationship with Liberty Bank ("Liberty"). During 2014 the loan was refinanced and the
term of the loan was reset for 5 years to 2019. The principal amount outstanding at 5 December 2016 was $1,574,801. As of 5
December 2016, interest on the loan was 5.75% annually, with monthly installments of principal and interest amounting to
$52,959 per month.
On December 5, 2016, the Group replaced Liberty with People's United Bank ("People's") and closed on a new term loan with
People's. The note refinanced the outstanding note from Liberty Bank and reset the term for 4 years to 2020. The principal
amount outstanding at 31 December 2016 is $1,600,000. Annual interest on the loan is fixed for the term at 4.78% and
requires installments of principal and interest amounting to $36,716 to be paid per month beginning on 1 January 2017.
People's Bank also requires PSS, among others, to guarantee the loan.
Current Non-Current
Financial Instruments Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2016 2015 2016 2015
$ $ $ $
Term loan 492,453 591,450 1,075,593 1,459,027
Total 492,453 591,450 1,075,593 1,459,027
23 Financial instruments continued
During 2016, the Company drew on a $250,000 line of credit available from Liberty Bank. This amount was refinanced under
the People's transaction (2015: $nil).
Capital risk management
In managing its capital, the Group's primary objective is to maintain a sufficient funding base to enable working capital,
research and development commitments and strategic investment needs to be met and therefore to safeguard the Group's
ability to continue as a going concern in order to provide returns to shareholders and benefits to other stakeholders. In
making decisions to adjust its capital structure to achieve these aims, through new share issues, the Group considers not
only its short-term position but also its long term operational and strategic objectives.
The capital structure of the Group currently consists of cash and cash equivalents, medium term borrowings and equity
comprising issued capital, reserves and retained earnings. The Group is not subject to any externally imposed capital
requirements.
Significant accounting policies
Details of the significant accounting policies including the criteria for recognition, the basis of measurement and the
bases for recognition of income and expense for each class of financial asset, financial liability and equity instrument
are disclosed in Note 3.
Foreign currency risk management
The Group undertakes transactions denominated in foreign currencies (other than the functional currency of the Company and
its UK operations, being £ Sterling), with exposure to exchange rate fluctuations. These transactions predominately relate
to royalties receivable in the US denominated in currencies other than US$ being Canadian Dollars, Australian Dollars and
Euro; royalties from such sources in 2016 were $230,666 (2015: $309,215). No foreign exchange contracts were in place at 31
December 2016 (2015: 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
2016 2015 2016 2015
$ $ $ $
Assets
Sterling 828,291 110,647 1,427,228 696,530
Liabilities
Sterling 264,242 87,071 1,383,083 946,647
As shown above, at 31 December 2016 the Group had Sterling denominated monetary net assets of $564,049 (2015: $23,576). If
Sterling weakens by 10% against the US dollar, this would decrease assets by $56,405 (2015: $2,142) with a corresponding
impact on reported losses.
Interest rate risk management
The Group is potentially exposed to interest rate risk because the Group borrows and deposits funds at both fixed and
floating interest rates. However, at the year end, the borrowings are only subject to fixed rates.
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the year ended 31 December 2016 would not materially change if
market interest rates had been 1% higher/lower throughout 2016 and all other variables were held constant.
23 Financial instruments continued
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 cash flow forecast for the period to 30 June 2017. 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 reliant on cash generation from its predominantly US-based royalty income.
The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities with
agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based
on the earliest due repayment dates. The table shows principal cash flows.
0-6 monthsGroup $ 6-12 months$ >12 months$ Total$
2016
Fixed interest rate instruments principal 215,244 215,244 1,389,558 1,820,046
Other financial liabilities - - - -
2015
Fixed interest rate instruments principal 295,725 295,725 1,459,027 2,050,477
Other financial liabilities 723,397 - 277,208 1,000,605
The Company has no non-derivative financial liabilities.
Derivatives
The Group and Company have no derivative financial instruments.
Fair values
The Directors consider that the carrying amounts of financial assets and financial liabilities approximate their fair
values.
24 Notes to the statement of cash flows
Cash flows from operating activities Year ended Year ended 31 December 2015
31 December 2016 $
$
Group
Operating Profit 932,293 1,090,216
Adjustments for:
Depreciation of plant and equipment 81,098 21,744
Amortisation of intangible assets 294,930 270,492
Share based payments 37,459 35,232
Operating cash flows before movements in working capital 1,345,780 1,417, 684
Increase in inventories (52,298) (69,727)
Increase in trade and other receivables (686,825) (518,033)
(Decrease) in trade and other payables (20,092) (107,883)
Cash generated by operations 586,565 722,041
Income taxes (53,466) (522,557)
Net cash generated from operating activities 533,099 199,484
Cash flows from operating activities Year ended Year ended
31 December 2016 31 December 2015
$ $
Company
(Loss)/Profit for the year (621,594) 451,255
Adjustments for:
Share based payment expense 37,459 35,232
Operating cash flows before movements in working capital (584,135) 486,487
Increase in trade and other receivables (480,850) (262,822)
Increase/(Decrease) in trade and other payables 406,121 (222,057)
Cash (used by)/generated from operations (658,863) 1,608
Income taxes - -
Net cash (used by/generated from operating activities (658,863) 1,608
25 Contingent liabilities
The Directors are not aware of any material contingent liabilities.
26 Related party transactions
Plain Sight Systems ("PSS") was a former owner of ALDHC and ALD until the reverse merger in 2010 that created Water
Intelligence. PSS is now an affiliate of Water Intelligence and hence is a related party. 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.
During the normal course of operations there are inter-Group transactions among PSS, Water Intelligence plc, ALD and ALDHC.
There are also inter-Group transactions among the Group's subsidiaries. The financial results of these related party
transactions are reviewed by an independent director of Water Intelligence plc, the parent of ALDHC and ALD.
One set of inter-Group transactions surrounds its banking facilities. The Group had a commercial banking relationship with
Liberty Bank ("Liberty"). The term of the loan was reset for 5 years to 2019. The principal amount outstanding at 5
December 2016 was $1,574,801. Interest on the loan was 5.75% annually, with monthly instalments of principal and interest
amounting to $52,959 per month. Liberty required guarantees from Plain Sight among others.
On December 5, 2016, the Group replaced Liberty Bank with People's United Bank ("People's") and closed on a new term loan
with People's. The People's loan refinanced the outstanding note from Liberty Bank and reset the term of the loan for 4
years to 2020. The principal amount outstanding at 31 December 2016 is $1,600,000. Annual interest on the loan is fixed
for the term at 4.78% and requires installments of principal and interest amounting to $36,716 to be paid per month
beginning on 1 January 2017. People's Bank also requires PSS, among others, to guarantee the loan. For the PSS's on-going
guarantee, ALD pays 0.75% per annum based on the outstanding balance of the loan calculated at the end of each month.
PSS owes a receivable to ALD. 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 Liberty Bank. Interest income related to the PSS receivable
amounted to $7,378 and $6,239 for the years ending 31 December 2016 and 31 December 2015, respectively. The guarantee fee
expense for the PSS guarantee amounted to $13,296 and $16,922 for the years ended 31 December 2016 and 31 December 2015,
respectively. The related receivable/prepaid balance remaining for PSS was $115,722 and $111,307 at 31 December 2016 and
2015, respectively.
26 Related party transactions continued
During the year, the Company had the following transactions with its subsidiary companies:Water Intelligence International Limited $
Balance at 31 December 2015 496,988
Net loans to subsidiary 498,665
VAT transferred under group registration 55,484
Other expenses recharged and exchange differences (155,580)
Balance at 31 December 2016 895,556
NRW Utilities Limited
$
Balance at 31 December 2015
Net loans to subsidiary 202,053
Other expenses recharged and exchange differences (5,014)
Balance at 31 December 2016 197,039
ALDHC
$
Balance at 31 December 2015 (923,590)
Loans to WI (259,813)
Other expenses recharged and exchange differences 276,817
Balance at 31 December 2016 (906,586)
ALD Inc.
$
Balance at 31 December 2015 (126,729)
Loans to WI (255,016)
Other expenses recharged and exchange differences 5,016
Balance at 31 December 2016 (376,729)
27 Subsequent events
On the 9 January 2017, the Group announced it had completed the final purchase of all remaining shares owned by certain
former minority shareholders of ALD, pursuant to rights granted to the Minority Shareholders at the time of the acquisition
of ALD by the Company. The Minority Shareholders exercised their rights to sell 99,936 Consideration Shares to the Company
at a price of 75 pence per Consideration Share.
On the 19 January 2017, the Group announced it had appointed John F. Weigold as Non-Executive Director.
On the 6 February 2017, the Group announced it had signed and launched its first formal national contract with one of the
top five insurance companies in the US to provide adjusters a trusted partner to pinpoint water leaks and minimize
collateral damage claims from residences and businesses.
On the 9 February 2017, the Group announced it had drawn down on its Acquisition Line of Credit ("ALOC") from People's
Bank. The Company drew approximately $140,000 of the $1.5 million ALOC to pay partners of NRW Utilities Ltd. Under the
terms of the ALOC, the Company's payments will be interest only on the amount drawn until further draws are made. As a
result, $1.36 million remained under the ALOC.
27 Subsequent events continued
On 1 May 2017, the Group drew $150,000 of its ALOC to pay amounts due with respect to the reacquisitions of Detroit (2015)
and Cincinnati (2016). As a result, $1.21 million remained under the ALOC.
On 8 May 2017, the Group announced the opening of a corporate-operation in Washington D.C.
28 Control
The Company is under the control of its shareholders and not any one party. The shareholdings of the directors and entities
in which they are related are as outlined within the Director's Report.
This information is provided by RNS
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