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REG - Water Intelligence - Interim Results

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RNS Number : 5343L  Water Intelligence PLC  13 September 2021

 

 

 

Water Intelligence plc (AIM: WATR.L)

 

Interim Results

 

Water Intelligence plc (AIM: WATR.L) (the "Group" or "Water Intelligence"), a
leading multinational provider of precision, minimally-invasive leak detection
and remediation solutions for both potable and non-potable water, is pleased
to provide its unaudited Interim Results for the period ending 30 June 2021.

The Group delivered strong growth in revenue and profits in 1H 2021 compared
with 1H 2020, despite the impact of COVID-19 during both periods.

During 1H 2021, the Group's revenue grew by 44% to $24.7 million (1H 2020:
$17.1 million) and statutory profit before tax rose by 92% to $3.8 million (1H
2020: $2.0 million).  Profit before tax adjusted for non-cash expenses of
amortization and share-based payments increased 77% to $4.2 million (1H 2020:
$2.4 million). EBITDA grew 75% to $5.6 million during the period (1H 2020:
$3.2 million).

From 2016 to 2020, the Group delivered a revenue CAGR of 33% and a profit
before tax CAGR of 53%.  For full year 2020, revenues increased by 17% and
profit before tax by 78%.  1H results reinforce the Group's trajectory.

During 1H, the Group completed a number of corporate transactions including
several acquisitions, as well as, B2B sales.  Accomplished individuals were
also added to the board and to the management team. These corporate
development achievements are expected to contribute to the scaling of the
business and provide strong trading momentum for 2H 2021 and 2022.

 

Financial Highlights

 

 ·    Revenue for the period increased 44% to $24.70 million (1H 2020:
 $17.10 million) with growth in all revenue channels:

 o  Royalty income up 6% to $3.68 million (1H 20: $3.46 million)

 o  Franchise-related activities up 14% to $4.93 million (1H 2020: $4.32
 million) with the business-to-business insurance channel component up 15% to
 $4.54 million (1H 2020: $3.94 million)

 o  US corporate-operated locations up 75% to $13.27 million (1H 2020: $7.60
 million)

 o  International corporate-operated locations up 65% to $2.82 million (1H
 2020: $1.71 million)

 ·    Profit before tax is at the top-end of market expectations (even
 after upgrades)
 o  Statutory profit before tax up 92% to $3.85 million (1H 2020: $2.01
 million)
 o  Profit before tax adjusted for non-core, amortization and share-based
 payments up 77% to $4.2 million (1H 2020: $2.4 million)
 o  The Group continues to invest both in additional execution personnel to
 meet increased demand and in technology R&D to reinforce brand
 differentiation

 ·    EPS Growth
 o  Statutory Basic EPS rose by 72% to 17.2 cents (1H 2020: 10.0 cents)

 o  Adjusted Basic EPS rose by 57% to 18.8 cents (1H 2020: 12.0 cents)

 ·    Balance Sheet strong
 o  Cash and equivalents decreased to $7.16 million (1H 2020: $7.44 million)
 o  Net Cash at $(2.01) million (cash minus bank borrowings which are
 amortized through 2025)

 o  Operating cash generated up 77% to $4.7 million (1H 2020: $2.7 million)

 

 

Corporate Development (including Subsequent Events):

·    Acquisitions

o  Franchises: Central Florida; Northeast Florida (Subsequent Event); Reno,
Nevada; Las Vegas, Nevada; Phoenix, Arizona (Las Vegas/Phoenix a Subsequent
Event)

o  Plumbing company: Louisville, Kentucky

o  IP assets for irrigation and stormwater run-off; launch of Intelliditch
brand and subsidiary

·    Business Development

o  Four national insurance contracts

o  Commercialization of proprietary sewer diagnostic product

·    Human Capital

o  Addition of Board member with substantial financial markets experience

o  Addition of Chief People Officer with substantial industry experience

·    Corporate Finance

o  Expansion of bank credit facility by $3.2 million

o  Oversubscribed equity capital raise of $10.2 million (Subsequent Event)

 

 

Dr. Patrick DeSouza, Executive Chairman of Water Intelligence, commented:

 

"Once again we are pleased to report outstanding results for the half year.
These results are the product of an experienced execution team, strong board
and supportive institutional and high net worth shareholders. Our "build and
buy" growth plan continues to unlock significant shareholder value. Organic
growth remains strong with new national channel customers. And we have
exciting new product offerings for both sewer management and stormwater runoff
coming to market during the second half.  Given our robust sales and
distribution footprint for water infrastructure solutions across the U.S. and
in the UK, Australia and Canada, we are seeing an increasing number of
opportunities for acquisitions and partnerships that enable us to build a
platform company or a "One Stop Shop" as we have termed in our Annual Reports.

We are on a mission to provide private sector leadership and solutions to
water and wastewater infrastructure problems. Market demand from consumers and
municipal customers and from ESG investors is ever-increasing, driven to new
levels by public awareness of water resource scarcity, the consequences of
climate change and collateral public health issues stemming from COVID-19 and
wastewater management.  We remain ambitious in our goal to build a
world-class company that makes a difference."

 

Enquiries:

 

Water Intelligence plc   Patrick DeSouza, Executive Chairman Tel: +1 203 654
5426

 

RBC Capital Markets - Joint Broker   Jill Li, Elizabeth Evans Tel: +44 (0)20
7653 4000

 

WH Ireland Limited - NOMAD & Joint Broker Tel: Adrian Hadden, Ben Good +44
(0)20 7220 1666

 

Dowgate Capital Ltd - Joint Broker   Stephen Norcross Tel: +44 (0)20 3903
7721

 

 

Chairman's Statement

 

Overview

 

Undeterred by COVID-19, we continue to build a multinational growth-oriented
company that provides minimally-invasive technology solutions for a worldwide
problem of water-loss from leakage in pipes whether residential, commercial or
municipal.  Around the world, 15-40% of daily water use is lost through
leakage. We have a significant opportunity to make a difference in front of
us.

 

The key pillars in our growth plan were first outlined in 2016 in our annual
report and we continue to focus on these components today: (i) organic
development through national sales channels that leverage our more than 150
locations; (ii) accretive acquisitions (franchise and third party); (iii)
technology investments that differentiate our brand and sustain future growth;
and (iv) corporate finance transactions to fuel accelerated growth.  Since
2016 following this core strategy the Group has delivered compounded annual
growth in revenue of 33% and profit before tax of 53% respectively, whilst
investing in developing a scalable world-class organization as discussed
below.  Our 1H results continue to advance our growth trajectory and we
continued to make investments during 1H 2021 that are expected to add further
momentum to 2H 2021 and 2022.

 

Our first half deliverables only underscore the success of our "game plan":
 more national insurance channel sales; six acquisitions (four franchises,
one plumbing company and one set of IP assets for our product roadmap) and
corporate finance transactions both expanding our bank facilities and building
our institutional investor base to fuel further growth.  We exceeded our
historic CAGR even though critical mass has grown delivering 44% growth in
revenue to $24.7 million (1H 2020: $17.1 million) and 92% growth in profit
before tax to $3.8 million (1H 2020: $2.0 million).  We continue to expand
operations across the U.S., UK, Australia and Canada.  And importantly, we
continue to add to our strong board and management to create the type of
organization that can continue to scale based on its winning formula.
Moreover, global market demand continues to grow, encouraging us to be even
more ambitious. The Biden Administration's American Jobs Plan outlined during
April only underscores the size of the opportunity ahead of us with its target
of spending $100 billion on water infrastructure.

 

As we proceed into the second half of 2021, we are enthusiastic about our
growth prospects and our ability to be a leader in providing solutions to
preserve the world's most precious resource.  We are sharpening our brand as
an asset and are pleased to be recognized with the Green Economy Mark from the
London Stock Exchange and increasing levels of interest from the ESG
investment community.  Whilst there continue to be challenges with the
persistence of COVID-19, we are deemed to be an "essential service" in all the
jurisdictions that we operate.  We take our social responsibility to deliver
water and wastewater solutions seriously and during these difficult times we
look to offer leadership in the communities that we service.

 

Financial and Operational Results

 

                Our strong first half reinforces our CAGR
trajectory.  As noted, during 1H 2021, the Group delivered 44% revenue growth
to $24.7 million and 92% statutory profit before tax growth to $3.8 million.
More broadly, profit before tax adjusted for non-cash items of amortization
and share-based payments grew by 77% to $4.2 million (1H 2020: $2.4
million).  Earnings before interest, tax, depreciation and amortization
(EBITDA) grew by 75% to $5.6 million (1H 2020: $3.2 million). Our ability to
generate significant additional cash from operations annually enables us to
reinvest to sustain our growth trajectory.  Despite COVID-19, we have
invested in new products, such as solutions for both sewer diagnostics and
storm water management, as well as, a suite of Salesforce.com applications to
scale our business by automating lead generation, scheduling, delivery,
invoicing, payments and data security.

 

It is important to note that the Group has a much bigger sales footprint than
is transparent from IFRS accounting.  During the first half of 2021, the
Group executed above $70 million in total gross sales to customers or above
$140 million on an annualized basis. Because the Group operates through
franchise locations, approximately $50 million of such 1H 2021 gross sales are
reported as $3.8 million of 1H 2021 royalty income under IFRS thus leading to
our reported $24.7 million of revenue ($20.9 million of direct corporate sales
and $3.8 million of royalty income).  On the other hand, part of the Group's
strategy is to continue to reacquire select franchises and add a portion of
that $100 million in annualised current gross sales to the Group's P&L
that currently is recorded as royalty income.  Our plan is to continue to
grow the franchise System and royalty income while pursuing such franchise
reacquisitions. During the first half of 2021, royalty income has continued to
grow by 6% despite 8 franchise acquisitions during 2020 which removed
franchises from the available pool of royalty income for 2021.  Such
acquisitions unlock operating scale and significant shareholder value.

 

Key Performance Indicators (KPIs)

 

The Group executes its growth plan through two principal subsidiaries -
American Leak Detection (ALD) and Water Intelligence International (WII) - and
captures KPIs for each subsidiary.  ALD operates largely across the US
through franchise and corporate locations focusing on residential and
business-to-business (insurance, property management) leak detection and
repair.  WII operates largely in the UK, Canada and Australia through
corporate locations focusing primarily on municipal leak detection and repair.
 ALD and WII are increasingly working together to create a comprehensive set
of offerings to cross-sell to residential, commercial and municipal customers
across all of the Group's geographies.

 

The Group's KPIs capture three operating priorities.  Our first operational
task is to continue to grow our ALD brand across the US whether solutions are
delivered through our corporate or franchisee channels.  ALD's more than 150
locations across 46 states enables us to leverage a competitive advantage of
being the only nationwide provider in the US for pinpoint leak detection and
repair solutions.  Given the size of the addressable market for water
infrastructure solutions, especially residential and insurance, there is
plenty of upside ahead and market share to capture.  Our competition may be
characterized as fragmented, local service providers with neither our
proprietary technology nor our data security investments, which are of great
importance for insurance company work.  The Group's second operational task
is to continue to supplement our growth trajectory by developing our WII sales
footprint in the UK, Australia, Canada and foreign geographies.  While WII
focuses on municipal infrastructure problems, we look to supplement WII
execution by selling our ALD residential and commercial expertise through WII
and expanding ALD into foreign jurisdictions.   Our third task is to meet
ever increasing market demand by reinvesting for future growth by providing
more offerings to ALD and WII customers such as sewer management, storm water
run-off and irrigation.

 

                Our KPIs are derived from these operating
priorities. During the first half of 2021 we continued to grow the ALD
brand.  We added national insurance accounts and started working with
national property management companies in order to launch another formal
channel.  Royalty income from the franchise System grew by 6% to $3.7 million
(1H 2020: $3.5 million).  Our insurance channel fed jobs to the franchise
System.  Fees for national insurance jobs grew by 15% to $4.5 million (1H
2020: $3.9 million).  It is important to note that the growth of the
insurance channel is understated given that fees for national accounts are
accounted for under IFRS only with respect to the franchise System and not
corporate locations.  The national channel structure produces efficiencies
for both the franchise System and corporate operations leveraging our
installed base of locations across the U.S.  The segmental tables, set forth
herein, show that profits associated with royalty income grew 33% to $1.3
million (1H 2020: $1.0 million).

 

                During the first half of 2021, ALD and WII
corporate revenue and profits surged.  Segmental tables herein help
illuminate the unlocking of shareholder value.  ALD corporate operations grew
75% to $13.3 million (1H 2020: $7.6 million).  Profits more than doubled to
$3 million (1H 2020: $1.45 million).  Operating margins for ALD corporate
operations increased to 23% (1H 2020:19%).  Meanwhile, WII corporate
operations grew 65% to $2.8 million (1H 2020: $1.7 million).  Profits more
than doubled to $0.2 million (1H 2020: $0.08 million).  Operating margins for
WII corporate operations grew to 7% (1H 2020: 5%).  Lower margins for WII
relative to ALD are a reflection of the regulated nature of municipal work.

 

                The surge of ALD and WII revenue and profits is
attributable both to organic growth and the addition of revenue and profits
from reacquired franchise operations.  The Group is pleased that many of the
successful franchise owners are remaining in the business post transactions to
add to the Group's execution capabilities.  Such managerial experience is
reflected in improvements to the operating margins for corporate operations.
Again, we should underscore that despite the reacquisition of eight franchises
during 2020 that contributed to the surge of Group revenue and profits in 1H
2021, the franchise System has continued to grow rapidly as well with royalty
income growing in absolute terms by 6%.

 

                As noted above, the Group's growth plan has
always required an injection of corporate finance resources to fuel
accelerated growth.  The Group added to its robust balance sheet by first
expanding its credit facilities by $3.2 million in February and then adding
approximately $10.2 million in an oversubscribed July fund raise.  The Group
plans to use such resources, as it always has, to execute a "build and buy"
strategy. There is significant shareholder value still to be unlocked through
franchise reacquisition given that franchise royalty income has continued to
grow in absolute terms and represents now more than $100 million in profitable
annual gross sales to customers.  Corporate operations are producing strong
and growing profit margins creating a neutrality between franchise execution
and corporate execution under the same ALD brand that customers experience.

 

Outlook

 

                The Group has remained resilient in the face of
COVID-19 and continues to deliver on our growth strategy.  We have an
important mission with respect to providing minimally-invasive solutions for
water and wastewater infrastructure problems.  Jurisdictions have recognized
our work as "essential services."

 

                While such stability is important, market
demand globally for water and wastewater infrastructure solutions is growing
rapidly as issues such as water scarcity, health and climate change drive
public awareness and economics.  Opportunities for market capture abound.
 Yet we are disciplined with our choices as we create a valuable
multinational company that is a leader in safeguarding the world's most
precious natural resource.  We have invested in our board and senior
management to create a team that can make good judgments, successfully seize
additional opportunities as they emerge and deliver on our ambitions over the
next decade.

 

Because we have already built robust sales and distribution channels for our
current solutions with insurance and property management partners across the
U.S. and in the UK, Australia and Canada, we may be able to accelerate our
growth trajectory even further with acquisition and partnership opportunities
that are increasingly afforded to us.  We are becoming a "One Stop Shop"
platform with an ability to upsell additional solutions to our multinational
base of customers.

 

                We will stay the course on our "build and buy"
growth formula: (i) national sales channels to organically grow our installed
base of locations and customers; (ii) select franchise reacquisitions to
unlock shareholder value and add critical mass of revenue and profits; (iii)
accretive third party acquisitions to add to our solutions portfolio; and (iv)
reinvestment in new technologies for our product roadmap and sustainable
growth.

 

Patrick DeSouza

Executive Chairman

September 13, 2021

 

 

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2021

                                                                                 Six months    Six months    Year ended

                                                                                 ended         ended          31

                                                                                 30 June       30 June       December

                                                                                  2021          2020         2020
                                                                          Notes  $             $             $
                                                                                 Unaudited     Unaudited     Audited
 Revenue                                                                  4      24,698,724    17,096,587    37,933,896

 Cost of sales                                                                   (4,504,060)   (4,019,249)   (8,830,250)

 Gross profit                                                                    20,194,664    13,077,338    29,103,646
 Administrative expenses
 -       Other income                                                            54,063        13,658        93,066
 -       Share-based payments                                                    (194,896)     (100,895)     (233,584)
 -       Amortisation of intangibles                                             (138,661)     (252,546)     (524,017)
 -       Other administrative costs                                              (15,751,878)  (10,582,146)  (23,879,139)

 Total administrative expenses                                                   (16,031,372)  (10,921,929)  (24,543,674)

 Operating profit                                                                4,163,292     2,155,409     4,559,972

 Finance income                                                                  26,043        57,103        88,753
 Finance expense                                                                 (341,612)     (205,231)     (445,351)

 Profit before tax                                                        4      3,847,723     2,007,281     4,203,374

 Taxation expense                                                                (1,184,724)   (525,000)     (1,273,319)

 Profit for the period                                                           2,662,999     1,482,281     2,930,055

 Attributable to:
 Equity holders of the parent                                                    2,567,677     1,470,653     2,892,974
 Non-controlling interests                                                       95,322        11,628        37,081
                                                                                 2,662,999     1,482,281     2,930,055

 Other comprehensive income
 Exchange differences arising on translation of foreign operations               (52,391)      (66,452)

                                                                                                             32,375

 Gain on debt extinguishment                                                     1,869,800     -             -
 Fair value adjustment on listed equity investment (net of deferred tax)         540,943       (574,728)     (236,900)
 Total comprehensive income for the period                                                                   2,725,530

                                                                                 5,021,351     841,101

 Earnings per share                                                              Cents         Cents         Cents
 Basic                                                                    5      17.2          10.0          19.5
 Diluted                                                                  5      16.0          9.7           18.8

 

 

 

Consolidated Statement of Financial Position as at 30 June 2021

 

                                                         At            At            At

                                                         30 June       30 June       31 December

                                                         2021          2020          2020
                                                  Notes  $             $             $
                                                         Unaudited     Unaudited     Audited
 ASSETS
 Non-current assets
 Goodwill                                                34,934,735    11,298,344    22,159,836
 Listed equity investment                                2,156,777     1,187,460     1,564,254
 Other intangible assets                                 1,872,782     1,713,600     1,651,296
 Property, plant and equipment                           7,255,294     3,983,818     5,172,221
 Trade and other receivables                             455,739       547,520       581,191
                                                         46,675,327    18,730,742    31,128,798

 Current assets
 Inventories                                             641,034       428,661       444,791
 Trade and other receivables                             9,116,742     6,101,549     6,049,067
 Cash and cash equivalents                               7,159,023     7,439,568     6,818,715
                                                         16,916,799    13,969,778    13,312,573
 TOTAL ASSETS                                     4      63,592,126    32,700,520    44,441,371

 EQUITY AND LIABILITIES
 Equity attributable to holders of the parent
 Share capital                                    6      116,278       114,762       116,212
 Share premium                                    6      12,378,262    9,741,797     12,091,069
 Shares held in treasury                          6      (284,610)     (619,368)     (340,327)
 Merger reserve                                          1,001,150     1,001,150     1,001,150
 Share based payment reserve                             845,182       517,595       650,286
 Other reserves                                          943,197       (973,038)     (874,212)
 Reverse acquisition reserve                      6      (27,758,090)  (27,758,089)  (27,758,090)
 Equity investment reserve                               887,663       8,892         346,721
 Retained profit                                         40,355,301    36,365,303    37,787,624
                                                         28,484,333    18,399,004    23,020,433

 Equity attributable to Non-Controlling interest
 Non-controlling interest                                441,446       112,421       346,124

 Non-current liabilities
 Borrowings and Lease Liabilities                        7,082,667     5,655,992     5,848,261
 Deferred consideration                                  9,981,713     1,513,441     3,421,936
 Deferred tax liability                                  2,193,742     955,883       957,170
                                                         19,258,122    8,125,316     10,227,367

 Current liabilities
 Trade and other payables                                6,177,614     4,442,498     5,663,898
 Borrowings                                              2,086,783     868,857       2,941,610
 Deferred consideration                                  7,143,828     752,424       2,241,939
                                                         15,408,225    6,063,779     10,847,447
 TOTAL EQUITY AND LIABILITIES                            63,592,126    32,700,520             44,441,371

Interim Consolidated Statement of Changes in Equity

For the six months ended 30 June 2021

                                   Share     Share       Shares held   Reverse Acquisition Reserve  Merger     Share based payment reserve  Other      Equity investment reserve  Retained    Total       Non-controlling interest  Total

                                   Capital   Premium     in treasury                                Reserve                                 Reserves                               Profit                                           Equity
                                   $         $           $             $                            $          $                            $          $                          $           $           $                         $
 As at 1 January 2020              114,440   9,717,349   (539,834)     (27,758,088)                 1,001,150  416,700                      (906,586)  583,621                    34,894,649  17,523,401  100,793                   17,624,194
 Issue of ordinary shares          -         -           -             -                            -          -                            -          -                          -           -           -                         -
 Options purchase                  322       24,447      (79,534)      -                            -          -                            -          -                          -           (54,765)                              (54,765)
 Share based payment expense       -         -           -             -                            -          100,895                      -          -                          -           100,895     -                         100,895
 Profit for the period             -         -           -             -                            -          -                            -          -                          1,470,653   1,470,653   11,628                    1,482,281
 Other comprehensive income        -         -           -             -                            -          -                            (66,452)   (574,728)                  -           (641,180)   -                         (641,180)
 As at 30 June 2020 (unaudited)    114,762   9,741,796   (619,368)     (27,758,088)                 1,001,150  517,595                      (973,038)  8,893                      36,365,302  18,399,004  112,421                   18,511,425
 Issue of ordinary shares          1,454     2,039,399   -             -                            -          -                            -          -                          -           2,040,853   -                         2,040,853
 Options purchase                  (4)                   -             -                            -          -                            -          -                          -           (4)         -                         (4)
 Share-based payment expense       -         -           -             -                            -          132,690                      -          -                          -           132,690     -                         132,690
 Share buyback                     -         -           (636,377)     -                            -          -                            -          -                                      (636,377)   -                         (636,377)
 Sale of treasury stock            -         309,874     915,418       -                            -          -                            -          -                          -           1,225,292   -                         1,225,292
 Capital Contribution NCI          -         -           -             -                            -          -                            -          -                          -           -           208,250                   208,250
 Profit for the period             -         -           -             -                            -          -                            -                                     1,422,321   1,422,321   25,453                    1,447,774
 Other comprehensive income        -         -           -             -                            -          -                            98,827     337,828                    -           436,655     -                         436,655
 As at 31 December 2020 (audited)  116,212   12,091,069  (340,327)     (27,758,088)                 1,001,150  650,285                      (874,211)  346,721                    37,787,623  23,020,434  346,124                   23,366,558
 Issue of ordinary shares          20        59,224      -             -                            -          -                            -          -                          -           59,244      -                         59,244
 Options purchase                  46        21,032      -             -                            -          -                            -          -                          -           21,079      -                         21,079
 Share based payment expense       -         -           -             -                            -          194,896                      -          -                          -           194,896     -                         194,896
 Share buyback                     -         -           (282,736)     -                            -          -                            -          -                                      (282,736)   -                         (282,736)
 Sale of treasury stock            -         206,936     338,453       -                            -          -                            -          -                          -           545,389     -                         545,389
 Profit for the period             -         -           -             -                            -          -                            -          -                          2,567,677   2,567,677   95,322                    2,662,999
 Other comprehensive gain          -         -           -             -                            -          -                            1,817,408  540,943                    -           2,358,351   -                         2,358,351
 As at 30 June 2021 (unaudited)    116,278   12,378,263  (284,611)     (27,758,088)                 1,001,150  845,181                      943,197    887,664                    40,355,300  28,484,334  441,446                   28,925,780

Interim Consolidated Statement of Cash Flows

For the six months ended 30 June 2021

 

                                                           Six months     Six months     Year ended

                                                           ended          ended           31 December 2020

                                                           30 June 2021   30 June 2020
                                                           $              $              $
                                                           Unaudited      Unaudited      Audited
 Cash flows from operating activities
 Profit before tax                                         3,847,723      2,007,281      4,203,374

 Adjustments for non-cash/non-operating items:
 Depreciation of plant and equipment                       1,086,085      708,416        1,568,034
 Amortisation of intangible assets                         138,661        252,545        524,017
 Share based payments                                      194,896        100,895        233,584
 Interest paid                                             341,612        205,231        445,351
 Interest received                                         (26,042)       (57,103)       (88,753)
 Operating cash flows before movements in working capital  5,582,935      3,217,265      6,885,607
 Increase in inventories                                   (196,243)      (94,650)       (110,780)
 Increase in trade and other receivables                   (2,942,223)    (1,007,686)     (988,875)
 Increase in trade and other payables                       2,303,506     564,829        273,071
 Cash generated by operations                              4,747,975      2,679,758      6,059,023
 Income taxes                                              (4,724)        -              (982,776)
 Net cash generated from operating activities              4,743,251      2,679,758      5,076,247

 Cash flows from investing activities
 Purchase of plant and equipment                           (1,599,013)    (608,062)      (717,519)
 Purchase of intangibles                                   -              (16,000)       -
 Acquisition of subsidiaries                               -              -              (300,000)
 Reacquisition of Franchises                               (4,818,833)    (2,393,682)    (9,229,647)
 Interest received                                         26,042         57,103         88,753
 Net cash used in investing activities                     (6,391,804)    (2,960,642)    (10,158,413)

 Cash flows from financing activities
 Issue of ordinary share capital                           20             -              8,128
 Premium on issue of ordinary share capital                59,224         -              2,031,084
 Share buy-back                                            (282,736)      -              (715,911)
 Sale of treasury shares                                   545,389        -              1,225,292
 Options exercised                                         21,079         (54,765)       25,083
 Interest paid                                             (341,612)      (205,231)      (445,351)
 Proceeds from borrowings                                  3,200,000      3,342,628      6,153,836
 Repayment of borrowings                                   (950,622)      (302,235)      (848,421)
 Repayment of lease liabilities                            (261,881)      (340,754)      (813,667)
 Net cash generated by/(used in) financing activities      1,988,861      2,439,643      6,620,073

 Net (decrease)/increase in cash and cash equivalents                                    1,537,907

                                                           340,308        2,158,759
 Cash and cash equivalents at the beginning of period                                    5,280,808

                                                           6,818,715      5,280,808
 Cash and cash equivalents at end of period                7,159,023      7,439,567      6,818,715

 

 

 

Notes to the Interim Consolidated Financial Information

For the six months ended 30 June 2021

 

1    General information

 

The Group is a leading provider of minimally-invasive leak detection and
remediation services and products for water and wastewater infrastructure. The
Group's strategy is to be a provider of "end-to-end" solutions -  a "one-stop
shop" for residential, commercial and municipal customers.

 

The Company is a public limited company domiciled in the United Kingdom and
incorporated under registered number 03923150 in England and Wales. The
Company's registered office is 27-28 Eastcastle Street, London, W1W 8DH.

 

2    Significant accounting policies

 

Basis of preparation and changes to the Group's accounting policies

 

The accounting policies adopted in the preparation of the interim consolidated
financial information are consistent with those of the preparation of the
Group's annual consolidated financial statements for the year ended 31
December 2020.

 

This interim consolidated financial information for the six months ended 30
June 2021 has been prepared in accordance with IAS 34, "Interim financial
reporting". This interim consolidated financial information is not the Group's
statutory financial statements and should be read in conjunction with the
annual financial statements for the year ended 31 December 2020, which have
been prepared in accordance with International Financial Reporting Standards
(IFRS) and have been delivered to the Registrar of Companies. The auditors
have reported on those accounts; their report was unqualified, did not include
references to any matters to which the auditors drew attention by way of
emphasis of matter without qualifying their report and did not contain
statements under section 498(2) or (3) of the Companies Act 2006.

 

The interim consolidated financial information for the six months ended 30
June 2021 is unaudited. In the opinion of the Directors, the interim
consolidated financial information presents fairly the financial position, and
results from operations and cash flows for the period. Comparative numbers for
the six months ended 30 June 2020 are unaudited.

 

This interim consolidated financial information is presented in US Dollars
($), rounded to the nearest dollar.

 

Foreign currencies

(i) Functional and presentational currency

Items included in this interim consolidated financial information are measured
using the currency of the primary economic environment in which each entity
operates ("the functional currency") which is considered by the Directors to
be the Pounds Sterling (£) for the Parent Company and US Dollars ($) for
American Leak Detection Holding Corp. This interim consolidated financial
information has been presented in US Dollars which represents the dominant
economic environment in which the Group operates and is considered to be the
functional currency of the Group. The effective exchange rate at 30 June 2021
was £1 = US$ 1.3851 (30 June 2020: £1 = US$ 1.2698).

 

Critical accounting estimates and judgments

 

The preparation of interim consolidated financial information requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and
liabilities and the reported amounts of income and expenses during the
reporting period. Although these estimates are based on management's best
knowledge of current events and actions, the resulting accounting estimates
will, by definition, seldom equal the related actual results.

 

In preparing this interim consolidated financial information, the significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were the same as those that applied
to the consolidated financial statements for the year ended 31 December 2020.

 

3      Significant events and transactions

 

On 4 February 2021, the Group completed an extension of its credit facilities
by $3.2 million, on the same terms as the refinancing completed in October
2020 and referenced in note 23 of the 2020 Annual Report.

 

As detailed in Footnote 7 - "Reacquisition of franchisee territories and other
acquisitions" and Footnote 8 - "Subsequent Events", the Group reacquired the
following franchises and 3(rd) party assets:  Franchises -  Central Florida
(30 March 2021); Reno, Nevada (1 June 2020); Northeast, Florida (5 July 2021);
Las Vegas and Phoenix (8 July 2021) and Other Acquisitions - FastDitch IP
Assets (20 April 2021) and PlumbRight Services, Inc. (2 June 2021).

 

As detailed in Footnote 8, the Group completed a funding round on 15 July 2021
of $10.2 million at a price per share of $12.71.

 

PPP Program - The Paycheck Protection Program (PPP) brings relief to business
owners affected by the coronavirus. Not only does this loan program provide
funding to help cover payroll and other expenses, but if used for qualifying
purposes, part or all of the loan can be forgiven. ALD applied for and
received funding of $1,869,800 under this program in April 2020. The Group
received notification from the SBA on March 31, 2021 that the full advance of
$1,869,800 was forgiven.

 

Work Protocols and PPE - The Group reviewed all applicable Shelter-in-Place
Orders and determined that our operations qualify as services related to
essential/critical infrastructure with respect to water and wastewater and
that we can continue to operate under those Orders. The Group has taken health
and safety measures with respect to all personnel and significantly increased
its inventory of Personal Protective Equipment (PPE). The Group has issued
work protocols with respect to our service technicians who are essential to
the delivery of our water and wastewater solutions to customers. All employees
have been instructed to comply with social distancing rules/requirements in
their jurisdictions, as well as other safety and health precautions including
use of PPE, frequent handwashing and sanitizing of all equipment.

 

4   Segmental information

 

In the opinion of the Directors, the operations of the Group currently
comprise four operating segments: (i) franchise royalty income, (ii)
franchise-related activities including business-to-business sales and product
and equipment sales, (iii) US corporate-operated locations led by the Group's
U.S.-based American Leak Detection subsidiary and (iv) international corporate
locations led by the Group's UK-based Water Intelligence International
subsidiary.

 

The Group mainly operates in the US, with operations in the UK, Canada and
Australia. In the six months to 30 June 2021, 88.6% (1H 2020: 89.6%) of its
revenue came from the US-based operations; the remaining 11.4% (1H 2020:
10.4%) of its revenue came from its international corporate operated
locations.

 

No single customer accounts for more than 10% of the Group's total external
revenue.

 

The Group adopted IFRS 8 Operating Segments with effect from 1 July 2008. IFRS
8 requires operating segments to be identified on the basis of internal
reports about components of the Group.

 

Information reported to the Group's Chief Operating Decision Maker (being the
Executive Chairman), for the purpose of resource allocation and assessment of
division performance is separated into four income generating segments that
serve as key performance indicators (KPI's):

 

-       Franchise royalty income;

-       Franchise-related activities (including product and equipment
sales and Business-to-Business sales);

-       US corporate operated locations; and

-       International corporate operated locations.

 

Items that do not fall into the four segments have been categorised as
unallocated head office costs and include non-core costs such as transaction
costs associated with the Group's acquisition strategy.

 

The following is an analysis of the Group's revenues, results from operations
and assets:

 

 Revenue                                            Six months ended       Six months ended    Year ended

                                                 30 June 2021           30 June 2020           31 December

                                                                                               2020
                                                 $                      $                      $
                                                 Unaudited              Unaudited              Audited
 Franchise royalty income                        3,679 450              3,464,489              6,691,433
 Franchise related activities                    4,926,435              4,322,401              9,513,209
 US corporate operated locations                 13,272,352             7,600,601              17,434,216
 International corporate operated locations      2,820,487              1,709,096              4,295,037
 Total                                           24,698,724             17,096,587             37,933,895

 

 

 Profit before tax                                  Six months       Six months    Year ended

                                                 ended            ended            31 December

                                                 30 June 2021     30 June 2020     2020
                                                 $                $                $
                                                 Unaudited        Unaudited        Audited
 Franchise royalty income                        1,274,656        958,079          1,771,302
 Franchise related activities                    422,375          303,151          682,958
 US corporate operated locations                 3,022,727        1,449,825        3,795,753
 International corporate operated locations      191,288          79,932           311,783
 Unallocated head office costs                   (1,050,697)      (745,716)        (2,257,323)
 Non-core costs                                  (12,626)         (37,990)         (101,099)
 Total                                           3,847,723        2,007,281        4,203,374

 

 

 Assets                                             Six months       Six months    Year ended

                                                 ended            ended            31 December

                                                 30 June 2021     30 June 2020     2020
                                                 $                $                $
                                                 Unaudited        Unaudited        Audited
 Franchise royalty income                        12,896,040       12,317,290       10,571,498
 Franchise related activities                    2,476,084        2,006,273        2,006,569
 US corporate operated locations                 40,370,210       14,208,693       24,932,417
 International corporate operated locations      7,849,792        4,168,264        6,930,887
 Total                                           63,592,126       32,700,520       44,441,371

 

 

 

Geographic Information

The Group has two wholly-owned subsidiaries - American Leak Detection (ALD)
and Water Intelligence International (WII).  Operating activities are
captured as both franchise-executed operations and corporate-executed
operations.  ALD has both US franchises and corporate-operated locations.
It also has international franchises, principally located in Australia and
Canada.  Operations focus on residential and commercial water leak detection
and remediation with some municipal activities.  By comparison, WII has only
corporate operations located outside the United States.  These WII
international operations are principally municipal activities with some
residential leak detection and remediation.  As noted herein, the Group's
vision is to become a multinational growth company and a "One Stop Shop" for
residential, commercial and municipal solutions to water and wastewater
infrastructure problems.

 

 

 

Total Revenue

 

                                             Six months ended 30 June 2021          Year ended 31 December 2020

                                             Unaudited                              Audited
                                             US          International  Total       US          International  Total
                                             $           $              $           $           $              $
 Franchise royalty income                    3,627,114   52,336         3,679,450   6,572,163   119,271        6,691,434
 Franchise related activities                4,926,435   -              4,926,435   9,513,209   -              9,513,209
 US corporate operated locations             13,272,352  -              13,272,352  17,434,216  -              17,434,216
 International corporate operated locations  -           2,820,486      2,820,486   -           4,295,037      4,295,038

 Total                                       21,825,902  2,872,822      24,698,724  33,519,588  4,414,308      37,933,896

 

 

 

5    Earnings per share

 

The earnings per share have been calculated using the profit for the period
and the weighted average number of Ordinary shares outstanding during the
period, as follows:

 

                                                                  Six months ended       Six months ended    Year ended

31 December 2020
                                                               30 June 2021           30 June 2020

                                                               Unaudited              Unaudited              Audited
 Earnings attributable to shareholders of the Company ($)

                                                               2,567,677              1,470,653              2,892,974
 Weighted average number of ordinary shares                    15,473,540             14,702,371             14,832,294
 Diluted weighted average number of ordinary shares            16,587,603             15,237,545             15,427,122
 Earnings per share (cents)                                    17.2                   10.0                   19.5
 Diluted earnings per share (cents)                            16.0                   9.7                    18.8

 

Earnings per share are computed based on Ordinary shares.  There is a class
of B Ordinary Shares discussed in Footnote 6 that are not admitted to trading.

 

 

 

 

 

 

 

 

6     Share capital

 

The issued share capital at the end of the period was as follows:

 Group & Company

                      Ordinary            Shares held in treasury Number

                      Shares of 1p each
                      Number                                               Total Number
 At 30 June 2021      15,492,443          36,500                           15,528,943
 At 30 June 2020      14,702,371          170,000                          14,872,371
 At 31 December 2020  15,434,784          65,538                           15,500,322

 

As disclosed in Footnote 8 - Subsequent Events, the Company issued 797,078
Ordinary Shares pursuant to a fundraise announced on 15 July 2021.

 

On 1 January 2021, certain vendors, retained as employees, were granted
options to purchase 45,500 New Ordinary Shares at a price of $6.24 pursuant to
the acquisition of franchises acquired in 2020. These options have a four-year
vesting requirement

 

On 15 March 2021, Dan Ewell, a newly appointed Director, received an option to
purchase 200,000 Ordinary Shares. All other members of the Board received an
option to purchase 25,000 Ordinary Shares. These 300,000 options have an
exercise price of $10.40 per share, being a 18% premium to the prevailing
share price. These Options have a four-year vesting requirement.

 

The net number of options including the new grants and leavers from the
Company during 2021 is approximately 2,333,000.

 

The Company has also issued 2,200,000 Partly Paid Shares (B Ordinary Shares)
that carry voting rights but no economic rights and are will not be converted
into Ordinary Shares until fully paid. See Footnote 8 Subsequent Events in
which 120,000 Partly Paid Shares were fully paid, converted into Ordinary
Shares and sold to incoming investors.  Hence 2,080,000 Partly Paid Shares
remain as at the date of this document.

 

 Group & Company      Share Capital  Share Premium          Shares In Treasury
                      $              $                      $
 At 30 June 2021      116,278        12,378,262             (284,610)
 At 30 June 2020      114,762        9,741,989              (619,368)
 At 31 December 2020  116,212              12,091,069       (340,327)

 

 

Reverse acquisition reserve

 

The reverse acquisition reserve was created in accordance with IFRS3 Business
Combinations and relates to the reverse acquisition of Qonnectis Plc by ALDHC
in July 2010. Although these Consolidated Financial Statements have been
issued in the name of the legal parent, the Company it represents in substance
is a continuation of the financial information of the legal subsidiary ALDHC.
A reverse acquisition reserve was created in 2010 to enable the presentation
of a consolidated statement of financial position which combines the equity
structure of the legal parent with the reserves of the legal subsidiary.
Qonnectis Plc was renamed Water Intelligence Plc on completion of the reverse
acquisition on 29 July 2010.

7    Reacquisition of franchisee territories and other acquisitions in the
period

 

On 30 March 2021, the Group reacquired its Central Florida (Clermont)
franchise territory within the Group's ALD franchise business. Strategically,
the Central Florida reacquisition enables ALD to link operations along the
eastern part of Florida from its Central Florida location to fast growing
corporate operations in Orlando, to the east, and sizeable Melbourne and Miami
operations, to the south. The purchase price of $0.66 million includes all
assets to conduct operations including trucks and equipment. The purchase
price is based on 2020 full-year results of approximately $0.66 million in
sales and $0.15 million in adjusted profits. The purchase price is to be paid
by year-end 2021.

 

On 20 April 2021, the Group announced the acquisition of intellectual property
assets ("IP") from FastDitch, Inc., a US corporation ("FastDitch"). The IP
Assets form the core of a new subsidiary of the Group's core American Leak
Detection business ("ALD").  The subsidiary is dedicated to providing water
infrastructure solutions and operates under the tradename Intelliditch. It
will initially provide stormwater run-off and irrigation solutions given
strong market in these areas stimulated by the Biden Administration's American
Jobs Plan. The purchase price for the IP Assets was for the former principals
to receive a 25% stake in Intelliditch and 100,000 options in Ordinary Shares
with an exercise price of $11.38 per share.

 

On 2 June 2021, the Group announced the acquisition of PlumbRight Services,
Inc. PlumbRight extends the plumbing services capabilities of the Group's
fast-growing, multimillion dollar Louisville, Kentucky location. The
PlumbRight team enables the Louisville office to take on larger scale repair
jobs as follow through sales beyond current pinpoint leak detection solutions
for its existing business and municipal customers. The purchase price of $0.7
million is based on 2020 sales of approximately $1 million.

On 2 June 2021, the Group announced the reacquisition of its Reno, Nevada
franchise territory within its ALD franchise business. The acquisition
strengthens corporate presence in the western part of the United States and
links its ALD innovation centers in Silicon Valley and Seattle. The purchase
price of $0.25 million is based on $0.25 million of sales during 2020.

 

8     Subsequent events

 

Franchise Reacquisitions

 

On 5 July 2021, the Group announced the reacquisition of its Northeast Florida
franchise ("Northeast Florida").  Northeast Florida is a significant
franchise delivering water infrastructure solutions to three cities:
Jacksonville, Daytona Beach and Gainesville.  The Northeast Florida operation
enables more seamless operations connecting with Eastern Florida acquired
earlier in 2021 and fast growing Orlando and Miami operations.  The purchase
price of $2.75 million includes all assets to conduct operations including
trucks and equipment. The purchase price is based on 2020 full-year results of
approximately $2 million in sales and $0.5 million in adjusted profits. The
purchase price will be paid over four years.

 

On 8 July 2021, the Group announced that it has reacquired two major
franchises - Las Vegas and Phoenix. This set of acquisitions is the largest
that the Group has executed to date and reinforces its strong growth
trajectory both financially and operationally in the western and southwestern
parts of the United States. The combined purchase price of $10.3 million will
be paid over four years and includes all assets to conduct operations
including trucks and equipment. The purchase price is based on combined 2020
full-year results of approximately $5.75 million in sales and $1.6 million in
adjusted profits.

 

Fundraising

 

On 15 July 2021, the Group announced the completion of a Fundraise. The
transaction raised gross proceeds of approximately $10.2 million in an
oversubscribed round through the issue of an aggregate of 797,078 Ordinary
Shares at a price of $12.71 per share (920 pence). The Ordinary Shares issued
related to: 120,000 Ordinary Shares issued upon payment in full of Partly Paid
Shares; 130,000 issued pursuant to the exercise of options; and 547,078 issued
as new Ordinary Shares.

 

9    Publication of announcement and the Interim Results

 

A copy of this announcement will be available at the Company's registered
office (27-28 Eastcastle Street, London, W1W 8DH) from the date of this
announcement and on its website - www.waterintelligence.co.uk
(http://www.waterintelligence.co.uk) . This announcement is not being sent to
shareholders.

 

 

 

 

 

 

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