Water Intelligence plc
Group Annual Report and Financial Statements for
the Year Ended 31 December 2016
Company number 03923150
Group Annual Report and Financial Statements
for the year ended 31 December 2016
Contents
Page
2 Company Information
3 Chairman’s Statement
6 Strategic Report
10 Directors’ Report
14 Corporate Governance Statement
16 Statement of Directors’ Responsibilities
17
Independent Auditors’ report to the members of Water Intelligence plc
19 Consolidated Statement of Comprehensive Income
20 Consolidated Statement of Financial Position
21 Company Statement of Financial Position
22 Consolidated Statement of Changes in Equity
23 Company Statement of Changes in Equity
24 Consolidated Statement of Cash Flows
25 Company Statement of Cash Flows
26 Notes to the Financial Statements
59 Notice of Annual General Meeting
Water Intelligence plc
1
Company Information
Directors & Advisers
Directors
Executive Chairman
Patrick DeSouza
David Silverstone Executive Director
Robert Mitchell
Non-Executive Director
Michael Reisman Non-Executive Director
Non-Executive Director
John Weigold
Company Secretary
and Registered Office
Liam O’Donoghue
201 Temple Chambers
3-7 Temple Avenue
London
EC4Y 0DT
Company number
Registered in England and Wales number 03923150
Nominated adviser and broker finnCap Ltd
Independent Auditor
Registrar
Bankers
60 New Broad Street
London
EC2M 1JJ
Crowe Clark Whitehill LLP
St Brides House
10 Salisbury Square
London EC4Y 8EH
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen
B63 3DA
Barclays Bank PLC People’s United Bank
1 Churchill Place
London
E14 5HP
265 Church Street
New Haven
CT 06510
USA
Water Intelligence plc
2
Chairman’s Statement
Introduction
As discussed in last year’s Chairman’s Statement, we are building a multinational growth-oriented
company that provides minimally-invasive solutions to the worldwide problem of water-loss from leakage
in pipes whether residential, commercial or municipal. Our ambitious plan is underway and, once again,
we are pleased to report strong results for 2016 led by a 38% growth in sales. In fact, we stretched our
sales targets during 2016 (leading to revised analyst estimates three times) combining both organic
growth and growth through acquisition. In fact, during 2016 we successfully executed eight transactions:
three corporate finance transactions to add wherewithal and five business acquisitions (3 in the US, 1 in
the UK and 1 in Australia to add critical mass to the Group). We are pleased that the market showed
confidence in our efforts with the share price building during the course of the year, including after an
oversubscribed capital raise that was priced at a premium to the prevailing market price. Given our Q1
unaudited results, we anticipate that our momentum will continue during 2017, if not accelerate.
Meeting Our Objectives
In advancing our goal of developing a multinational growth-oriented company, we have focused on three
objectives: strengthening our multinational execution, achieving growth and reinforcing our corporate
finance capabilities to fuel the first two objectives. First, as always, we start with achieving the key
components of our growth plan. We are committed to growing our core franchise business – American
Leak Detection – that executes approximately $75 million in System-wide sales. From that expanding
sales network, we look to selectively reacquire franchisees both to aggregate revenue and earnings
directly onto the Water Intelligence accounts and to set-up regional corporate operations to help grow our
franchise network further. As discussed in the Trading Results section below, we achieved this primary
objective with royalty income from franchisee sales growing by 6.2% and with corporate store sales
jumping by 61.3%. Moreover, with our 2016 acquisitions, we strengthened corporate execution
capabilities in the Northeast and Midwest of the United States.
Second, to better position ourselves for the multinational aspect of growth, we sought to expand existing
corporate operations in the UK and Australia. We established a much stronger presence in the UK
through the acquisition of NRW Utilities Ltd (“NRW”) in September 2016. NRW had previously served as
our subcontractor for leak detection work for UK utilities such as Thames Water. NRW is fast growing.
During the first seven months as part of the Group, NRW has contributed approximately $1 million of
sales (during Q3/4 2016 and Q1 2017). Meanwhile, with respect to Australia, we acquired a former
American Leak Detection franchisee in Sydney. Our new corporate location will be used not only to grow
existing municipal and residential work in Sydney but also to support and grow American Leak
Detection’s five other franchisees in Australia. Water loss is a big problem in Australia and we are excited
about the opportunity to expand operations and perhaps sell additional franchises. In executing our
Australia plan, we recognized one important collateral benefit of the NRW acquisition. NRW adds
significant operational leadership for our worldwide efforts. Given NRW’s prior experience in Australia,
we are confident about our plan’s long-run success.
Third, in order to sustain our efforts to be a multinational growth company, we sought to improve the
Company’s corporate and capital profile. We launched the 2016 plan in Q1 with a share reorganization to
address legacy matters from when Water Intelligence first came to AIM through its reverse acquisition of
Qonnectis Plc. Because of the share reorganization, we were able to eliminate unnecessary reserves
and create the opportunity for dividends for our shareholder base in the future if deemed compatible with
the yearly plan. After five acquisitions during 2016, we ended 2016 by supplementing our war chest with
both equity and commercial bank financings to provide us with additional resources and relationships with
which to accelerate our business plan in 2017 and beyond. During November, we raised approximately
$1 million from investors on both sides of the Atlantic. During December, we refinanced our existing term
loan reducing our yearly amortization for the next four years by approximately 30% thus freeing-up cash
for reinvestment. We have also expanded our lines of credit at attractive interest rates including adding a
new line of $1.5 million for further acquisitions. Our calibrated corporate finance efforts have put us on a
stronger footing with minimum shareholder dilution. Importantly, Water Intelligence’s net debt reduced by
approximately 25% from 2015 to $763,000.
Water Intelligence plc
3
Chairman’s Statement
continued
Executing against these three objectives has enabled us to take a significant step forward in building a
valuable company whose growth path is sustainable. As a result of our efforts, net asset value (equity
attributable to shareholders) increased 34% from 2015 to $5.15 million.
Trading Results
As discussed in the Strategic Report, we displayed growth along every key indicator of the Company.
During 2016, overall sales grew 38% to $12.18 million from $8.84 million. In fact, the rate of sales growth
accelerated during 2016 as growth for 2015 was 23% over that of 2014. We believe that this trend of
acceleration is continuing during Q1 2017.
Within overall sales growth, franchise royalty growth remained steady at 6.2% reaching $5.54 million
(2015: $5.22 million and 6% growth). We are pleased with this solid outcome given that royalty growth
would have been higher had we not removed some royalty income from the pool by reacquiring some
franchises. We will continue to build our American Leak Detection brand and System-wide sales through
the development of national channels. Our insurance company partners continue to value our precision
leak detection services across the US in an effort to minimize claims. During Q1 2017 we signed our first
formal national contract with a major carrier. We are currently in the midst of its implementation. We look
to gaining additional national accounts in insurance and property management. Moreover, with the
addition of NRW’s professional expertise in municipal work, we are looking to taking advantage of trends
in infrastructure spending across the US.
Corporate-operated leak detection services during 2016 jumped to $4.22 million showing a 61.3% growth
over 2015 results of $2.61 million. Such growth was achieved mostly organically from growing existing
corporate stores and from 2016 acquisitions of franchise locations in South New Jersey, Cincinnati and
Northwest Arkansas. 2015 franchise reacquisitions all showed strong organic sales growth during 2016:
New York (120% growth to approximately $500,000), Miami (86% growth to approximately $1.19 million)
and Detroit (40% growth to approximately $550,000). One additional indicator of our ability to add value
over time when converting franchise operations to corporate operations is the contribution to profits from
corporate-run operations (see Strategic Report). Profits from corporate stores increased 119% to
$324,000 in 2016 from $148,000 in 2015. Much like we did with our 2015 reacquisitions, we are
increasing spending for our 2016 reacquisitions to fuel long-run sustainable growth.
As noted above, our September acquisition of NRW has shown promise and brings an additional
professional dimension to our offerings, especially with respect to municipal work. For the 4 months of
2016 that it was part of the Group, NRW achieved approximately $550,000 of sales and $95,000 of
profits. Its consistent growth has continued during Q1 2017. We are now exploring our next national
sales channel bidding for municipal work and taking advantage of not only our franchisees’ existing
distribution across the US but also NRW’s operational leadership.
Finally, product and equipment sales also continued to grow. This indicator is important because it shows
the commitment of our franchisees to invest in future growth. Product and equipment sales grew 14.1% to
approximately $1.05 million. Overall, revenue from franchise related activities grew 79% to $1.73 million,
due to the sales from the new Business to Business channel of $665,000 in addition to the increase in
product and equipment sales.
With respect to our profits performance, our strong rate of sales growth has required us to significantly
increase our expense base so that our growth trajectory can be sustained over the long-run. However,
because of the dual sources of our growth – organic and by acquisition – we need to make certain
distinctions to present an accurate picture of our performance.
For organic growth, as we unlock value from newly acquired corporate stores, we need to increase
headcount, marketing and equipment expense ahead of realizing more sales. We remain confident,
given market demand that profits will catch up. As noted above, our increased investments for corporate
stores acquired during 2015 have produced increasing contribution to profits for 2016. These expenses
are simply part of continuing activities. By contrast, for franchise reacquisition-related growth, certain
significant transactional costs such as legal fees, while non-recurring, are treated as an operating
expense under IFRS accounting. To get an accurate picture of operational profitability, we have
Water Intelligence plc
4
Chairman’s Statement
continued
identified such expenses in the Strategic Report as “One-Time” costs where they relate to investment or
capital reorganization.
In this light, under IFRS, operating profits for 2016 declined to $929,720 from $1,090,216 during 2015. On
the other hand, if one adds back $296,000 (2015: $11,000) of One-Time costs, operating profits from
continuing activities would have been $1,225,720 for 2016 or 11.3% growth. Profits before tax declined in
2016 to $772,471 from $972,440 during 2015. When profits before tax is adjusted for One-Time Costs,
then we achieved $1,068,471 during 2016 or a 8.6% improvement over Profits before tax adjusted in the
same way of $983,440 during 2015.
Outlook
We are sticking to our “multinational growth” plan during 2017. As an operating matter, we are pleased
with 38% sales growth for 2016 especially given our 2015 report of 23% sales growth. This pathway
looks to be accelerating during Q1 2017. Our next milestone is to pass $20 million in sales and that
marker is within sight. We are also delighted to have added the leadership of UK-based NRW to help
manage global opportunities. Meanwhile, as a balance sheet matter, we are pleased to have reduced net
debt by approximately 25% and to have increased net asset value by 34%.
As we grow, we are mindful of the various investments that we continually need to make in people and
technology to reinforce our ability to execute and to sustain our growth trajectory. During Q1, we
launched a new website for American Leak Detection that has state of the art social media content
management and Internet lead generation. The web site will also link to our national accounts such as
insurance companies. Our franchisees are really pleased. We will be rolling-out the Canada, Australia
and UK versions during Q2 and Q3. Such investment will enhance our brand and our ability to
communicate our value proposition. Over the longer run, we are beginning to see the renewables market
as a natural extension for our range of water (potable and non-potable) solutions and customers,
especially given the operational reach of NRW. Because of the opportunities for growth, we have decided
that the time is not appropriate to issue a dividend even though we executed the share reorganization to
give us the flexibility to do so. We should reinvest our resources in the near-term to create a much more
valuable company for the shareholders. The market seems to agree. We are excited to seize the
opportunities ahead with the strong alignment of board, corporate and franchise team members,
shareholders and business partners.
Dr. Patrick DeSouza
Executive Chairman
15 May 2017
Water Intelligence plc
5
Strategic Report
Business Review and Key Performance Indicators
The Chairman’s Statement, on pages 3 to 5, provides an overview of the year and the outlook for the
Water Intelligence plc and its subsidiaries, referred to as the Group. From a performance perspective
the key features of 2016 were the continued growth strategy in the core business, investments and
acquisitions that resulted in increased sales and corresponding costs across the Group, one-off
expenditure and a marginally declining profit as acquisitions are integrated into the business and
acquisition and investment costs are incurred. The financial position of the Group at the end of 2016
has strengthened with an increased net asset position reflecting the investments made, increased
trading activity and growth. Net debt has reduced and there is a more simplified equity and reserves
structure following the share reorganization in 2016.
Six key performance indicators are used by the board to monitor the business: (i) growth in franchise
royalty income, (ii) performance of Corporate-owned stores, (iii) growth from US franchise-related
activities, (iv) growth from international corporate activities, (v) one-time costs and (vi) net debt. These
six indicators are reported to the board on a monthly basis and used to assist the board in the
management of the business.
Franchise Royalty Income.
(i)
The continued growth of the core American Leak Detection (“ALD”) franchise business is important to the
business strategy of Water Intelligence. Royalty income is a key indicator of the health of the franchise
business because it is derived from ALD’s system-wide sales. As System-wide sales increase – currently
approximately $75 million - the Board can decide whether to selectively reacquire franchises adding
critical mass of revenue and earnings to the Group or to keep adding high margin royalty income. Royalty
income compared to 2015 grew despite 2016 reacquisitions which had the effect of reducing royalty
income. The Group has 96 franchises at the end of 2016 which represents a decrease of 3 franchises
(2015: 99). All three of the decreases were the subject of reacquisition. Growth in royalty income is as
follows:
Total USA
International
Total Group Royalty Income
Profit/(loss) before tax (see note 4)
Year ended
31 December
2016
$'000
5,312
231
5,543
1,219
Year ended
31 December
2015
$'000
4,994
227
5,221
1,186
Change
%
6%
2%
6%
3%
Corporate Owned Stores.
(ii)
Performance of the US corporate-run stores is an indication of the success of the Group’s strategy to
selectively reacquire franchises and add critical mass of revenue and earnings to the Group accounts.
The Group directly operates 10 territories, an increase of 4 territories (2015: 6). 2015 corporate store
performance is as follows:
Revenue
Profit/(loss) before tax (see note 4)
Year ended
31 December
2016
$'000
4,217
324
Year ended
31 December
2015
$'000
2,614
148
Change
%
61%
119%
Water Intelligence plc
6
Strategic Report
continued
Franchise-related Activities.
(iii)
US franchise-related activities provide supporting evidence for strength of the core ALD business. Parts
and equipment sales are an indication of franchisee reinvestment in growth. A new consideration,
Business-to-Business channels such as insurance and property management represent national
customers and are an indication that these customers consider ALD a nationwide system – an important
aspect of competitive strategy. Finally, franchise sales are a reflection of the Group’s priority with respect
to adding corporate stores. Revenue from Franchise-related Activities compared to 2015 as follows:
Parts and equipment sales
Business to Business sales
Franchise sales
Total Revenue from US Other Activities
activities
Profit/(loss) before tax (see note 4)
Year ended
31 December
2016
$'000
1,050
665
17
1,732
227
Year ended
31 December
2015
$'000
920
-
49
969
126
Change
%
14%
100%
(65%)
79%
79%
International Corporate Activities.
(iv)
The Group seeks to strengthen its multinational presence. With the establishment of Group corporate
operations in the UK and Australia, revenue from UK and international corporate activities compared to
2015 as follows:
NRW
Sydney
Water Intelligence International
Total Revenue from UK and International
Corporate Activities
Profit/(loss) before tax (see note 4)
Year ended
31 December
2016
$'000
540
43
101
684
139
Year ended
31 December
2015
$'000
-
-
38
38
Change
%
100%
100%
62%
1700%
(70)
299%
One-Time Costs.
(v)
During 2016, the Group has incurred what are considered to be one-off non-operational costs relating
to the share reorganization and linked to the investments/acquisitions made for the future benefit of
the business. Because transactions are part of the Group’s growth strategy (8 during 2016),
understanding one-time costs as distinct from costs from continuing activities is important. In 2016,
there were $296,000 of one-time costs. During 2015, there were $11,000 of one-time costs. Please
see table below for details:
Share reorganization and capital raising
Investment in University of Chicago R&D
Legal costs of acquisitions
Imputed interest due to deferred acquisition payments
Total
Water Intelligence plc
7
Year ended
31 December 2016
$’000
79
25
151
41
296
Strategic Report
continued
Net Debt.
(vi)
Management of financial resources is important for making various decisions regarding the rate of
growth as indicated in items (i) through (v). Net debt decreased to $763,000 at 31 December 2016,
from $1,019,000 at 31 December 2015. Amounts owed under the term loan have been reduced based
on its amortization schedule to $1,600,000.
Group
Line of credit for working capital
Term loan
Less: Cash
Held in US Dollars
Held in £ Sterling
Held in AU Dollars
Total Net Debt
Year ended
31 December
2016
$'000
252
1,568
1,820
601
397
59
1,057
763
Year ended
31 December
2015
$'000
-
2,050
2,050
1,007
24
-
1,031
1,019
Principal Risks and Uncertainties
The Group’s objectives, policies and processes for measuring and managing risk are described in
note 23. The principal risks and uncertainties to which the Group is exposed include:
Market Risk
The Group’s activities expose it to the financial risk of changes in foreign currency exchange rates
as it undertakes certain transactions denominated in foreign currencies. There has been no change
to the Group’s exposure to market risks. The Group and the Company had no material foreign
exchange transactional exposure at 31 December 2016.
Interest Rate Risk
The Group’s interest rate risk arises from its short and term loan borrowings.
Whilst borrowing issued at variable rates would expose the Group to cash flow risks, as at year -end,
the Company does not have any variable rate borrowings.
Credit Risk
The Group’s credit risk is primarily attributable to its cash and cash equivalents and trade
receivables. The credit risk on other classes of financial assets is considered insignificant.
Liquidity Risk
The Group manages its liquidity risk primarily through the monitoring of forecasts and actual cash
flows.
Other Risks
There is a risk that existing and new customer relationships and R&D will not lead to the sales
growth. The Group is reliant on a small number of skilled managers. Further, the Group is reliant on
effective relationships with its franchisees, especially in the US.
Water Intelligence plc
8
Strategic Report
continued
By order of the Board
Patrick DeSouza
Executive Chairman
15 May 2017
Water Intelligence plc
9
Directors’ Report
The Directors present their report on the affairs of Water Intelligence plc (the “Company”) and its
subsidiaries, referred to as the Group, together with the audited Financial Statements and Independent
Auditors’ report for the year ended 31 December 2016.
Principal Activities
The Group is the leading provider of leak detection and remediation services. The Group’s strategy is to
be a “one-stop” shop for solutions (including products) for residential, commercial and municipal
customers.
Results
The financial performance for the year, including the Group’s Statement of Comprehensive Income and
the Group’s financial position at the end of the year, is shown in the Financial Statements on pages 19
to 25.
94.4% of the Group's revenue in the year ended 31 December 2016 (2015: 99.6%) came from its
wholly owned subsidiary American Leak Detection, Inc. (“ALD”), with the remaining 5.6% (2015:
0.4%) of revenue coming from its wholly-owned subsidiary Water Intelligence International
Limited (“WII”), (formerly ALD International Limited).
Going Concern
The Directors have prepared a business plan and cash flow forecast for the period to May 2018. 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 is funded mainly on cash
generation by its profitable US-based franchise business, ALD. The Directors believe that funding will be
available on a case by case basis for different initiatives such that the Group will have adequate cash
resources to pursue its growth plan. The Directors are satisfied that the Group has adequate resources
to continue in operational existence for the foreseeable future and accordingly, continue to adopt the
going concern basis in preparing the financial statements.
Research Design & Development
Expenditure on research and development, all of which was undertaken by third parties not related
to the Group, was $14,989 (2015: $13,878). The Group is committed to increasing its R&D budget
to meet anticipated market demands. The Group also spent $25,000 during 2016 to access
research on water problems at the University of Chicago.
Dividends
The Directors do not recommend the payment of a dividend (2015: $nil).
Share Price
On 31 December 2016, the closing market price of Water Intelligence plc ordinary shares was 0.95
pence. The highest and lowest prices of these shares during the year to 31 December 2016 were 0.98
pence and 0.51 pence respectively.
Capital Structure
Details of the authorised and issued share capital are shown in Note 21. No person has any special
rights of control over the Company’s share capital and all issued shares are fully paid.
Future Developments
Future developments are outlined in the Outlook section of the Chairman’s Statement on page 5.
Water Intelligence plc
10
Directors’ Report
continued
Financial Risk Management
Financial risk management is outlined in the principal risks and uncertainties section of the strategic
report on page 6.
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.
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.
Directors
The Directors who served the Company during the year and up to the date of this report were as
follows:
Executive Directors
Patrick DeSouza – Executive Chairman
David Silverstone
Non-Executive Directors
Stephen Leeb (Resigned 22 August 2016)
Robert Mitchell
Michael Reisman
John Weigold (Appointed 19 January 2017)
The biographical details of the Directors of the Company are set out on the Company’s website
www.waterintelligence.co.uk
Water Intelligence plc
11
Directors’ emoluments
2016
Executive Directors
P DeSouza
D Silverstone
Non-Executive Directors
S Leeb
M Reisman
R Mitchell
Directors’ Report
continued
Salary, Fees &
Bonus
Benefits Redundancy
$
447,019
47,000
21,000
21,000
108,189
644,208
$
-
-
-
-
-
-
$
-
-
-
-
-
-
2015
Salary, Fees &
Bonus
Benefits Redundancy
Executive Directors
P DeSouza
D Silverstone
Non-Executive Directors
S Leeb
M Reisman
R Mitchell
$
$
367,107
105,353
37,383
-
20,853
20,853
41,451
-
-
-
555,617
37,383
$
-
-
-
-
-
-
Total
$
447,019
47,000
21,000
21,000
108,189
644,208
Total
$
404,490
105,353
20,853
20,853
41,451
593,000
Directors’ interests
The Directors who held office at 31 December 2016 had the following direct interest in the ordinary
shares of the Company, excluding the shares held by Plain Sight Systems, Inc.:
Patrick DeSouza*
Number of
shares at 31
December
2016
2,842,110
% held at 31
December
2016
24.77%
Michael Reisman*
*Patrick DeSouza received 600,000 Partly Paid Shares during the year, these will not be admitted to trading or carry any
economic rights until fully paid.
166,068
1.45%
Stephen Leeb sold his 73,600 shares back to Water Intelligence plc; these are held in treasury.
*Patrick DeSouza, Michael Reisman and Stephen Leeb are directors and shareholders in Plain Sight Systems, Inc.
Share option schemes
In order to provide incentive for the management and key employees of the Group the Directors
announced at the time of the Reverse Acquisition that the share option scheme issued to ALD
employees was to be replaced. This action was completed in 2014.
Details of the current scheme are set out in Note 7.
Water Intelligence plc
12
Directors’ Report
continued
Substantial Shareholders
As well as the Directors’ interests reported above, the following interests of 3.0% and above as at the
date of this report were as follows:
Plain Sight Systems, Inc.
Chase Nominees Limited
George Yancopoulos
Principal Nominees Limited
Amati VCT
BNY (OCS) Nominees Limited
Hargreave Hale Nominees Limited
Number of shares % held
21.18%
2,430,000
4.42%
507,150
4.11%
471,698
3.93%
451,490
3.65%
419,290
3.45%
395,370
3.10%
356,225
Corporate Responsibility
The Board recognises its employment, environmental and health and safety responsibilities. It devotes
appropriate resources towards monitoring and improving compliance with existing standards. The
Executive Director has responsibility for these areas at Board level, ensuring that the Group’s policies
are upheld and providing the necessary resources.
Employees
The Board recognises that the Group’s employees are its most important asset.
The Group is committed to achieving equal opportunities and to complying with relevant anti-
discrimination legislation. It is established Group policy to offer employees and job applicants the
opportunity to benefit from fair employment, without regard to their sex, sexual orientation, marital
status, race, religion or belief, age or disability. Employees are encouraged to train and develop
their careers.
The Group has continued its policy of informing all employees of matters of concern to them as
employees, both in their immediate work situation and in the wider context of the Group’s well-being.
Communication with employees is effected through the Board, the Group’s management briefings
structure, formal and informal meetings and through the Group’s information systems.
Independent Auditors
Crowe Clark Whitehill LLP has expressed their willingness to continue in office. In accordance with
section 489 of the Companies Act 2006, resolutions for their re-appointment and to authorise the
Directors to determine the Independent Auditors’ remuneration will be proposed at the forthcoming
Annual General Meeting.
Statement of disclosure to the Independent Auditor
Each of the persons who are directors at the time when this Directors' report is approved has
confirmed that:
so far as that director is aware, there is no relevant audit information of which the Company and the
Group's auditor is unaware; and
that director has taken all the steps that ought to have been taken as a director in order to be
aware of any relevant audit information and to establish that the Company an d the Group's
auditor is aware of that information.
By order of the Board
Patrick DeSouza
Executive Chairman
15 May 2017
Water Intelligence plc
13
Corporate Governance
continued
The Board is committed to proper standards of Corporate Governance, managing the Group in an
efficient, effective, entrepreneurial and ethical manner for the benefit of shareholders over the longer term.
Under the AIM listing rules, the Company is not obliged to implement the provisions of the UK
Governance Code (formerly the Combined Code). However, the Company is committed to considering,
where appropriate, the principles of good governance contained in the UK Governance Code for a
company of its size and nature..
The Company has established an audit committee, responsible for ensuring that the financial
performance, position and prospects for the Company are properly monitored, controlled and reported on
and for meeting the auditors and reviewing their reports relating to accounts and internal controls, and a
remuneration committee, responsible for reviewing the performance of the executive director(s) and
determining the level of remuneration and basis of service agreement(s). The Remuneration Committee
also determines the payment of any bonuses to the executive director(s) and the grant of options.
Takeovers and Mergers
The Company is subject to The City Code on Takeovers and Mergers.
Board
The Company is run by the Board of Directors, which comprises two executive and three non-executive
directors. As the business grows and becomes more complex it is anticipated that the Board will be added
to.
The Board meets regularly and is responsible for the Group’s corporate strategy, monitoring financial
performance, approval of capital expenditure, treasury and risk management policies. Board papers are
sent out to all directors in advance of each Board meeting including management accounts and
accompanying reports from those responsible.
Non-executive directors are able to contact the Executive Directors at any time for further information.
Board Committees
The Board has established an Audit Committee and a Remuneration Committee with delegated duties
and responsibilities.
(a) Audit Committee
David Silverstone, Executive Director, is Chairman of the Audit Committee. The other members of
the Committee are Robert Mitchell and John Weigold. The Audit Committee is responsible for
ensuring that the financial performance, position and prospects for the Company are properly
monitored, controlled and reported on and for meeting the auditors and reviewing their reports
relating to accounts and internal controls.
(b) Remuneration Committee
Michael Reisman, Non-Executive Director, is Chairman of the Remuneration Committee. The
other member of the Committee is Robert Mitchell. The Remuneration Committee is responsible
for reviewing performance of Executive Directors and determining the remuneration and basis of
service agreement with due regard for the Combined Code. The Remuneration Committee also
determines the payment of any bonuses to Executive Directors and the grant of options.
The Company has adopted and operates a share dealing code for directors and senior employees on the
same terms as the Model Code appended to the Listing Rules of the UKLA.
Internal Control
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness.
Such a system is designed to manage rather than eliminate risk of failure to achieve the business
objectives, and can only provide reasonable and not absolute assurance against material misstatement or
loss.
Water Intelligence plc
14
Corporate Governance
continued
The system of internal financial control comprises those controls established to provide reasonable
assurance of:
The safeguarding of assets against unauthorised use or disposal; and
The maintenance of proper accounting records and the reliability of financial information used within
the business and for publication
The key procedures of internal financial control of the Group are as follows:
The Board reviews and approves budgets and monitors performance against those budgets on a
monthly basis. Variances are fully investigated
The Group has clearly defined reporting and authorisation procedures relating to the key financial
areas
Relations with Shareholders
The Company is available to hold meetings with its shareholders to discuss objectives and to keep them
updated on the Company’s strategy, Board membership and management.
The board also welcome shareholders’ enquiries, which may be sent via the Company’s website
www.waterIntelligence.co.uk.
Water Intelligence plc
15
Statement of Directors’ Responsibilities
Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in
accordance with the Companies Act 2006 and for being satisfied that the Financial Statements give a
true and fair view. The Directors are also responsible for preparing the Financial Statements in
accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European
Union.
Company law requires the Directors to prepare Financial Statements for each financial period which give
a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the
Company and the Group for that period. In preparing those Financial Statements, the Directors are
required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable accounting standards have been followed, subject to any material
departures disclosed and explained in the Financial Statements; and
prepare the Financial Statements on the going concern basis unless it is inappropriate to presume
that the Company and the Group will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the
Financial Statements. The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Company's transactions, disclose with reasonable accuracy
at any time the financial position of the Company and the Group, and to enable them to ensure that
the Financial Statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the Annual Report and Financial Statements are made
available on a website. Financial Statements are published on
the Group's website
(www.waterintelligence.co.uk) in accordance with legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the
Directors – the work carried out by the auditors does not involve the consideration of these matters
and, accordingly, and the auditors accept no responsibly for any changes that may have occurred in
the accounts since they were initially presented on the website. The Directors' responsibility also
there
extends
the Financial Statements
contained
ongoing
integrity
the
to
of
Water Intelligence plc
16
Independent Auditors’ report to the members of
Water Intelligence plc
We have audited the Group and Parent Company Financial Statements of Water Intelligence plc
for the year ended 31 December 2016 (the “Financial Statements”), which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company
Statements of Financial Position, the Consolidated and Parent Company Statements of Changes in
Equity, the Consolidated and Parent Company Statements of Cash Flows, together with the related
notes, numbers 1 to 28. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted
by the European Union and, as regards the Parent Company Financial Statements, as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the Group's members, as a body, in accordance with Part 3 of
Chapter 16 of the Companies Act 2006. Our audit work has been undertaken so that we might
state to the Company's members those matters we are required to state to them in an auditor 's
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Group's members as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
As explained more fully under ‘Statement of Directors’ Responsibilities’ on page 16, the Directors are
responsible for the preparation of the Financial Statements and for being satisfied that they give a
true and fair view.
Our responsibility is to audit and express an opinion on the Financial Statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s (APB) Ethical Standards for auditors.
Scope of the audit of the Financial Statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting
Council’s website at www.frc.org.uk/auditscopeukprivate.
Opinion on Financial Statements
In our opinion:
–
–
–
–
the Financial Statements give a true and fair view of the state of the Group’s and the Parent
Company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended;
the Group Financial Statements have been properly prepared in accordance with IFRSs as adopted
by the European Union;
the Parent Company Financial Statements have been properly prepared in accordance with the
IFRSs as adopted by the European Union as applied in accordance with the provisions of the
Companies Act 2006; and
the Financial Statements have been prepared in accordance with the requirements of the
Companies Act 2006.
Water Intelligence plc
17
Independent Auditors’ report to the members of
Water Intelligence plc
continued
Opinion on other matter prescribed by the Companies Act 2006
In our opinion based on the work undertaken in the course of our audit :
–
–
the information given in the Strategic Report and the Directors' Report for the financial year for
which the financial statements are prepared is consistent with the financial statements; and
the Directors’ Report and Strategic report have been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the company and its environment obtained in the
course of the audit, we have not identified material miss tatements in the strategic report or the
directors’ report.
We have nothing to report in respect of the following matters where the Companies Act 2006
requires us to report to you if, in our opinion:
–
–
adequate accounting records have not been kept by the Parent Company, or returns adequate for
our audit have not been received from branches not visited by us; or
the Parent Company Financial Statements are not in agreement with the accounting records
and returns; or
–
certain disclosures of Directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Nigel Bostock
Senior Statutory Auditor
For and on behalf of
Crowe Clark Whitehill LLP
Chartered Accountants
Statutory Auditor
St Brides House
10 Salisbury Square
London
EC4Y 8EH
15 May 2017
Water Intelligence plc
18
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Administrative expenses
– Other Income
– Share-based payments
– Amortisation of intangibles
– Other administrative costs
Total administrative expenses
Operating profit
Finance income
Finance expense
Profit before tax
Taxation expense
Profit for the year
Other Comprehensive Income
Items that may be reclassified subsequently to profit &
loss
Exchange differences arising on translation of foreign
operations
Income attributable to Non-Controlling Interest
Total comprehensive profit for the year
Profit per share
Basic
Diluted
Notes
4
Year ended
31 December
2016
$
Year ended
31 December
2015
$
12,175,237
8,842,349
(1,667,004)
10,508,233
(799,441)
8,042,908
7
13
5
5
8
9
10
11
11
24,621
(37,459)
(295,606)
(9,267,496)
29,394
(35,232)
(270,492)
(6,676,362)
(9,575,940)
(6,952,692)
932,293
12,264
(172,086)
772,471
(294,098)
1,090,216
17,326
(135,102)
972,440
(391,687)
478,373
580,753
(116,548)
(37,029)
6,296
-
368,121
543,724
Cents
Cents
4.5
4.4
5.5
5.5
The results reflected above relate to continuing activities. The profit and other comprehensive profit
for the prior year was wholly attributable to equity holders of the Parent Company, Water Intelligence
plc.
The accompanying notes on pages 26 to 58 are an integral part of these financial statements.
Water Intelligence plc
19
Consolidated Statement of Financial Position
as at 31 December 2016
Notes
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to holders of the parent
Share capital
Share premium
Capital redemption reserve
Merger reserve
Share based payment reserve
Other reserves
Reverse acquisition reserve
Retained earnings/ (loss)
Equity attributable to Non-Controlling interest
Non-controlling Interest
Non-current liabilities
Borrowings
Deferred consideration
Deferred tax liability
Current liabilities
Trade and other payables
Borrowings
Deferred consideration
TOTAL EQUITY AND LIABILITIES
13
13
14
17
16
17
18
21
21
21
23
12
20
19
23
12
2016
$
2015
$
2,906,531
2,518,451
436,928
42,445
5,904,355
327,501
2,206,079
1,056,888
3,590,468
9,494,823
1,469,027
2,680,523
107,448
37,576
4,294,574
275,204
1,350,804
1,031,454
2,657,462
6,952,036
64,257
926,787
-
1,001,150
72,691
(264,643)
(27,758,088)
31,108,642
5,150,796
12,733,307
4,829,377
6,517,644
8,501,150
35,232
(148,095)
(27,758,088)
(874,022)
3,836,505
93,704
-
1,327,593
612,225
305,081
2,244,899
950,725
492,453
562,246
2,005,424
9,494,823
1,459,027
277,208
64,449
1,800,684
663,616
591,450
59,781
1,314,847
6,952,036
These Financial Statements were approved and authorised for issue by the Board of Directors on 15
May 2017 and were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 26 to 58 are an integral part of these financial statements.
Water Intelligence plc
20
Company Statement of Financial Position
as at 31 December 2016
ASSETS
Non-current assets
Investment in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to holders of the parent
Share capital
Share premium
Capital redemption reserve
Merger reserve
Share based payment reserve
Other reserves
Retained earnings/(losses)
Current liabilities
Trade and other payables
TOTAL EQUITY AND LIABILITIES
Notes
2016
$
2015
$
15
17
18
21
21
21
19
6,757,904
6,757,904
8,132,601
8,132,601
1,158,443
268,785
1,427,228
8,185,132
677,593
18,937
696,530
8,829,131
64,257
926,787
-
1,001,150
72,691
(1,919,342)
6,656,506
6,802,049
12,733,307
4,829,377
6,517,644
8,501,150
35,232
(514,331)
(24,219,895)
7,882,484
1,383,083
1,383,083
946,647
946,647
8,185,132
8,829,131
The loss for the financial year dealt with in the financial statements of the parent Company was
$621,594 (2015: profit $451,255).
These Financial Statements were approved and authorised for issue by the Board of Directors on
15 May 2017 and were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 26 to 58 are an integral part of these financial statements.
Water Intelligence plc
21
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
Share
Capital
$
Share
Premium
$
Shares
to be
issued
$
Capital
Redemption
Reserve
$
Reverse
Acquisition
Reserve
$
Merger
Reserve
$
Share
based
payment
reserve
$
Other
reserves
$
Retained
Profits/
(Losses)
$
Total
$
Non-controlling
interest
$
As at 1 January 2015
12,732,564
4,800,610
29,510
6,517,644
(27,758,088)
8,501,150
-
(111,066)
(1,454,775)
3,257,549
Issue of Ordinary Shares
743
28,767
(29,510)
-
Share-based payment expense
-
Profit for the year
-
Other comprehensive loss
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- -
-
-
35,232
-
-
35,232
- -
580,753
580,753
-
(37,029)
-
(37,029)
-
-
-
-
As at 31 December 2016
12,733,307
4,829,377
As at 1 January 2016
12,733,307
4,829,377
Cancellation of deferred shares
(12,679,741)
-
Cancellation of share premium
Cancellation of capital
redemption reserve
-
-
Issue of capital reduction shares
7,500,000
Cancellation of capital reduction
shares
Issue of Ordinary Shares
(7,500,000)
(4,800,610)
-
-
-
-
-
-
-
-
-
-
6,517,644
(27,758,088)
8,501,150
35,232
(148,095)
(874,022)
3,836,505
6,517,644
(27,758,088)
8,501,150
35,232
(148,095)
(874,022)
3,836,505
-
-
(6,517,644)
-
-
-
-
-
-
-
-
-
-
(7,500,000)
-
-
-
-
-
-
-
-
-
-
-
12,679,741
4,800,610
6,517,644
-
7,500,000
-
-
-
-
-
Total
Equity
$
3,257,549
-
35,232
580,753
(37,029)
3,836,505
3,836,505
-
-
-
-
-
908,711
37,459
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,691
898,020
-
908,711
- - - - - -
Share-based payment expense
-
Equity contributions
-
Profit for the year
-
Other comprehensive loss
-
-
-
-
-
As at 31 December 2016
64,257
926,787
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,459
-
-
37,459
-
-
-
-
-
-
-
100,000
100,000
- -
484,669
484,669
(6,296)
478,373
-
(116,548)
-
(116,548)
-
(116,548)
-
(27,758,088)
1,001,150
72,691
(264,643)
31,108,642
5,150,796
93,704
5,244,500
The accompanying notes on pages 26 to 58 are an integral part of these financial statements.
Water Intelligence plc
22
Company Statement of Changes in Equity
for the year ended 31 December 2016
Share
Capital
$
Share
Premium
$
Shares
to be
issued
$
Capital
Redemption
Reserve
$
Merger
Reserve
$
12,732,564
4,800,610
29,510
6,517,644
8,501,150
743
28,767
(29,510)
- -
-
-
-
-
-
-
-
-
-
Share
based
payment
reserve
$
-
-
35,232
-
-
Other
reserves
$
Retained
Profits/
(Losses)
$
Total Equity
$
(143,781)
(24,671,150)
7,766,547
-
-
-
-
-
-
35,232
451,255
451,255
(370,550)
-
(370,550)
-
-
-
-
As at 1 January 2015
Issue of Ordinary Shares
Share-based payment expense
Profit for the year
Other comprehensive loss
As at 31 December 2016
12,733,307
4,829,377
As at 1 January 2016
12,733,307
4,829,377
Cancellation of deferred shares
(12,679,741)
-
Cancellation of share premium account
Cancellation of capital redemption reserve
Issue of capital reduction shares
Cancellation of capital reduction shares
-
-
7,500,000
(7,500,000)
(4,800,610)
-
-
-
Issue of Ordinary Shares
10,691
898,020
Share-based payment expense
Profit for the year
Other comprehensive loss
As at 31 December 2016
-
-
-
-
-
-
64,257
926,787
6,517,644
8,501,150
35,232
(514,331)
(24,219,895)
7,882,484
6,517,644
8,501,150
35,232
(514,331)
(24,219,895)
7,882,484
-
-
(6,517,644)
-
-
-
-
-
-
-
-
-
-
(7,500,000)
-
-
-
-
-
-
-
-
-
-
-
37,459
-
-
-
-
-
-
-
-
-
-
12,679,741
4,800,610
6,517,644
-
7,500,000
-
-
-
-
-
-
-
908,711
37,459
(621,594)
(621,594)
(1,405,011)
-
(1,405,011)
1,001,150
72,691
(1,919,342)
6,656,506
6,802,049
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The following describes the nature and purpose of each reserve within owners’ equity:
Share capital
Share premium
Merger reserve
Amount subscribed for share capital at nominal value.
Amount subscribed for share capital in excess of nominal value.
Non-distributable reserve arising on reverse acquisition.
Share based payment reserve
Amounts recognised for the fair value of share options granted in accordance with IFRS 2.
Other reserves
foreign exchange differences on re-translation.
Retained profits/(losses)
The accompanying notes on pages 26 to 58 are an integral part of these financial statements
Cumulative net profits/(losses) recognised in the Financial Statements.
Water Intelligence plc
23
Consolidated Statement of Cash Flows
for the year ended 31 December 2016
Year ended
31 December
Year ended
31 December
2015
2016
Net cash generated from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Acquisition of subsidiaries
Reacquisition of franchises
Interest received
Net cash used in investing activities
Cash flows from financing activities
Issue of ordinary share capital
Premium on issue of ordinary share capital
Interest paid
Proceeds from borrowings
Repayment of borrowings
Deferred financing costs
Equity contributions – non-controlling interest
Net cash generated by/ (used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at end of year
Notes
24
$
$
533,099
199,484
(347,660)
(329,368)
(449,094)
12,264
(66,244)
-
(240,000)
17,326
(1,113,858)
(288,918)
10,691
898,020
(172,086)
276,468
(475,426)
(31,473)
100,000
606,194
25,435
1,031,454
1,056,889
-
-
(135,102)
-
(500,024)
-
-
(635,126)
(724,560)
1,756,014
1,031,454
The accompanying notes on pages 26 to 58 are an integral part of these financial statements
Water Intelligence plc
24
Company Statement of Cash Flows
for the year ended 31 December 2016
Net cash (used by)/generated from operating activities
Cash flows from financing activities
Issue of ordinary share capital
Premium on issue of ordinary share capital
Net cash generated by financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at end of period
Year ended
31 December
2016
$
(658,863)
Year ended
31 December
2015
$
1,608
Notes
24
10,691
898,020
908,711
249,848
18,937
268,785
-
-
-
1,608
17,329
18,937
The accompanying notes on pages 26 to 58 are an integral part of these financial statements.
Water Intelligence plc
25
Notes to the Financial Statements
General information
1
The Group is a leading provider of minimally invasive, leak detection and remediation services. The
Group’s strategy is to be a “one-stop” shop of water leak solutions (services and products) 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 201
Temple Chambers, 3-7 Temple Avenue, EC4Y 0DT.
The Company is listed on AIM of the London Stock Exchange. These Financial Statements were
authorised for issue by the Board of Directors on 15 May 2017.
Adoption of new and revised International Financial Reporting Standards
2
No new IFRS standards, amendments or interpretations became effective in 201 6 which had a
material effect on these Financial Statements.
At the date of approval of these Financial Statements, the directors have considered IFRS
Standards and Interpretations, which have not been applied in these Financial Statements, were in
issue but not yet effective.
The Group has not early adopted these amended standards and interpretations. The Directors are
undertaking an ongoing evaluation of the potential impact of IFRS9 in respect of the impact of the
expected loss model on the impairment of receivables, IFRS15 in respect of the revenue
recognition for service revenue and IFRS16 in respect of leases. Whilst this exercise is not
concluded, the Directors do not presently anticipate that the adoption of these standards and
interpretations will have a material impact on the Group’s Financial Statements in the periods of
initial application.
3
Significant accounting policies
Basis of preparation
These Financial Statements of the Group and Company are prepared on a going concern basis,
under the historical cost convention (with the exception of share based payments and goodwill) and
in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations
issued by the International Accounting Standards Board (IASB) and adopted by the European
Union, in accordance with the Companies Act 2006. The Parent Company’s Financial Statements
have also been prepared in accordance with IFRS and the Companies Act 2006.
The preparation of Financial Statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts
of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The Financial Statements are presented in US Dollars ($), rounded to the nearest dollar.
Going concern
The Group’s business activities, together with factors likely to affect its future development,
performance and position are set out in the Directors’ Report, Strategic Report and the Chairman’s
Statement.
The Directors have prepared a business plan and cash flow forecast for the period to May 2018.
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 is funded entirely on cash
generation by its profitable US-based franchise business, ALD. The Directors believe that the
Water Intelligence plc
26
Notes to the Financial Statements
3
Significant accounting policies continued
funding will be available on a case by case basis for different initiatives such that the Group will
have adequate cash resources to pursue its growth plan.
The Directors are satisfied that the Group has adequate resources to continue in operatio nal
existence for the foreseeable future and accordingly, continue to adopt the going concern basis in
preparing the financial statements.
Basis of consolidation
The Group financial statements consolidate the accounts of Water Intelligence plc and all of i ts
subsidiary undertakings made up to 31 December 2016. The Consolidated Statement of
Comprehensive Income includes the results of all subsidiary undertakings for the period from the
date on which control passes. Control is achieved where the Company (or o ne of its subsidiary
undertakings) obtains the power to govern the financial and operating policies of an investee entity
so as to derive benefits from its activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the
Group. The cost of an acquisition is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.
The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net
assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the
net assets of the subsidiary acquired, the difference is recognise d directly in the income statement.
The acquisition of ALDHC in 2011 was accounted for as a reverse acquisition. The assets and
liabilities revalued at their fair value on acquisition therefore related to the Company. Both a merger
reserve and a reverse acquisition reserve were created to enable the presentation of a consolidated
statement of financial position which combines the equity structure of the legal parent with the
reserves of the legal subsidiary.
Inter-company transactions and balances and unrealised gains or losses on transactions between
Group companies are eliminated in full.
Parent Company income statement – UK head office only
The Company has taken advantage of Section 408 of the Companies Act 2006 in not presenting its
own Statement of Comprehensive Income. The Company’s loss after tax for the year ended 31
December 2016 is $621,594 (2015: Profit of $451,255). The prior year profit after tax included a
deferred tax adjustment of $837,271 related to the utilisation by 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.
Water Intelligence plc
27
Notes to the Financial Statements
continued
Significant accounting policies continued
3
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 recov ered.
Foreign currencies
Functional and presentational currency
(i)
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)
(b)
assets and liabilities for each statement of financial position presented are translated at
closing rate at the date of the statement;
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.
Water Intelligence plc
28
Notes to the Financial Statements
continued
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.
Water Intelligence plc
29
Notes to the Financial Statements
continued
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 th at 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 met hod.
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:
Motor vehicles:
Leasehold improvements:
5 to 7 years
5 years
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
the Consolidated Statement of
Comprehensive Income and not subsequently reversed.
immediately
impairment
recognised
in
is
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.
Water Intelligence plc
30
Notes to the Financial Statements
continued
3
Significant accounting policies continued
Amortisation is computed using the straight-line method over the definite estimated useful lives of
the assets as follows:
Covenants not to compete
Customer lists
Trademarks
Patents
Product development
Years
3
5
20
10
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 possib le 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 developm ent 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 i n 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.
Water Intelligence plc
31
Notes to the Financial Statements
continued
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 evaluati on 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.
Segmental Information
4
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 201 6,
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.
Water Intelligence plc
32
Notes to the Financial Statements
continued
4
Segmental Information continued
The following is an analysis of the Group’s revenues and results from operations and assets by
business segment.
Revenue
Franchise royalty income
Corporate owned stores
Franchise related activities
International corporate activities
Total
Profit/(Loss) before tax
Franchise royalty income
Corporate owned stores
Franchise related activities
International corporate activities
Unallocated head office costs
One-Time cost
Total
Assets
Franchise royalty income
Corporate owned stores
Franchise related activities
International corporate activities
Total
Year ended
Year ended
31 December
31 December
2016
$
5,543,207
4,216,584
1,731,849
683,597
2015
$
5,221,331
2,614,274
968,336
38,408
12,175,237
8,842,349
Year ended
Year ended
31 December
31 December
2016
$
1.219,247
324,423
226,934
139,004
(841,137)
(296,000)
772,471
2015
$
1,186,132
148,040
126,442
(69,807)
(407,367)
(11,000)
972,440
Year ended
Year ended
31 December
31 December
2016
$
6,814,156
2,186,759
327,502
166,406
2015
$
7,868,133
791,928
(1,751,747)
43,722
9,494,823
6,952,036
Water Intelligence plc
33
Notes to the Financial Statements
continued
4
Segmental Information continued
Amortization
Franchise royalty income
International corporate activities
Total
Depreciation
Franchise royalty income
Corporate owned stores
Franchise related activities
International corporate activities
Total
Finance Expense
International corporate activities
Unallocated head office costs
Total
Year ended
Year ended
31 December
31 December
2016
$
268,358
27,248
295,606
2015
$
270,492
-
270,492
Year ended
31 December
2016
Year ended
31 December
2015
$
3,734
71,885
-
5,660
81,279
$
21,221
-
14
420
21,655
Year ended
31 December
2016
$
Year ended
31 December
2015
$
17,671
154,415
172,086
-
135,102
135,102
For the purpose of monitoring segmental performance, no liabilities are reported to the Group’s Chief
Operating Decision Maker.
Water Intelligence plc
34
Notes to the Financial Statements
continued
4
Segmental Information continued
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
Franchise related activities
1,731,849
-
-
4,216,584 2,614,274
1,731,849
968,336
- 2,614,274
-
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
266,025 8,842,349
5
Expenses by nature
The Group’s operating profit has been arrived at after charging:
Raw materials and consumables used
Employee costs
Operating lease rentals
Depreciation charge
Amortization charge
Marketing costs
R & D
Foreign exchange (gain)/loss
Auditors remuneration
Fees payable to the Company’s auditor for audit of
Parent Company and Consolidated Financial
Statements
Fees payables to the Company’s auditor for other
services (assurance related services)
Year ended
31 December
2016
$
954,234
6,002,080
Year ended
31 December
2015
$
793,369
3,902,956
Note
6
121,813
81,279
295,606
333,827
14,989
3,016
3,841
21,655
270,492
532,846
13,878
(226)
Year ended
31 December
2016
$
Year ended
31 December
2015
$
39,318
37,010
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.
Water Intelligence plc
35
Notes to the Financial Statements
continued
Employees and Directors
6
The Directors of the Company are considered to be the key management of th e business.
Short-Term employee benefits
Directors fees, salaries and benefits
Wages and Salaries
Social Security Costs
Long-Term employee benefits
Share based payments
6
Employees and Directors continued
Information regarding Directors emoluments are as follows:
Short-Term employee benefits
Directors’ fees, salaries and benefits
Social Security Costs
Long-Term employee benefits
Share based payments
Year ended
31 December
2016
$
Year ended
31 December
2015
$
644,208
4,943,189
377,224
593,000
3,039,404
235,320
37,459
35,232
6,002,080
3,902,956
Year ended
31 December
2016
$
Year ended
31 December
2015
$
644,208
19,190
36,176
699,574
593,000
14,445
16,034
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:
Directors (executive and non-executive)
Management
Field Services
Franchise Support
Administration
Year ended
31 December
2016
$
Year ended
31 December
2015
$
5
6
57
16
5
89
5
6
23
26
3
63
Water Intelligence plc
36
Notes to the Financial Statements
continued
7
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:
Outstanding at beginning of year
Granted during the year
Forfeited/lapsed during the year
Exercised during the year
Outstanding at end of the year
Exercisable at end of the year
Number of
share
options
2016
1,152,000
730,000
(117,000)
–
1,765,000
1,765,000
Weighted
average
exercise
price ($)
2016
1.05
1.33
1.21
–
Number
of share
options
2015
734,500
417,500
–
–
1.12 1,152,000
Weighted
average
exercise
price ($)
2015
1.26
0.67
–
–
1.05
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:
Exercise period
To
From
Exercise
price
$1.18 12/09/2013
$1.14 01/12/2013
$1.30 01/08/2013
$0.67 08/06/2015
$1.29 13/06/2016
$0.92 13/06/2016
$1.24 19/12/2016
$1.56 19/12/2016
12/09/2016
01/12/2023
01/08/2023
08/06/2025
13/06/2026
13/06/2026
19/12/2026
19/12/2026
Scheme
Third Party
ALDHC Plan (1)
Directors (2)
2015 Options (3)
2016 Directors (4)
2016 Directors (4)
2016 Employee (5)
2016 Employee (5)
Total
2016
-
417,500
250,000
417,500
200,000
50,000
220,000
210,000
1,765,000
2015
67,000
417,500
250,000
417,500
-
-
-
-
1,152,000
Date of
Grant
12/09/2013
01/12/2013
01/08/2013
08/06/2015
13/06/2016
13/06/2016
19/12/2016
19/12/2016
All share options are equity settled on exercise.
Water Intelligence plc
37
Notes to the Financial Statements
continued
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
Interest income
9
Finance expense
Interest payable
Bank loans
Year ended
31 December
2016
Year ended
31 December
2015
$
12,264
$
17,326
Year ended
31 December
2016
Year ended
31 December
2015
$
172,086
$
135,102
Water Intelligence plc
38
Notes to the Financial Statements
continued
10
Taxation
Group
Current tax:
Current tax on profits in the year
Prior year over provision
Total current tax
Deferred tax current year
Deferred tax prior year
Deferred tax expense/(credit) (note 21)
Income tax expense
Year ended
31 December
2016
Year ended
31 December
2015
$
$
53,466
522,557
-
-
53,467
522,557
240,632
(130,870)
-
-
240,632
294,098
(130,870)
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
Tax calculated at domestic rate applicable profits in
respective countries
(2016: 35% versus 2015: 34%)
Tax effects of:
Non-deductible expenses
State taxes net of federal benefit
Adjustment in respect of prior year
Deferred tax not recognised
Adjust deferred tax rate to 35%
Changes in rates
Taxation expense recognised in income statement
772,471
972,440
270,365
330,630
56,891
33,962
(77,702)
11,156
35,614
(36,188)
294,098
54,235
82,534
-
(75,712)
-
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 Gro up 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%).
Water Intelligence plc
39
Notes to the Financial Statements
continued
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
Profit for the year attributable to shareholders of the Company ($)
Weighted average number of ordinary shares
Diluted weighted average number of ordinary shares
Profit per share (cents)
Diluted profit per share (cents)
12
Acquisitions
Year ended
31
December
2016
$
478,373
Year
ended 31
December
2015
$
580,753
10,690,410 10,605,321
10,825,113 10,648,128
5.5
4.5
4.4
5.5
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)
Accounts receivable
Equipment
Cash
Liabilities
Net assets acquired
-
-
-
-
1,250
83,450
-
-
-
-
1,250
83,450
-
132,857
-
--
173,319
21,516
15,427
57,866
17,658
-
-
-
-
-
(201,558)
137,703
21,516
57,866
-
-
-
-
132,857
173,319
179,509
-
-
17,658
(201,558)
-
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).
Water Intelligence plc
40
Notes to the Financial Statements
continued
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 Intelligenc e 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
T&M Tech LLC (South Michigan Franchise)
New Jersey
Ohio
Arkansas
NRW
Australia
Total current deferred consideration
Non-Current
T&M Tech LLC (South Michigan Franchise)
New Jersey
Ohio
Arkansas
NRW
Australia
Total non-current deferred consideration
Water Intelligence plc
41
Year ended
31 December
2016
$
62,115
-
58,212
-
307,540
134,379
Year ended
31 December
2015
$
59,781
-
-
-
-
-
562,246
59,781
Year ended
31 December
2016
$
215,094
-
159,128
-
61,508
176,495
Year ended
31 December
2015
$
277,208
-
-
-
-
-
612,225
277,208
Notes to the Financial Statements
continued
13
Intangible assets
Goodwill table
Group
Cost
Goodwill
Acquisitions
$
Owned &
Operated
stores
$
Franchisor
activities
$
Totals
$
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
Impairment in year
1,493,729
75,000
-
1,568,729
-
-
-
-
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
At 31 December 2016
-
832,316
636,711
1,469,027
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.
Water Intelligence plc
42
Notes to the Financial Statements
continued
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
Short term revenue growth
Long term revenue growth
Tax rate
Discount rate sensitivity step
Perpetual growth rate sensitivity step
%
15
5
3.5
35
2
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.
Water Intelligence plc
43
Notes to the Financial Statements
continued
13
Intangible assets continued
Other Intangible assets table
Product
development
Covenants
not to
compete
Customer
Lists Trademarks Patents
Territory
servicing
rights
$
$
$
$
$
$
Total
$
164,880
270,000
217,500
5,293,817
23,692
88,000
6,057,889
-
20,000
-
- -
-
20,000
Cost
At 1 January 2015
Additions
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
Amortisation expense
-
-
-
261,692
-
7,000
8,800
Reclassification
-
-
-
- -
(15,800)
3,054,674
270,492
(15,800)
At 31 December 2015
164,880
270,000
217,500
2,633,294
23,692
-
3,309,366
Amortisation expense
-
Exchange differences
-
6,667
-
27,248
(677)
-
261,691
- -
- 295,606
-
(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
-
At 31 December 2016
-
20,000
13,333
-
2,660,523
-
106,286
2,398,832
-
-
-
2,680,523
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.
Water Intelligence plc
44
Notes to the Financial Statements
continued
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.
Cost
At 1 January 2015
Acquired on acquisition of subsidiary
Additions
Exchange differences
Disposals
At 31 December 2015
Acquired on acquisition of subsidiary
Additions
Exchange differences
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2015
Acquired on acquisition of subsidiary
Eliminated on disposals
Depreciation expense
Exchange differences
At 31 December 2015
Acquired on acquisition of subsidiary
Eliminated on disposals
Depreciation expense
Exchange differences
At 31 December 2016
Carrying amount
At 31 December 2015
At 31 December 2016
68,564
347,939
(279)
-
Equipment &
displays
$
Motor Vehicles
$
Leasehold
Improvements
$
444,284
150,571
62,673
157,781
122,771
123,418
-
3,640
-
(103)
- -
-
(35,657)
-
Total
$
725,483
273,342
66,313
(103)
(35,657)
248,535
123,418
1,029,378
657,425
47,693
254,096
20,871
93,843
-
-
(279)
- -
-
-
-
958,935
363,249
123,418
1,445,602
402,948
150,571
-
17,607
141,169
117,840
123,418
-
(35,657)
-
4,048
-
(14)
- -
571,112
2,839
-
62,587
(148)
227,400
123,418
2,807
-
-
-
18,692
-
-
(33)
667,535
268,411
(35,657)
21,655
(14)
921,930
5,646
-
81,279
(181)
636,390
248,866
123,418
1,008,674
86,313
322,545
21,135
-
114,383
-
107,448
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).
Water Intelligence plc
45
Notes to the Financial Statements
continued
15
Investment in subsidiary undertakings
Company
Cost
At 31 December 2015
Exchange difference
At 31 December 2016
Impairment
At 31 December 2015
Exchange difference
At 31 December 2016
Carrying amount
At 31 December 2015
At 31 December 2016
Subsidiary
Undertakings
$
14,533,507
(1,374,697)
13,158,810
6,400,906
-
6,400,906
8,132,601
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:
Qonnectis Group Limited (holding
company of ALD International Limited) *
Water Intelligence International Limited
(leak detection products and services)
American Leak Detection Holding Corp.
(holding company of ALD Inc.) *
American Leak Detection, Inc. (leak
detection product and services)
NRW Utilities Limited
Water Intelligence Australia Pty
Registered office address
201 Temple Chambers 3-7 Temple
Avenue, London, EC4Y 0DT
201 Temple Chambers 3-7 Temple
Avenue, London, EC4Y 0DT
199 Whitney Avenue, New Haven,
Connecticut 06511 U.S.
199 Whitney Avenue, New Haven,
Connecticut 06511 U.S.
201 Temple Chambers 3-7 Temple
Avenue, London, EC4Y 0DT
201 Temple Chambers 3-7 Temple
Avenue, London, EC4Y 0DT
* Subsidiaries owned directly by the Parent Company.
Country of
incorporation
England and
Wales
England and
Wales
Interest
held
%
100%
100%
US 100%
US 100%
England and
Wales
100%
Australia 100%
16
Inventories
Group Inventories
Group
Year ended
31 December
2016
Year ended
31 December
2015
$
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.
Water Intelligence plc
46
Notes to the Financial Statements
continued
17
Trade and other receivables
Trade notes receivable
Group
Company
Year ended
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
$
42,445
$
37,576
$
- -
$
-
All non-current receivables are due within five years from the end of the reporting period.
Group
Company
Year ended
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
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
Current portion
115,722
111,307
-
-
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
60-90 days
90+ days
Average age (days)
Year ended
31 December
2016
Year ended
31 December
2015
$
27,404
42,991
70,395
92
$
3,661
37,510
41,171
92
Water Intelligence plc
47
Notes to the Financial Statements
continued
17
Trade and other receivables continued
The carrying amounts of the Group’s trade and other receivables are denominated in the following
currencies:
US Dollar
UK Pound
Year ended
31 December
2016
Year ended
31 December
2015
$
$
2,140,231
1,240,142
65,848
2,206,079
110,662
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
Cash at bank and in hand
19
Trade and other payables
Trade payables
Accruals and other payables
Due to Group undertakings
Group
Company
Year ended
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
$
1,056,888
$
1,031,454
$
268,785 18,937
$
Group
Company
Year ended
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
$
494,263
456,462
-
$
227,033
436,583
$
15,041
84,727
-
1,283,315
950,725
663,616
1,383,083
$
9,796
55,885
880,966
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 tra de purchases
is 16 days (2015: 16 days).
Water Intelligence plc
48
Notes to the Financial Statements
continued
20
Deferred Tax
The analysis of deferred tax assets is as follows:
Group
Deferred tax (liability)/assets
The movement in deferred tax assets is as follows:
2016
$
2015
$
(305,081)
(64,449)
2016
Temporary differences:
Net operating profit (loss) (non-current)
Opening
balance
$
-
-
Recognized in
the income
statement
$
-
-
Closing
balance
$
-
-
Short term timing differences
(64,449)
(240,632)
(305,081)
-
-
-
2015
Temporary differences:
Net operating profit (loss) (non-current)
Short term timing differences
Opening
balance
$
-
-
(195,319)
(195,319)
Recognized in
the income
statement
$
-
-
130,870
130,870
Closing
balance
$
-
-
(64,449)
(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.
Water Intelligence plc
49
Notes to the Financial Statements
continued
21
Share capital
The issued share capital in the year was as follows:
Group & Company
At 31 December 2015
At 31 December 2016
.
Group & Company
At 31 December 2015
At 31 December 2016
Ordinary Shares
Number
10,617,650
11,473,833
Deferred Shares
Number
808,450,760
-
Share Capital
$
12,733,307
Share Premium
$
4,829,377
Capital
Redemption
$
6,517,644
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
reduced by £8,084,507.60
US$7,500,000 and
(US$12,679,741).
the share capital of
the Company was
In total, this exercise generated US$31,497,995 to be credited against the negative distributable
reserves of the Company thereby creating positive distributable reserve s. 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.
Water Intelligence plc
50
Notes to the Financial Statements
continued
22
Obligations under operating leases
The future aggregate minimum lease payments under non-cancellable operating leases are set out
below.
2016
No later than one year
Later than one year, and not later than five years
Total
2015
No later than one year
Later than one year, and not later than five years
Total
Land &
Buildings
$
136,256
73,459
209,715
Land &
Buildings
$
-
-
-
Other
$
105,220
Total
$
241,476
229,392
334,612
302,851
544,327
Other
$
48,990
Total
$
48,990
154,548
203,538
154,548
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
Market risk (including foreign currency risk management)
Interest rate risk
The Group has exposure to the following key risks related to financial instruments:
i.
ii.
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 concentrati on of credit risk
as exposure is spread over a number of customers.
Water Intelligence plc
51
Notes to the Financial Statements
continued
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
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
$
-
$
-
$
-
$
-
1,056,888
1,031,454
268,785
18,937
Loans and receivables
Cash and cash equivalents
Trade and other receivables – current
2,206,079
1,350,804
1,158,443
526,084
Trade and other receivables – non-current
Financial Liabilities measured at
amortised cost
Trade and other payables
Borrowings – current
Borrowings – non-current
Deferred consideration – current
Deferred consideration – non-current
Borrowings
Bank Loan
--
42,445
37,576
-
-
-
950,725
663,616
1,383,083
946,647
--
492,453
591,450
-
1,327,593
-
562,246
59,781
1,459,027
612,225
277,208
-
-
-
-
-
-
-
-
-
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
Term loan
Total
Year ended
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
$
492,453
492,453
$
591,450
591,450
$
1,075,593
1,075,593
$
1,459,027
1,459,027
Water Intelligence plc
52
Notes to the Financial Statements
continued
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
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
$
$
$
$
828,291
110,647
1,427,228
696,530
264,242
87,071
1,383,083
946,647
Assets
Sterling
Liabilities
Sterling
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 201 6 and
all other variables were held constant.
Water Intelligence plc
53
Notes to the Financial Statements
continued
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.
Group
2016
Fixed interest rate instruments principal
Other financial liabilities
2015
Fixed interest rate instruments principal
0-6 months
$
215,244
-
6-12
months
$
215,244
-
>12 months
$
Total
$
1,389,558
-
1,820,046
-
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.
Water Intelligence plc
54
Notes to the Financial Statements
continued
24
Notes to the statement of cash flows
Cash flows from operating activities
Group
Operating Profit
Adjustments for:
Depreciation of plant and equipment
Amortisation of intangible assets
Share based payments
Operating cash flows before movements in working capital
Increase in inventories
Increase in trade and other receivables
(Decrease) in trade and other payables
Cash generated by operations
Income taxes
Year ended
Year ended
31 December
31 December
2016
2015
$
$
932,293
1,090,216
81,098
294,930
37,459
1,345,780
(52,298)
(686,825)
(20,092)
586,565
(53,466)
21,744
270,492
35,232
1,417, 684
(69,727)
(518,033)
(107,883)
722,041
(522,557)
Net cash generated from operating activities
533,099
199,484
Cash flows from operating activities
Company
(Loss)/Profit for the year
Adjustments for:
Share based payment expense
Operating cash flows before movements in working capital
Increase in trade and other receivables
Increase/(Decrease) in trade and other payables
Cash (used by)/generated from operations
Income taxes
Net cash (used by/generated from operating activities
25
Contingent liabilities
The Directors are not aware of any material contingent liabilities.
Year ended
Year ended
31 December
31 December
2016
2015
$
$
(621,594)
451,255
37,459
35,232
(584,135)
(480,850)
406,122
(658,863)
-
(658,863)
486,487
(262,822)
(222,057)
1,608
-
1,608
Water Intelligence plc
55
Notes to the Financial Statements
continued
Related party transactions
26
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.
Water Intelligence plc
56
Notes to the Financial Statements
continued
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
Net loans to subsidiary
VAT transferred under group registration
Other expenses recharged and exchange differences
Balance at 31 December 2016
NRW Utilities Limited
Balance at 31 December 2015
Net loans to subsidiary
Other expenses recharged and exchange differences
Balance at 31 December 2016
ALDHC
Balance at 31 December 2015
Loans to WI
Other expenses recharged and exchange differences
Balance at 31 December 2016
ALD Inc.
Balance at 31 December 2015
Loans to WI
Other expenses recharged and exchange differences
Balance at 31 December 2016
27
Subsequent events
$
496,988
498,665
55,484
(155,581)
895,556
$
202,053
(5,014)
197,039
$
(923,590)
(259,813)
276,817
(906,586)
$
(126,729)
(255,016)
5,016
(376,729)
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.
Water Intelligence plc
57
Notes to the Financial Statements
continued
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.
Control
28
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.
Water Intelligence plc
58
Notice of Annual General Meeting
Water Intelligence plc
(the “Company”)
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING (“AGM”) of the Company will be
held at:
201 Temple Chambers, 3-7 Temple Avenue, London, EC4Y 0DT at 11 a.m. on 20 June 2017.
The AGM will be held in order to consider and if thought fit, pass resolutions 1 to 6 below as ordinary
resolutions and resolutions 7 and 8 below as special resolutions.
Ordinary Resolutions
1.
2.
3.
4.
5.
6.
THAT the Company’s annual accounts for the financial year ended 31st December 2016, together
with the last directors’ report and the auditor’s report on those accounts and the directors’ report,
be received and adopted.
To reappoint Crowe Clark Whitehill LLP as the Company's auditors to hold office from the
conclusion of this meeting until the conclusion of the next meeting at which accounts are laid
before the Company.
To authorise the directors to agree the remuneration of the auditors.
To re-appoint as a director John F Weigold who was appointed by the board on 19 January 2017.
To re-appoint as a director Patrick DeSouza who retires by rotation in accordance with the
Articles of Association.
THAT, in substitution for any existing and unexercised authorities, the directors be and they are
hereby generally and unconditionally authorised for the purposes of section 551 of the
Companies Act 2006 (the “Act”) to exercise all the powers of the Company to allot equity
securities (as defined in section 560(1) of the Act) provided that this authority shall be limited to
the allotment of equity securities to any person or persons up to an aggregate nominal amount of
£40,000.
The authorities conferred by this resolution shall expire at the conclusion of the next annual
general meeting of the Company (unless previously renewed, varied or revoked by the Company
in a general meeting), provided that the Company may before such expiry make an offer or
agreement which would or might require shares to be allotted or rights to subscribe for or convert
securities into shares be granted after such expiry and the directors may allot shares or grant
rights to subscribe for or convert securities into shares in pursuance of such offer or agreement
notwithstanding that the authority conferred hereby has expired.
Special Resolutions
7.
THAT, subject to and conditional upon the passing of Resolution 6, in substitution for any existing
and unexercised authorities, the directors be and they are hereby empowered pursuant to section
570 of the Act to allot equity securities wholly for cash, within the meaning of section 560(1) of the
Act, pursuant to the general authority conferred by Resolution 6 above as if section 561(1) of the
Act did not apply to any such allotment, provided that this power shall be limited to:
a.
the allotment of equity securities in connection with a rights issue, open offer or other
offer of securities in favour of the holders of Ordinary Shares in the Company on the
register of members at such record dates as the directors may determine and other
persons entitled to participate therein where the equity securities respectively attributable
to the interests of the ordinary shareholders are proportionate (as nearly as may be) to
Water Intelligence plc
59
Notice of Annual General Meeting
the respective numbers of ordinary shares in the Company held or deemed to be held by
them on any such record dates (which shall include the allotment of equity securities to
any underwriter in respect of such issue or offer), subject to such exclusions or other
arrangements as the directors may deem necessary or expedient to deal with fractional
entitlements or legal or practical problems arising under the laws of any overseas territory
or the requirements of any regulatory body or stock exchange or by virtue of shares being
represented by depositary receipts or any other matter whatever; and
b.
the allotment of equity securities (otherwise than in sub-paragraph a. above) to any
person or persons up to an aggregate nominal amount of £30,000,
provided that the authorities conferred by this resolution shall expire at the conclusion of the next
annual general meeting of the Company (unless previously renewed, varied or revoked by the
Company), save that the Company may, before such expiry, make an offer or agreement which
would or might require equity securities to be allotted after such expiry and the directors may allot
equity securities in pursuance of such offer or agreement notwithstanding that the power
conferred hereby has expired and that all previous authorities under section 570 of the Act be and
they are hereby revoked (and in this resolution the expression “equity securities” and references
to the “allotment of equity securities” shall bear the same respective meanings as in section 560
of the Act).
8.
THAT, the Company be generally and unconditionally authorised to make market purchases (as
defined in the Act) of ordinary shares on such terms and in such manner as the directors may
from time to time determine, provided that:
(a)
the maximum number of ordinary shares authorised to be purchased shall be
2,000,000;
(b)
the minimum price which may be paid for an ordinary share is 1p;
(c)
(d)
(e)
(f)
the maximum price which may be paid for an ordinary share is an amount equal
to 105 per cent of the average of the middle market quotations for an ordinary
share (as derived from the Daily Official List) for the five business days
immediately preceding the date on which the ordinary share is contracted to be
purchased;
the minimum and maximum prices per ordinary share referred to in sub-
paragraphs (b) and (c) of this resolution are in each case exclusive of any
expenses payable by the Company;
the authority conferred by this resolution shall expire at the conclusion of the next
annual general meeting of the Company unless such authority is varied, revoked
or renewed prior to such time by the Company in general meeting by special
resolution; and
the Company may make a contract to purchase ordinary shares under the
authority conferred by this resolution prior to the expiry of such authority which
will or may be completed wholly or partly after the expiration of such authority.
BY ORDER OF THE BOARD
Patrick DeSouza, Executive Chairman
For and on behalf of Water Intelligence plc
Dated: 15 May 2017
Registered Office: 201 Temple Chambers, 3-7 Temple Avenue, London, EC4Y 0DT
Water Intelligence plc
60
Notice of Annual General Meeting
Notes:
1.
Shareholders entitled to attend and vote at the AGM (“Shareholders”) may appoint a proxy or
proxies to attend and speak and, on a poll, vote on their behalf. You can only appoint a proxy
using the procedures set out in these notes and the notes to the proxy form enclosed. A proxy
need not be a member of the Company. A Shareholder may appoint more than one proxy in
relation to the AGM provided that each proxy is appointed to exercise the rights attached to a
different share or shares held by that Shareholder. Investors who hold their shares through a
nominee may wish to attend the AGM as a proxy, or to arrange for someone else to do so for
them, in which case they should discuss this with their nominee or stockbroker. Shareholders are
invited to complete and return the enclosed proxy form. To appoint more than one proxy you may
photocopy the proxy form. Completion of the proxy form will not prevent a Shareholder from
attending and voting at the AGM if subsequently he/she finds they are able to do so. To be valid,
completed proxy forms must be received at the offices of the Company’s registrars, Neville
Registrars, Neville House, 18 Laurel Lane, Halesowen B63 3DA, United Kingdom by not later
than 11 a.m. on 16 June 2017 (being 48 hours prior to the time fixed for the AGM, excluding
weekends and public holidays) or, in the case of an adjournment, as at 48 hours prior to the time
of the adjourned AGM (weekends and public holidays excluded).
2.
3.
Any corporation which is a member can appoint one or more corporate representatives who may
exercise on its behalf all of its powers as a member provided that they do not do so in relation to
the same shares.
The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001,
specifies that only those holders of ordinary shares in the capital of the Company registered in the
register of members of the Company at 6 p.m. on 16 June 2017 or, in the case of an
adjournment, as at 48 hours prior to the time of the adjourned AGM (weekends and public
holidays excluded).
Water Intelligence plc
61