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Perivan Financial Print 249986
Water Intelligence plc
(cid:7)
Group Annual Report and Financial Statements
(cid:7)
for the Year Ended 31 December 2017
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
Company number 03923150
(cid:7)
(cid:7)
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Group Annual Report and Financial Statements
for the year ended 31 December 2017
Contents
Page
2
3
7
Company Information
Chairman’s Statement
Strategic Report
12 Directors’ Report
17 Corporate Governance Statement
19 Statement of Directors’ Responsibilities
20 Independent Auditors’ report to the members of Water Intelligence plc
25 Consolidated Statement of Comprehensive Income
26 Consolidated Statement of Financial Position
27 Company Statement of Financial Position
28 Consolidated Statement of Changes in Equity
29 Company Statement of Changes in Equity
30 Consolidated Statement of Cash Flows
31 Company Statement of Cash Flows
32 Notes to the Financial Statements
63 Notice of Annual General Meeting
Water Intelligence plc
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Company Information
Directors & Advisers
Directors
Patrick DeSouza
John Weigold
David Silverstone
Michael Reisman
Laura Hills
Executive Chairman
Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
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
Independent Auditor
Registrar
Bankers
finnCap Ltd
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
1 Churchill Place
London
E14 5HP
People’s United Bank
265 Church Street
New Haven
CT 06510
USA
Water Intelligence plc
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Chairman’s Statement
Overview
We are pleased that once again we have delivered during 2017 on our stated objectives from these pages. We are
energized that throughout the organization, both corporate and franchise, we are embracing the mission of building
a world-class multinational growth-oriented company that provides minimally-invasive solutions to the global
problem of water-loss from leakage. Compared with 2016, which was also a very good year, our performance was
quite strong: Revenue grew 45%; profits before tax grew 48%; assisted by the US tax cut, profits grew 90%. For our
shareholders, earnings per share grew 77%. As we described in our market update last month, Q1 2018 had a similar
direction in terms of performance. Hence, we may look at 2017 as a jumping-off point in our journey of building a
great company.
Our corporate strategy has been to establish a scalable operating platform that provides across business units a
“One-Stop Shop” for customers wanting solutions to faulty water infrastructure whether residential, commercial,
or municipal. Our two operating subsidiaries – American Leak Detection (ALD) and Water Intelligence International
(WII) – performed well and provided complementary approaches for attacking the market. ALD has focused on
residential and business-to-business customers through its franchise-operated and corporate-operated locations.
ALD’s installed base of customers, especially across the US, enables an opportunity for follow-through product
sales. UK-based WII, meanwhile, has focused on international corporate expansion through an offering of municipal
solutions that also can be sold by existing ALD locations. As a result, we are well on the way to creating a robust
platform that can upsell and cross-sell solutions to our growing base of customers. With our platform, we are also
able to help make markets for exciting technology products that are emerging. During Q1, we launched
partnerships with Flo Technologies and Tagasauris to extend our offerings roadmap to include direct to consumer
contextual e-commerce.
During Q1 2018, we reached an important milestone in terms of capital formation. Armed with our strong 2017
operating fundamentals, and seeking to make good on our objective of building a multinational growth company,
we increased our capital base by approximately $7.5 million. Given our growing royalty base of income, bank credit
is an alternative to unnecessary equity dilution. For our capital-raise, we were able to lower the cost of capital for
our shareholders through a mix of equity and increased availability from commercial banks. We raised approximately
$5.75 million from institutional and retail investors in the US and Europe and $1.75 million in increased availability
from our bank lines of credit.
We shall put the additional capital to work to scale our platform faster. We shall deploy resources based on three
operating priorities derived from what we already know has worked well. Each of these three operating priorities is
risk-adjusted because we are mindful, as always, of the importance of calibrating both revenue and profitability.
First, we plan to use our strong capital base to scale and integrate operations across our existing sales footprint in
the US, UK, Australia and Canada. The addressable market is substantial and demand for our minimally-invasive
solutions, especially from our insurance partners, is high. As a baseline, we can achieve significant growth by simply
doing more of the same but at a faster pace, particularly as we now have two formal national insurance contracts in
place and other informal national relationships that we can formalize. Our key investment for this priority is hiring,
training, and deploying more technicians to meet high demand for our solutions.
Second, since our business solutions DNA always has been focused on the use of technology, especially acoustic
and infrared, we will continue to enhance our technology profile through new product partnerships and investments
in cutting-edge solutions for our customers. We seek to participate in the marketplace evolution of the smart home
and will incorporate the latest advances in data science including artificial intelligence. Given our sizeable installed
base of US residential customers for ALD solutions, our insurance channel and data scientists from our Yale-centered
affiliate PlainSight Group, we are well-positioned to help shape the home services market of the future. Moreover,
we also seek to contribute to the future of urban infrastructure. During 2018, we will also position ourselves to work
with UK and US innovation partners to shape a dynamic global municipal market with new WII solutions.
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Chairman’s Statement
continued
Finally, we also plan judiciously to open locations in adjacent geographies: the EU, launching operations with support
from our locations in the UK and Belgium, and Mexico, launching operations with support from our locations in
Florida, Texas, and California. These growth objectives have a reduced risk profile relative to other locations because
of our existing operational presence in adjacent territories. Our key investment with this priority is managing the
start-up costs of a new country. To be sure, we will have opportunities to establish partnerships to extend our
presence in Asia where the problems of poor water infrastructure and growing population need are acute. Given
our experience as a franchisor, we have the option to sell master franchises in countries where we are not locating
corporate-run operations. Our international expansion in the near-term enables us to support future master franchises
in farther-away geographies. Such master franchises would generate significant upfront fees. With the operational
leadership of our UK-based WII team, who have provided municipal solutions around the world, we are confident
about our ability to execute this third priority. As identified below and in our Subsequent Events section of the
Accounts, we are off to a good start in 2018 for deploying capital along the lines of each of the three priorities.
2017 Performance of the Water Intelligence Platform
Water Intelligence showed strong growth during 2017 reaching $17.6 million in sales, which represented
approximately 45% growth year-over-year (2016: $12.2 million). In terms of understanding our ability to execute
against the above three priorities, especially marketing technology products for the smart home, it is important to
observe that our sales footprint to end-users is actually more substantial than the $17.6 million that appears in our
accounts. Based on international accounting standards, we do not report total sales to end-users but rather royalty
income from our franchise business because we charge our franchisees a percentage fee based on their gross sales.
However, the purchasers of our solutions make no distinction between franchise and corporate-operated service
vehicles. Hence, to the marketplace we are currently at approximately $90 million of total sales whether by
franchisees or corporate-operated locations. By the end of 2018, we should exceed $100 million of total sales – an
excellent base from which to upsell products and solutions.
In breaking down the $90 million of total sales, above $80 million of services are provided by our American Leak
Detection franchise business. These franchise-operated sales are recorded as approximately $6 million royalty
income as discussed below and provided in our Strategic Report herein. Our corporate operations, both US and
International, are approximately $10 million in sales and growing fast as also discussed below and provided in our
Strategic Report. Corporate operations include activities at both ALD and WII. These business units are now able,
not only to grow organically, but also to unlock additional customer value by cross-selling solutions for residential,
business-to-business and municipal customers. For example, during 2017 our newly established WII corporate
operation was able to sell a sizeable municipal job in Miramar, Florida through our ALD location because of ALD’s
reputation with homeowners in Miramar for finding leaks. In similar fashion, we plan to leverage our ALD platform
by up-selling products created by our technology partners to ALD’s nationwide base of customers. Essentially, given
our Water Intelligence “One-stop Shop,” we see sales opportunities all along the water value chain from monitoring
water flow for anomalies to pinpointing leaks to fixing leaks in a minimally invasive fashion. We also see adjacent
solutions touching water chemistry and renewables as also demanded by our customer base.
Increasing scale at the sales level also has translated into an increased shareholder value at the bottom-line. As the
business has begun to scale more profits fell to the bottom line during 2017. Profits before tax increased
approximately 48% year over year, reaching $1.15 million (2016: $0.77 million). When adjusted to understand on-
going operating performance (adjusting for amortization and non-core costs), profits before taxes adjusted grew
approximately 22% to $1.7 million (2016: $1.4 million). As noted above, assisted by the US tax cut, profits grew 90%
to $0.91 million (2016: $0.48 million). Earnings per share grew 77% to 8 cents per share. As a result of the on-going
US tax cut, we should see greater profit yield on sales.
As noted above, increasing profitability as the business scales is a trend that continued during Q1. Sales growth in
Q1 2018 when compared with Q1 2017 reached 40% at $5.3 million (Q1 2017: $3.8 million). Profits before tax
meanwhile increased 50% to $0.6 million (Q1 2017: $0.4 million). Because of our priority as a growth-oriented
company, we will be reinvesting some of those Q1 profits to push 2018 sales growth and market presence while
still maintaining a healthy profit margin.
Water Intelligence plc
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Chairman’s Statement
continued
Performance of Business Units
Each of our operating units – ALD and WII – performed well. The Strategic Report and segmental information
detailed in the Accounts provide details. Our franchise business, ALD, grew strongly. Royalty income grew
approximately 7% to $5.9 million (2016: $5.5 million). Such growth remained consistent with historical growth
despite the fact that the pool of royalty income was reduced as a result of franchise reacquisitions in Indianapolis
and Washington D.C. Royalty growth translated into profits before tax for this segment growing by 17% to $1.4
million (2016: $1.2 million). Franchise-related activities, meanwhile, led by our business-to-business insurance
channel and, including parts and equipment sales, also grew strongly doubling in sales to $3.6 million (2016: $1.7
million). Profits before tax in this segment grew strongly by 39% reaching $0.32 million (2016: $0.23 million).
Our corporate-run locations represent execution from both ALD (largely residential and commercial) and WII (largely
municipal). ALD’s US corporate-operated locations reached $5.9 million in sales growing 41% year over year (2016:
$4.2 million). This segment showed a profit before tax margin on sales of 6% at $0.35 million. Profit margin in 2017
was down from 8% for 2016. ($0.32 million profits before tax on $4.2 million of sales). The reduction in margin was
the result of increased spending on adding and training technicians to support 41% year over year top line growth.
WII’s corporate-run locations are captured by segmental information on international corporate activities, which
grew strongly. Revenue tripled year on year. (2017: $2.1 million vs. 2016: $0.7 million). Margins on 2017 international
corporate sales were negative at $0.16 million. These resulted from accelerating investments to increase international
corporate sales. Consistent with our priorities, the choice to accelerate international corporate sales was made to
balance the critical mass of this business relative to our franchise business and US corporate-run locations. Our
Franchise and US Corporate businesses achieved approximately $5.9 million in 2017 sales. As international corporate
sales grow in terms of critical mass, WII should be better able to cross-sell municipal solutions to franchise and
corporate-run locations which largely focus on residential and commercial as noted above.
In executing our growth plan, we are mindful of operating costs and strive to be efficient with our use of resources.
Segmental information makes this clear. Unallocated head office costs and non-core costs were reduced by
approximately 30% to $0.79 million in 2017 from $1.14 million in 2016.
Path Ahead
We do look at 2017 as a jumping off point. We made great strides in building a multinational growth platform that
provides solutions to a big addressable worldwide market – water conservation. The concept of “platform” is
especially relevant in that our installed base of approximately 200,000 residential, commercial and municipal
customers across business units allows for opportunities to both cross-sell solutions and up-sell products and, as a
result, continue to own the customer via a “One-stop Shop”.
Through the date of this audit, we have continued to execute as we have in the past: Building on prior wins and
remaining focused on our three operating priorities as outlined above. The Subsequent Events section of the
Accounts provides a chronological recap. First, we grew our core business of ALD by executing for our existing
insurance business channels and developing additional insurance company partners. We plan on adding national
contracts during 2018 and 2019. Second, we added a layer of growth to ALD by cross-selling WII municipal solutions.
We had wins across the US and even announced a major win in Sydney during Q1. Third, we continued to develop
our technology profile with product partnerships announced with Flo Technologies and Tagasuaris, both of which
incorporate artificial intelligence in their respective solutions. These partnerships build on our 2017 implementation
of a new national Internet marketing technology. Finally, during Q1 we continued to execute our strategy of
reacquiring franchisees in strategic geographies to accelerate ALD’s growth. We strengthened our corporate
presence in central California with the reacquisition of Bakersfield; we strengthened our corporate presence in the
Midwest with the reacquisition of Louisville; and finally strengthened our presence in South Florida with a
reacquisition that will lead to our corporate expansion into the Caribbean and Mexico – priority number three as
stated above.
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Chairman’s Statement
continued
Our enhanced capital base enables us to accelerate our organic approach. To be sure, the organic approach has
done well achieving 45% sales growth and 48% profits before taxes growth during 2017. We plan on leveraging our
market-making presence across the United States with product partnerships and, perhaps, an acquisition that would
supplement our “One-Stop Shop” business model. We believe this model to be highly scalable. In the 2016 Annual
Report, we indicated that $20 million in sales was in sight. We finished 2017 at $17.6 million and significantly
increased our level of profitability. We are confident on achieving the $20 million in sales level for Water Intelligence
during this year and now set our sights on achieving the $25 million level in the near-term.
Dr. Patrick DeSouza
Executive Chairman
16 May 2018
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Strategic Report
Business Review and Key Performance Indicators
The Chairman’s Statement, on pages 3-6, provides an overview of the year and the outlook for Water Intelligence
plc and its subsidiaries, referred to as the “Group”. The business indicators offered below are meant to capture for
the board not only the state of performance but also the evolution of our business model to a platform company
that is a “One-Stop Shop” for customers through the cross-sale of solutions across our business units and the up-
sale of technology products to our installed base of customers.
The Water Intelligence platform has two wholly-owned subsidiaries: American Leak Detection (ALD) and Water
Intelligence International (WII). These business units are distinguished, to some degree, by the amount of franchise-
operated and corporate-operated business lines. ALD, our core business is largely a franchise business with strategic
corporate-operated locations. ALD is a leader in using technology to pinpoint and repair water leaks without
destruction. Solutions target both residential and business to business customers such as insurance companies
which value our minimally invasive value proposition. ALD has approximately $80 million of System-wide sales to
end-users that is expressed through royalty income from franchisees and direct sales from corporate operations.
With its installed and growing base of residential customers, ALD can also distribute technology home services
products to meet consumer demand.
WII, is our UK-based operation that the Group acquired in Q4 2016 to focus on municipal solutions given the world-
wide problem of failing water infrastructure. WII is exclusively a corporate-run unit that will lead the Group’s
international expansion. WII has the capability to execute ALD service offerings and is currently doing so at our
corporate-operated location in Sydney. WII also can cross-sell complementary municipal offerings to ALD.
The Group’s strategy includes unlocking sales growth and shareholder value through acquisition including selectively
converting franchises to corporate operated locations. In doing so, some amount of the $80 million in System-wide
sales can be converted from royalty income to the Group’s corporate P&L. As a byproduct of such acquisition-led
growth, it is important to separate continuing operating costs from non-core costs related to transactions that are
executed as part of the Group’s growth plan. Finally, because of the recurring nature of income from the franchise
business, the Group is able to be efficient in its capital formation using both equity and debt. As a result, it is important
that the Group manage to the right balance in allocating capital and to monitor net debt.
Six key performance indicators are used by the Board to monitor the above described business model: (i) growth in
franchise royalty income, (ii) growth in franchise-related activities that include both the Group’s business to business
sales and sales of parts and equipment, (iii) growth in corporate-operated locations in the United States, (iv) growth
in corporate activities located outside the United States, (v) non-core 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.
Water Intelligence plc
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Strategic Report
continued
Franchise Royalty Income.
(i)
The continued growth of the core ALD franchise business is the foundation for the business strategy of the Group
because of the recurring nature of its royalty stream. Royalty income is a key indicator of the health of the franchise
business because it is derived from ALD’s System-wide sales across the United States, Australia and Canada. As
System-wide sales increase, 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 in 2017 grew
by 7% compared with 2016 despite 2017 reacquisitions which had the effect of reducing the eligible pool of royalty
income. Moreover, profits before tax from this business line grew at a significantly higher pace at 17%. Such growth
is attributable in part to the benefits arising from the Group’s insurance channel. The Group has 89 franchises at the
end of 2017, representing a decrease of 2 franchises (2016: 91) due to reacquisition as corporate-run locations
Growth in royalty income is as follows:
Total USA
International
Total Group Royalty Income
Profit before tax (see note 4)
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
5,688
237
5,924
1,428
5,312
231
5,543
1,219
Change
%
7%
3%
7%
17%
Franchise-related Activities.
(ii)
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 in their own operations. Business-to-Business channels,
such as insurance and property management represent national customers and are an indication that these customers
value ALD’s nationwide sales footprint – an important aspect of competitive strategy. Finally, sales of franchise units
represent the decision to develop a new territory through a franchisee. This line item, correspondingly, is also a reflection
of the Group’s priority with respect to adding corporate-operated locations in order to develop a territory. Revenue from
franchise-related activities more than doubled compared to 2016 largely because of the growth of the Group’s business-
to-business channels. Such sales growth was also reflected in growth of profits before tax. Profits before tax grew 39%
compared with 2016. Performance from franchise-related activities are as follows:
Parts and equipment sales
Business-to-Business sales
Sales of Franchise Units
Total Revenue from Franchise-Related Activities
Profit before tax (see note 4)
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
1,039
2,601
10
3,650
315
1,050
665
17
1,732
227
Change
%
(1%)
291%
(41%)
111%
39%
As discussed in the Chairman’s Statement, the growth in business-to-business sales captures the additional jobs
provided to our franchise system sourced from formal, centralized national insurance contracts, as opposed to,
typical insurance jobs that all of our franchisees originate at a local level through local marketing.
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Strategic Report
continued
(iii) US Corporate-Operated Locations.
Corporate-operated locations complement the franchise business with marketing and execution support in developing
territories. Performance of the US corporate-operated locations is an indication of the success of the Group’s strategy
to both selectively reacquire ALD franchises and to open new locations to meet increasing demand for our minimally
invasive leak detection and repair solutions. Corporate-operated locations supplement System-wide sales from
franchisees and add a critical mass of revenue and profits to the Group accounts. The Group directly operates 11
territories, an increase of 2 territory (2016: 9). Sales growth from corporate-operated locations grew strongly both
organically and from two reacquisitions when compared with 2016. Profits before taxes also grew despite increased
investment for accelerated growth. 2017 corporate-operated performance is as follows:
Revenue
Profit before tax (see note 4)
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
5,948
350
4,217
324
Change
%
41%
8%
International Corporate-Operated Locations.
(iv)
The Group seeks to strengthen its multinational presence through its UK-based WII subsidiary. During Q4 2016 the
Group added to its operating assets in the UK by acquiring NRW Utilities Ltd. and in Australia by acquiring a former
ALD franchisee located in Sydney. 2017 represents a full-year of activity. Sales growth tripled. Negative profits stem
from the Group’s decision to accelerate investment in its WII business to gain critical mass to develop focus on
international expansion relative to franchise and US corporate segments which each are approaching $6 million in sales.
Water Intelligence International
Sydney
Total Revenue from International Corporate Activities
(Loss)/Profit before tax (see note 4)
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
1,398
696
2,094
(157)
641
43
684
139
Change
%
118%
1,519%
206%
(213%)
(v) Non-Core Costs.
During 2017, the Group incurred what are considered to be non-core costs relating to (i) its share reorganization to
address legacy structures originating prior to the formation of the Group and (ii) transactions executed for the future
growth of the business. As discussed herein, understanding non-core costs as distinct from continuing costs enables
the Board to evaluate choices made to accelerate operations and scale through acquisition. In 2017, there were
$198,000 of non-core costs as compared to $296,000 in 2016. Please see table below for details:
Share reorganization and capital raising
Investment in University of Chicago R&D
Legal costs of acquisitions
Other legal costs
Imputed interest due to deferred acquisition payments
Total
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
141
–
19
38
–
198
79
25
151
–
41
296
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Strategic Report
continued
(vi) Net Debt.
Management of financial resources is important for making various decisions regarding the rate of growth of
operations. As noted herein, the recurring income from franchise royalty provides the Group with attractive attributes
for using bank debt to complement equity sources of capital. In the current environment, the cost of capital with
respect to bank debt is less expensive as compared with equity. Despite the growth of annual royalty income to
approach $6 million the Board takes a conservative approach to capital formation. Net debt increased to $1,255,000
at 31 December 2017 from $763,000 at 31 December 2016. Amounts owed under the term loan have been reduced
to $1.22 million based on its amortization schedule.
Group
Lines of credit: acquisition and working capital
Term loan
Less: Cash
Held in US Dollars
Held in £ Sterling
Held in AU Dollars
Total Net Debt
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
813
1,217
2,030
598
114
63
775
1,255
252
1,568
1,820
601
397
59
1,057
763
As set forth in the Subsequent Event section, during Q1 2018 the Group raised approximately $5.75 million through
an equity issuance and increased its bank financing availability by $1.75 million. The equity issuance eliminated net
debt. The increase in bank financing availability remained in keeping with the Group’s strategy on efficient capital
formation to preserve equity from unnecessary dilution.
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 monitors exposure to foreign exchange rate changes on a daily basis by a daily review of the Group’s
cash balances in the US, UK, and Australia.
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.
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Strategic Report
continued
Other Risks
There is a risk that existing and new customer relationships and R&D will not lead to the expected 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.
By order of the Board
Patrick DeSouza
Executive Chairman
16 May 2018
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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 2017.
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 25 to 31.
2017 was marked by the further development of the Group’s multinational presence, especially in the UK and
Australia. 88.1% of the Group’s revenue in the year ended 31 December 2017 (2016: 94.4%) came from its wholly
owned subsidiary American Leak Detection, Inc. (“ALD”), with the remaining 11.9% (2016: 5.6%) of revenue coming
from its wholly-owned subsidiary, Water Intelligence International Limited (“WII”). Of the 11.9% revenue coming
from WII, 66.75% relates to WII’s UK business and 33.25% relates to WII’s Australian business.
Going Concern
The Directors have prepared a business plan and cash flow forecast for the period to April 2019. 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 generated 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. As noted in the Subsequent Events section, the Group
increased its capital base by approximately $7.5 million in Q1 2018 through an equity issuance and an increase in
availability from its bank credit facilities.
Research Design & Development
Expenditure on research and development, all of which was undertaken by third parties not related to the Group,
was $10,752 (2016: $14,989). The Group is committed to increasing its R&D budget to meet anticipated market
demands.
Dividends
The Directors do not recommend the payment of a dividend (2016: $nil).
Share Price
On 31 December 2017, the closing market price of Water Intelligence plc ordinary shares was 162.5 pence. The
highest and lowest prices of these shares during the year to 31 December 2017 were 162.5 pence and 95.0 pence
respectively.
Capital Structure
Details of the authorised and issued share capital are shown in Note 21. No person has any special rights of control
over the Company’s share capital and all issued shares are fully paid.
Water Intelligence plc
12
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Directors’ Report
continued
Future Developments
Future developments are outlined in the outlook section of the Chairman’s Statement on page 5.
Financial Risk Management
Financial risk management is outlined in the principal risks and uncertainties section of the Strategic Report on
page 10.
Subsequent Events
On the 4 January 2018, the Company announced the signing and launch of the Company’s second formal national
contract with one of the top 5 insurance companies in the US. The agreement extends the Group’s formal business-
to-business channel.
On the 10 January 2018, the Group announced two strategic partnerships to extend its technology/innovation
profile. ALD is partnering with Flo Technologies, Inc, to provide nation-wide distribution and service capabilities for
Flo’s smart home water security and conservation system. The Group is partnering with Tagasauris, Inc. to develop
new products for both video marketing and e-commerce. Both Flo Technologies and Tagasauris use artificial
intelligence as part of their respective product functionality.
On the 11 January 2018, David Silverstone exercised a portion of his options holdings to subscribe for a total of
10,000 ordinary shares of 1p each at an exercise price of $0.67 per ordinary share. Subsequently, David Silverstone
sold the 10,000 ordinary shares at a price of $2.65.
On the 26 February 2018, the Group announced a contract between WII’s Sydney, Australia, corporate location and
Hunter Water Corporation, a state-owned water company. This strategic contract enables WII to support ALD’s
Australian franchisees with additional municipal opportunities.
On 7 March 2018, the Group announced that it had strengthened its capital base in order to support its growth
plans. First, it raised approximately $5.75 million through the issue of an aggregate of 2,171,320 new ordinary shares
in a placing and subscription. Such equity issuance was oversubscribed. Second, the Group increased its working
capital line with People’s Bank by $1.75 million.
On 7 March 2018, the Group announced that it had made certain board changes to strengthen its execution
capabilities. David Silverstone moved from executive director to non-executive director. John Weigold moved from
non-executive director to executive director. Laura Hills was appointed as Non-Executive Director of the Company.
Robert Mitchell resigned from the board to take an operating role to launch a renewables line of business for the
Group.
On the 7 March 2018, the Group continued its growth strategy of selectively reacquiring some of its ALD franchises.
It announced the reacquisition of its Louisville, Kentucky, franchise. Louisville, a strongly performing operation, is
situated adjacent to the Indianapolis and Cincinnati corporate locations in the central Midwest of the United States.
Together these locations form a strategic set of corporate resources to execute sales and support growth of
franchisees throughout the Midwest. This cluster of corporate operated locations also better enables the Company
to execute the launch of operations in Chicago during 2018.
On 15 March 2018, the Group announced the acquisition of its Bakersfield, California, franchise. The Group plans
to expand operations in this territory rapidly given the size of the opportunity and importance of water to this leading
center for agriculture in the US.
On 15 May 2018, the Group announced the acquisition of its South Florida franchise. The Group plans to expand
operations in this territory rapidly given the strength of its existing corporate operations immediately to the north in
Ft. Lauderdale / Miami. The Group plans to launch international expansion efforts to the Caribbean and Mexico
from its expanded Miami operation.
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13
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Directors’ Report
continued
The provisional fair values of the acquisitions subsequent to year end are detailed below:
South Florida
$’000
Louisville
$’000
Bakersfield
$’000
Fair value of assets and liabilities acquired
Equipment
Net assets acquired
Consideration
Cash
Deferred consideration – discounted to present value
Total consideration
Indefinite life intangible assets on acquisition
80
80
150
205
355
275
95
95
465
1,084
1,549
1,454
44
44
252
–
252
208
Totals
$’000
219
219
867
1,289
2,156
1,937
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
John Weigold (Appointed 19 January 2017, Non-Executive Director until 7 March 2018)
Non-Executive Directors
Michael Reisman
Laura Hills (Appointed 6 February 2018)
David Silverstone (Executive Director until 7 September 2017)
Robert Mitchell (Resigned 6 February 2018)
The biographical details of the Directors of the Company are set out on the Company’s website
www.waterintelligence.co.uk.
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Directors’ Report
continued
Directors’ emoluments
2017
Executive Directors
P DeSouza
Non-Executive Directors
D Silverstone
R Mitchell
M Reisman
J Weigold
2016
Executive Directors
P DeSouza
D Silverstone
Non-Executive Directors
R Mitchell
M Reisman
S Leeb
Salary, Fees & Bonus
$
Benefits
$
Redundancy
$
Total
$
450,000
21,000
103,645
21,000
15,000
610,645
–
–
–
–
–
–
–
–
–
–
–
–
Salary, Fees & Bonus
$
Benefits
$
Redundancy
$
447,019
47,000
108,189
21,000
21,000
644,208
–
–
–
–
–
–
–
–
–
–
–
–
450,000
21,000
103,645
21,000
15,000
610,645
Total
$
447,019
47,000
108,189
21,000
21,000
644,208
Directors’ interests
The Directors who held office at 31 December 2017 and subsequent to year end had the following direct interest
in the ordinary shares of the Company at 31 December 2017 and at the date of this report, excluding the shares
held by Plain Sight Systems, Inc.:
Patrick DeSouza*
Michael Reisman*
David Silverstone
Robert Mitchell
Laura Hills
Number of
shares at
31 December
2017
3,442,110
166,068
38,500
9,936
–
% held at
31 December
2017
28.32
1.37
0.32
0.08
–
Number of
shares at
16 May
2018
4,192,110
173,466
–
9,936
89,331
% held at
16 May
2018
27.52
1.14
–
0.08
0.59
*Included in the total above, Patrick DeSouza received (i) 600,000 Partly Paid Shares during 2016 and (ii) 750,000 in March 2018. These
will not be admitted to trading or carry any economic rights until fully paid.
*Patrick DeSouza and Michael Reisman are directors and shareholders in Plain Sight Systems, Inc.
Share option schemes
In order to provide incentive for the management and key employees of the Group, the Directors award stock
options. Details of the current scheme are set out in Note 7.
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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.
Oryx International Growth Fund Limited
Security Services Nominees Limited
George D. Yancopoulos
State Street Nominees Limited
Number of shares
2,430,000
735,900
700,000
656,166
622,752
% held
15.95
4.83
4.59
4.31
4.09
Corporate Responsibility
The Board recognises its employment, environmental and health and safety responsibilities. It devotes appropriate
resources towards monitoring and improving compliance with existing standards. An Executive Director has
responsibility for these areas at Board level, ensuring that the Group’s policies are upheld and providing the necessary
resources.
Employees
The Board recognises that the Group’s employees are its most important asset.
The Group is committed to achieving equal opportunities and to complying with relevant anti-discrimination
legislation. It is established Group policy to offer employees and job applicants the opportunity to benefit from fair
employment, without regard to their sex, sexual orientation, marital status, race, religion or belief, age or disability.
Employees are encouraged to train and develop their careers.
The Group has continued its policy of informing all employees of matters of concern to them as employees, both in
their immediate work situation and in the wider context of the Group’s well-being. Communication with employees
is effected through the Board, the Group’s management briefings structure, formal and informal meetings and
through the Group’s information systems.
Independent Auditors
Crowe 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 each director is aware, there is no relevant audit information of which the Company and the Group’s
auditor is unaware; and
each director has taken all the steps that ought to have been taken as a director in order to be aware of any
relevant audit information and to establish that the Company and the Group’s auditor is aware of that
information.
By order of the Board
Patrick DeSouza
Executive Chairman
16 May 2018
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Corporate Governance
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.
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.
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
Laura Hills, non-Executive Director, is Chairman of the Audit Committee. The other members of the Committee
are David Silverstone 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 Laura Hills. The Remuneration Committee is responsible for reviewing performance of
Executive Directors and determining the remuneration and basis of service agreement with due regard for the
Combined Code. The Remuneration Committee also determines the payment of any bonuses to Executive
Directors and the grant of options.
The Company has adopted and operates a share dealing code for directors and senior employees on the same terms
as the Model Code appended to the Listing Rules of the UKLA.
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Corporate Governance
continued
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.
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.
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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 extends to the ongoing
integrity of the Financial Statements contained there.
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Independent Auditors’ report to the members of
Water Intelligence plc
Opinion
We have audited the financial statements of Water Intelligence plc (the “Parent Company”) and its subsidiaries (the
“Group”) for the year ended 31 December 2017, which comprise:
•
•
•
•
•
the Group statement of comprehensive income for the year ended 31 December 2017;
the Group and parent company statements of financial position as at 31 December 2017;
the Group and parent company statements of cash flows for the year then ended;
the Group and parent company statements of changes in equity for the year then ended; and
the notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs
as at 31 December 2017 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 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the financial statements section of our report. We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to
you when:
•
•
The directors’ use of the going concern basis of accounting in the preparation of the financial statements is
not appropriate; or
The directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the Group’s or the parent company’s ability to continue to adopt the going concern
basis of accounting for a period of at least twelve months from the date when the financial statements are
authorised for issue.
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Independent Auditors’ report to the members of
Water Intelligence plc
continued
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept of materiality. An item is considered material if it could
reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept
of materiality to both focus our testing and to evaluate the impact of misstatements identified.
Based on our professional judgement, we determined overall materiality for the Group financial statements as a
whole to be $90,000, based on a measure of profit before taxation. We use a different level of materiality
(‘performance materiality’) to determine the extent of our testing for the audit of the financial statements.
Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity
risk and our evaluation of the specific risk of each audit area having regard to the internal control environment.
Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party
transactions and directors’ remuneration.
We agreed with management to report all identified errors in excess of $3,600. Errors below that threshold would
also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds.
Overview of the scope of our audit
The Group and its UK subsidiaries are accounted for from a location in the UK, whilst its material US subsidiaries
and Australian subsidiary are accounted for from the US. Our audit was conducted from the main operating location
in the UK and component auditors were used to carry the audit work in the US. We visited the US to carry out our
review of component auditor working papers as well as meet with group and local management.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on:
the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Water Intelligence plc
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Independent Auditors’ report to the members of
Water Intelligence plc
continued
This is not a complete list of all risks identified by our audit.
Key audit matter How the scope of our audit addressed the key audit matter
Revenue recognition
Revenue is recognised in accordance
with the accounting policy set out in the
financial statements. The accounting
policy
of
judgements, particularly in recognising
when
rewards of
risks and
ownership have passed to the buyer.
This is determined with reference to the
underlying contract with the purchaser.
contains
number
the
a
Our work focussed on validating that revenue is recognised in
accordance with the accounting policies and that cut off was
correctly applied through testing. We tested an appropriate sample
of income from each revenue stream to validate the application of
the group’s income recognition policies.
to
Impairment of intangible assets
The carrying value of intangible assets
relates
franchisor
trademarks,
activities, goodwill on acquisitions and
owned stores goodwill and indefinite
life intangible assets. There is a risk that
the carrying value could be impaired as
a result of reduced activity.
We reviewed management’s assessment of the carrying value of the
group’s intangible assets. In considering this assessment, we
evaluated:
•
•
•
The discounted cash-flow forecasts for the group and the
relevant cash generating units. This assessment included
consideration of the key assumptions, which principally
included discount rate and growth rates.
Board minutes, budgets and other operational plans
Discussion with management over plans and intentions for the
group
Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They
were not designed to enable us to express an opinion on these matters individually and we express no such opinion.
Other information
The directors are responsible for the other information. The other information comprises the information included
in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
We have nothing to report in this regard.
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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 group and the parent company and their environment obtained
in the course of the audit, we have not identified material misstatements in the strategic report or the directors’
report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report
to you if, in our opinion:
•
•
•
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit
have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of the directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 19, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and parent company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to
cease operations, or have no realistic alternative but to do so.
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Independent Auditors’ report to the members of
Water Intelligence plc
continued
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s
report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
John Glasby
(Senior Statutory Auditor)
for and on behalf of
Crowe Clark Whitehill LLP
Statutory Auditor
St Brides House
10 Salisbury Square
London
EC4Y 8EH
16 May 2018
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24
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Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
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
Attributable to:
Equity holders of the parent
Non-controlling interests
Other Comprehensive Income
Exchange differences arising on translation of foreign operations
Total comprehensive profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Profit per share attributable to equity holders of Parent
Basic
Diluted
The results reflected above relate to continuing activities.
Year ended
31 December
2017
$
17,615,178
(3,334,101)
14,281,077
33,671
(62,397)
(317,259)
(12,668,525)
(13,014,510)
1,266,567
13,928
(135,461)
1,145,034
(286,330)
858,704
Year ended
31 December
2016
$
12,175,237
(1,667,004)
10,508,233
24,621
(37,459)
(294,929)
(9,268,173)
(9,575,940)
932,293
12,264
(172,086)
772,471
(294,098)
478,373
913,250
(54,546)
858,704
(39,038)
819,666
874,212
(54,546)
819,666
Cents
8.0
7.5
484,669
(6,296)
478,373
(116,548)
361,825
368,121
(6,296)
361,825
Cents
4.5
4.4
Notes
4
7
13
5
5
8
9
10
11
11
The accompanying notes on pages 32 to 62 are an integral part of these financial statements.
Water Intelligence plc
25
(3) 249986 Water Intelligence RA pp25-pp31.qxp_(3) 249986 Water Intelligence RA pp24-pp24.qxp 23/05/2018 12:45 Page 26
Consolidated Statement of Financial Position
as at 31 December 2017
ASSETS
Non-current assets
Goodwill and indefinite life intangible assets
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
Shares held in treasury
Merger reserve
Share based payment reserve
Foreign exchange reserve
Reverse acquisition reserve
Retained earnings
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
Notes
2017
$
2016
$
13
13
14
17
16
17
18
21
21
21
21
23
12
20
19
23
12
3,304,506
2,398,192
762,459
59,075
6,524,232
359,973
2,820,315
774,767
3,955,055
10,479,287
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
65,305
980,436
(210,150)
1,001,150
135,088
(303,681)
(27,758,088)
32,021,892
5,931,952
64,257
926,787
–
1,001,150
72,691
(264,643)
(27,758,088)
31,108,642
5,150,796
39,158
93,704
1,635,311
374,600
115,233
2,125,144
1,428,509
394,525
559,999
2,383,033
10,479,287
1,327,593
612,225
305,081
2,244,899
950,725
492,453
562,246
2,005,424
9,494,823
The financial statements of Water Intelligence plc, company number 03923150, were approved by the board of
Directors and authorised for issue on the 16 May 2018. They were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 32 to 62 are an integral part of these financial statements.
Water Intelligence plc
26
(3) 249986 Water Intelligence RA pp25-pp31.qxp_(3) 249986 Water Intelligence RA pp24-pp24.qxp 23/05/2018 12:45 Page 27
Company Statement of Financial Position
as at 31 December 2017
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
Shares held in treasury
Merger reserve
Share based payment reserve
Foreign exchange reserve
Retained earnings
Current liabilities
Trade and other payables
TOTAL EQUITY AND LIABILITIES
Notes
2017
$
2016
$
15
17
18
21
21
21
19
7,411,412
7,411,412
1,750,787
76
1,750,863
9,162,275
65,305
980,436
(210,150)
1,001,150
135,088
(1,472,274)
6,055,205
6,554,760
2,607,515
2,607,515
9,162,275
6,757,904
6,757,904
1,158,443
268,785
1,427,228
8,185,132
64,257
926,787
–
1,001,150
72,691
(1,919,342)
6,656,506
6,802,049
1,383,083
1,383,083
8,185,132
The loss for the financial year in the financial statements of the parent Company was $601,301 (2016: costs
$621,594), which related entirely to Plc costs. Following the fundraising in March 2018, there is no longer a balance
of Shares held in treasury.
The financial statements of Water Intelligence plc, company number 03923150, were approved by the board of
Directors and authorised for issue on the 16 May 2018. They were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 32 to 62 are an integral part of these financial statements.
Water Intelligence plc
27
(3) 249986 Water Intelligence RA pp25-pp31.qxp_(3) 249986 Water Intelligence RA pp24-pp24.qxp 23/05/2018 12:45 Page 28
Consolidated Statement of Changes in Equity
for the year ended 31 December 2017
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Water Intelligence plc
28
(3) 249986 Water Intelligence RA pp25-pp31.qxp_(3) 249986 Water Intelligence RA pp24-pp24.qxp 23/05/2018 12:45 Page 29
Company Statement of Changes in Equity
for the year ended 31 December 2017
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The accompanying notes on pages 32 to 62 are an integral part of these financial statements.
Water Intelligence plc
29
(3) 249986 Water Intelligence RA pp25-pp31.qxp_(3) 249986 Water Intelligence RA pp24-pp24.qxp 23/05/2018 12:45 Page 30
Consolidated Statement of Cash Flows
for the year ended 31 December 2017
Cash flows from operating activities
Profit before tax
Adjustments for non-cash/non-operating items:
Depreciation of plant and equipment
Amortisation of intangible assets
Share based payments
Interest paid
Interest received
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
Net cash generated from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Purchase of intangible assets
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
Share buyback
Interest paid
Proceeds from borrowings
Repayment of borrowings
Deferred financing costs
Equity contributions – non-controlling interest
Net cash (used by)/generated from 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
Year ended
31 December
2017
$
Year ended
31 December
2016
$
1,145,034
772,471
168,817
317,259
62,397
135,461
(13,928)
1,815,040
(32,471)
(654,040)
(30,301)
1,098,228
(476,178)
622,050
(444,976)
(197,000)
–
(195,000)
13,928
(823,048)
1,048
53,649
(210,150)
(135,461)
332,434
(122,644)
–
–
(81,124)
(282,122)
1,056,889
774,767
81,098
294,929
37,459
172,086
(12,264)
1,345,779
(52,298)
(686,825)
(20,091)
586,565
(53,466)
533,099
(347,660)
–
(329,368)
(449,094)
12,264
(1,113,858)
10,691
898,020
–
(172,086)
276,468
(475,426)
(31,473)
100,000
606,194
25,435
1,031,454
1,056,889
The accompanying notes on pages 32 to 62 are an integral part of these financial statements.
Water Intelligence plc
30
(3) 249986 Water Intelligence RA pp25-pp31.qxp_(3) 249986 Water Intelligence RA pp24-pp24.qxp 23/05/2018 12:45 Page 31
Company Statement of Cash Flows
for the year ended 31 December 2017
Cash flows from operating activities
Loss before tax
Adjustments for non-cash/non-operating items:
Share based payment expense
Operating cash flows before movements in working capital
Increase in trade and other receivables
Increase in trade and other payables
Cash used by operations
Income taxes
Net cash used by operating activities
Cash flows from financing activities
Issue of ordinary share capital
Premium on issue of ordinary share capital
Share buyback
Net cash (used by)/generated from financing activities
(Decrease)/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
2017
$
Year ended
31 December
2016
$
(601,301)
(621,594)
62,397
(538,904)
(592,344)
1,017,992
(113,256)
–
(113,256)
1,048
53,649
(210,150)
(155,453)
(268,709)
268,785
76
37,459
(584,135)
(480,850)
406,122
(658,863)
–
(658,863)
10,691
898,020
–
908,711
249,848
18,937
268,785
The accompanying notes on pages 32 to 62 are an integral part of these financial statements.
Water Intelligence plc
31
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Notes to the Financial Statements
1 General information
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 16 May 2018.
2 Adoption of new and revised International Financial Reporting Standards
No new IFRS standards, amendments or interpretations became effective in 2017 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 have completed their
evaluation of the impact of IFRS9 in respect of the impact of the expected loss model on the impairment of
receivables, and IFRS15 in respect of the revenue recognition for service revenue. The review for IFRS 15 included
consideration of each of the business lines and the relevant contracts with customers. The Directors have concluded
that the adoption of these standards and interpretations from 1 January 2018 does not have a material impact on
the Group’s Financial Statements. The Directors are currently evaluating the impact of IFRS16 in respect of leases,
to be adopted from 1 January 2019, and whilst this exercise is not concluded, the Directors do not presently
anticipate that the adoption of this standard and interpretation 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 April 2019. The forecast contains certain
assumptions about the level of future sales and the level of margins achievable. As noted in the Subsequent Events
section, the Group increased its capital base by approximately $7.5 million in Q1 2018 through an equity issuance
and an increase in availability from its bank credit facilities.
Water Intelligence plc
32
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Notes to the Financial Statements
continued
Significant accounting policies continued
3
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 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.
Basis of consolidation
The Group financial statements consolidate the accounts of Water Intelligence plc and all of its subsidiary
undertakings made up to 31 December 2017. 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 one of its subsidiary undertakings) obtains the power to govern the financial and operating policies
of an investee entity so as to derive benefits from its activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of
an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of
any 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 recognised directly in the income statement.
The acquisition of ALDHC in 2010 was accounted for as a reverse acquisition. The assets and liabilities revalued at
their fair value on acquisition therefore related to the Company. Both a merger reserve and a reverse acquisition
reserve were created to enable the presentation of a consolidated statement of financial position which combines
the equity structure of the legal parent with the reserves of the legal subsidiary.
Inter-company transactions and balances and unrealised gains or losses on transactions between Group companies
are eliminated in full.
Parent Company income statement – UK head office only
The Company has taken advantage of Section 408 of the Companies Act 2006 in not presenting its own Statement
of Comprehensive Income. The Company’s loss after tax for the year ended 31 December 2017 is $601,301
(2015: $621,594).
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.
Defined contribution pension scheme
Water Intelligence International provides a government run pension scheme under UK legislation. Employees have
the opportunity to opt in or opt out. It is compulsory for companies to offer this to their employees. This was
implemented on 1 November 2017.
Water Intelligence plc
33
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Notes to the Financial Statements
continued
3
Significant accounting policies continued
Taxation
Income tax expense represents the sum of the current tax and deferred tax charge for the year.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible
in other periods and it further excludes items that are never taxable or deductible. The Group’s and Company's
liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the year end.
Deferred tax
Deferred income taxes are provided in full, using the liability method, for all temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Deferred income taxes
are determined using tax rates that have been enacted or substantially enacted and are expected to apply when the
related deferred income tax asset is realised or the related deferred income tax liability is settled.
The principal temporary differences arise from depreciation or amortisation charged on assets and tax losses carried
forward. Deferred tax assets relating to the carry forward of unused tax losses and are recognised to the extent that
it is probable that future taxable profit will be available against which the unused tax losses can be utilised. The
carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Foreign currencies
(i) Functional and presentational currency
Items included in the Financial Statements are measured using the currency of the primary economic environment
in which each entity operates (“the functional currency”) which is considered by the Directors to be Pounds Sterling
(£) for the Parent Company and US Dollars ($) for ALDHC. The Financial Statements have been presented in US
Dollars which represents the dominant economic environment in which the Group operates and is the functional
currency of the Group. The effective exchange rate at 31 December 2017 was £1 = US$1.2491 (2016: £1 =
US$1.2305). The average exchange rate for the year 31 December 2017 were £1 = US$1.2880 (2016: £1 =
US$1.3562).
(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
34
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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. Specific policies set forth below
reflect the nature of the business line.
Franchise royalty income
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.
Franchise related activities
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.
US Corporate operated locations
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.
International corporate activities
For the majority of customers, revenue is recognised as invoiced, as the work is completed in the same reporting
period. For one customer, where the work is performed in the reporting period prior to invoicing, revenue is
recognised on an accruals basis in the reporting period in which the work is performed.
Water Intelligence plc
35
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Notes to the Financial Statements
continued
3
Significant accounting policies continued
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.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each year end. Financial assets are impaired where there
is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial
asset, the estimated future cash flows of the investment have been affected.
Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are
subsequently measured at amortised cost using the effective interest method.
Equity instruments
An equity instrument is any instrument with a residual interest in the assets of the Company after deducting all of its
liabilities. Equity instruments (ordinary shares) are recorded at the proceeds received, net of direct issue costs.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled
or they expire.
Property, plant and equipment
All property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Equipment and displays:
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.
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Notes to the Financial Statements
continued
Significant accounting policies continued
3
Goodwill arising on acquisitions is not subject to amortisation but is subject to annual impairment testing. Any
impairment is recognised immediately in the Consolidated Statement of Comprehensive Income and not
subsequently reversed.
Other intangible assets
Intangible assets are recorded as separately identifiable assets and recognised at historical cost less any accumulated
amortisation. These assets are amortised over their definite useful economic lives on the straight-line method.
Amortisation is computed using the straight-line method over the 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.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either
individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine
whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is
made on a prospective basis.
The asset’s residual values and economic lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
recognised within other (losses) or gains in the Statement of Comprehensive Income.
Research and development
Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating
to the design and testing of new or improved products) are recognised as intangible assets when the following
criteria are fulfilled.
•
It is technically feasible to complete the intangible asset so that it will be available for use or resale;
• Management intends to complete the intangible asset and use or sell it;
•
•
•
•
There is an ability to use or sell the intangible;
It can be demonstrated how the intangible asset will generate possible future economic benefits;
Adequate technical, financial and other resource to complete the development and to use or sell the intangible
asset are available; and
The expenditure attributable to the intangible asset during its development can be reliably measured.
Other development expenditures that do not meet these criteria are recognised as an expense in the period incurred.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
Capitalised development costs are recorded as intangible assets and are amortised from the point at which they are
ready for use on a straight-line basis over the asset’s estimated useful life.
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Notes to the Financial Statements
continued
3
Significant accounting policies continued
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that is subject to
risks and returns that are different from those of other business segments.
Impairment reviews
Assets that are subject to amortisation and depreciation are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may not be fully recoverable. Assets that are not subject to
amortisation and depreciation are reviewed on an annual basis at each year end and, if there is any indication that
an asset may be impaired, its recoverable amount is estimated. The recoverable amount is the higher of its net selling
price and its value in use. Any impairment loss arising from the review is charged to the Statement of Comprehensive
Income whenever the carrying amount of the asset exceeds its recoverable amount.
Share based payments
The Group has made share-based payments to certain Directors and employees and to certain advisers by way of
issue of share options. The fair value of these payments is calculated either using the Black Scholes option pricing
model or by reference to the fair value of any fees or remuneration settled by way of granting of options. The expense
is recognised on a straight-line basis over the period from the date of award to the date of vesting, based on the
best estimate of the number of shares that will eventually vest.
Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with International Financial Reporting Standards requires the
use of judgements together with accounting estimates and assumptions that affect the reported amounts of assets
and liabilities and the reported amounts of income and expenses during the reporting period. Although these
judgements and estimates are based on management’s best knowledge of current events and actions, the resulting
accounting treatment estimates will, by definition, seldom equal the related actual results.
The key judgements in respect of the preparation of the financial statements are in respect of the accounting for
acquisitions, determination of separately identifiable assets on acquisition, the determination of cash generating units,
the evaluation of segmental information, the evaluation of whether there is any indication of any impairment in
investments, intangibles, goodwill or receivables and whether deferred tax assets should be recognised 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) Franchise-related activities (including product and equipment sales and Business-
to-Business sales), (iii) US corporate-operated locations, (iv) International corporate- operated locations and (v) head
office costs. Information reported to the Group’s Chief Operating Decision Maker (being the Executive Chairman),
for the purpose of resource allocation and assessment of division performance is now separated into the four income
generating segments (items (i) to (iv)), and items that do not fall into these segments have been categorized as
unallocated head office costs (v).
The Group mainly operates in the US, with operations in the UK and certain other countries. In 2017, 88.1%
(2016: 94.4%) of its revenue came from ALD, which includes royalties from franchisees and corporate-operated
locations, with the remainder coming from WII which is comprised of a UK-based municipal business 7.9% (2016:
5.6%), and an Australian business – 4%.
No single customer accounts for more than 10% of the Group's total external revenue.
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Notes to the Financial Statements
continued
Segmental Information continued
4
The following is an analysis of the Group’s revenues and profits from operations and assets by business segment.
Year ended
31 December
2017
$
5,924,353
3,649,200
5,947,805
2,093,820
17,615,178
Year ended
31 December
2016
$
5,543,207
1,731,849
4,216,584
683,597
12,175,237
Year ended
31 December
2017
$
Year ended
31 December
2016
$
1,427,858
315,099
349,609
(157,141)
(592,778)
(197,613)
1,145,034
1,219,247
226,934
324,423
139,004
(841,137)
(296,000)
772,471
Year ended
31 December
2017
$
4,748,391
359,972
3,739,931
1,630,993
10,479,287
Year ended
31 December
2016
$
6,814,156
327,502
2,186,759
166,406
9,494,823
Year ended
31 December
2017
$
Year ended
31 December
2016
$
290,858
26,401
317,259
268,358
27,248
295,606
Revenue
Franchise royalty income
Franchise related activities
US corporate operated locations
International corporate operated locations
Total
Profit/(Loss) before tax
Franchise royalty income
Franchise related activities
US corporate operated locations
International corporate operated locations
Unallocated head office costs
Non-core costs
Total
Assets
Franchise royalty income
Franchise related activities
US corporate operated locations
International corporate operated locations
Total
Amortization
Franchise royalty income
International corporate operated locations
Total
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Notes to the Financial Statements
continued
4
Segmental Information continued
Depreciation
Franchise royalty income
Franchise related activities
US corporate operated locations
International corporate operated locations
Total
Finance Expense
International corporate activities
Unallocated head office costs
Total
Year ended
31 December
2017
$
Year ended
31 December
2016
$
–
–
151,427
15,992
167,419
3,734
–
71,885
5,660
81,279
Year ended
31 December
2017
$
Year ended
31 December
2016
$
3,283
132,178
135,461
17,671
154,415
172,086
For the purpose of monitoring segmental performance, no liabilities are reported to the Group’s Chief Operating
Decision Maker.
Geographic Information
As noted herein, the Group has two wholly-owned subsidiaries – ALD and WII. ALD has U.S. franchises and
corporate operated locations and international franchises that are located in Australia and Canada. Meanwhile, WII
has corporate operated activities outside the U.S. We may also regroup the same information into US and Outside
the US to capture the Group’s effort to be multinational company. As shown below, the biggest change between
2017 and 2016 has been the growth of International/Outside the US to $2.3 million from $914,262.
Total Revenue
Year ended 31 December 2017
Year ended 31 December 2016
US International
$
$
Total
$
US International
$
$
Total
$
Franchise royalty income
Corporate owned Stores
Franchise related activities
International corporate activities
Total
5,687,764
5,947,805
3,649,200
–
15,284,769
236,590
–
–
2,093,820
2,330,410
5,924,354
5,947,805
3,649,200
2,093,820
17,615,179
5,312,542
4,216,584
1,731,849
–
11,260,975
230,665
–
–
683,597
914,262
5,543,207
4,216,584
1,731,849
683,597
12,175,237
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Notes to the Financial Statements
continued
Expenses by nature
5
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)
Note
6
Year ended
31 December
2017
$
Year ended
31 December
2016
$
851,482
7,313,155
640,154
167,419
317,259
215,006
10,752
(8,162)
815,260
6,002,080
121,813
81,279
295,606
333,827
14,989
3,016
Year ended
31 December
2017
$
Year ended
31 December
2016
$
71,482
39,318
–
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 $125,445 (2016: $92,085) for the audit of these companies and $nil (2016: $nil) for other services.
Employees and Directors
6
The Directors of the Company are considered to be the key management of the business.
Short-Term employee benefits
Directors fees, salaries and benefits
Wages and Salaries
Social Security Costs
Long-Term employee benefits
Share based payments
Year ended
31 December
2017
$
Year ended
31 December
2016
$
610,645
6,246,178
393,935
62,397
7,313,155
644,208
4,943,189
377,224
37,459
6,002,080
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Notes to the Financial Statements
continued
Employees and Directors continued
6
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
2017
$
Year ended
31 December
2016
$
610,645
20,102
61,114
691,861
644,208
19,190
36,176
699,574
The highest paid Director received emoluments of $450,000 (2016: $447,019).
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
2017
$
Year ended
31 December
2016
$
5
7
86
20
6
124
5
6
57
16
5
89
Share options
7
The Company grants share options at its discretion to Directors, management, and advisors. These are accounted
for as equity settled options. Should the options remain unexercised after a period of ten years from the date of
grant the options will expire unless an extension is agreed to by the board. Options are exercisable at a price equal
to the Company’s quoted market price on the date of grant or an exercise price to be determined by the board.
Details for the share options and warrants granted, exercised, lapsed and outstanding at the year-end are as follows:
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
2017
1,765,000
–
–
(80,000)
1,685,000
1,005,000
Weighted
average
exercise
price ($)
2017
1.12
–
–
0.67
1.15
1.02
Number
of share
options
2016
1,152,000
730,000
(117,000)
–
1,765,000
1,085,000
Weighted
average
exercise
price ($)
2016
1.05
1.33
1.21
–
1.12
1.00
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Notes to the Financial Statements
continued
7
Share options continued
Fair value of share options
During the year, the Group did not grant any options.
The fair value of options granted during the prior 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 2016 and 2017 resulted in a charge of $62,397
(2016: $37,459) which has been expensed in the year. As the options granted prior to 2016 had no vesting period,
none of the charge expensed in 2017 related to options granted prior to 2016.
The weighted average remaining contractual life of the share options is 7.33 years (2016: 8.34 years).
Options arrangements that exist over the Company’s shares at year end and at the date of the report are detailed below:
At report
Grant date
ALDHC Plan (1) 317,500
2013 Directors (2) 250,000
2015 Options (3) 117,500
2016 Directors (4) 200,000
2016 Directors (4) –
2016 Employee (5) 220,000
2016 Employee (5) 210,000
2018 Employee (6) 135,000
Total 1,510,000
2017
2016
Grant
price
From
To
Date of
Exercise
Exercise period
417,500
250,000
337,500
200,000
50,000
220,000
210,000
–
1,685,000
417,500
250,000
417,500
200,000
50,000
220,000
210,000
–
1,765,000
01/12/2013
01/08/2013
08/06/2015
13/06/2016
13/06/2016
19/12/2016
19/12/2016
06/03/2018
$1.14 01/12/2013 01/12/2023
$1.30 01/08/2013 01/08/2023
$0.67 08/06/2015 08/06/2025
$1.26 13/06/2019 13/06/2026
$0.92 13/06/2019 13/06/2026
$1.24 19/12/2019 19/12/2026
$1.56 19/12/2019 19/12/2026
$3.15 06/03/2021 06/03/2028
All share options are equity settled on exercise.
(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. The Executive Chairman exercised 100,000 of these options in March 2018.
(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. 80,000 of these
were exercised in September 2017. Subsequent to year end, 10,000 were exercised in January 2018 and a further 150,000 were
exercised in March 2018.
(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, which were exercised in March 2018.
(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.
(6) On 14 March 2018, certain employees were granted an option to purchase 135,000 New Ordinary Shares at a price of $3.15 pursuant
to the acquisition of franchise based in Louisville, Kentucky. These options have a three-year vesting requirement.
Patrick DeSouza received (i) 600,000 Partly Paid Shares at an exercise price of $1.07 during 2016 and (ii) 750,000 Partly Paid Shares at an
exercise price of $2.71 in March 2018 in connection with capital raising and bank financings. These Partly Paid Shares carry voting rights
but will not be admitted to trading or carry any economic rights until fully paid.
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Notes to the Financial Statements
continued
8
Finance income
Interest income
9
Finance expense
Interest expense
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 (credit)/expense (note 20)
Income tax expense
Year ended
31 December
2017
$
Year ended
31 December
2016
$
13,928
12,264
Year ended
31 December
2017
$
Year ended
31 December
2016
$
135,461
172,086
Year ended
31 December
2017
$
Year ended
31 December
2016
$
476,178
–
476,178
(189,848)
–
(189,848)
286,330
53,466
–
53,466
240,632
–
240,632
294,098
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
(2017: 34% versus 2016: 35%)
Tax effects of:
Non-deductible expenses
Losses carried back
Other tax adjustments, reliefs and transfers
State taxes net of federal benefit
Adjustment in respect of prior year
Deferred tax not recognised
Adjust deferred tax rate to 34%
Changes in rates
Taxation expense recognised in income statement
1,145,035
772,471
398,289
270,365
65,187
2,996
(1)
43,377
(82,657)
87,340
903
(229,104)
286,330
56,891
–
–
33,962
(77,702)
11,156
35,614
(36,188)
294,098
The Group is subject to income taxes in multiple jurisdictions. Significant judgment is required in determining the
worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax
determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of
whether additional taxes will be due.
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Notes to the Financial Statements
continued
10 Taxation continued
As also set forth, in Note 20, at the balance sheet date, the Group’s UK trading operations had unused tax losses of
£3,473,249 (2016: £3,459,553) available for offset against future profits. £593,205 (2016: £590,866) represents
unrecognised deferred tax assets thereon at 17%. The deferred tax asset has not been recognised due to uncertainty
over timing of utilization.
The effective rate for tax for 2017 was lowered due to the effect of the US tax cut on 2017 deferred tax liabilities.
The effective rate for 2017 is 25% (2016: 35%). It is anticipated that the Group will use an effective tax rate of 25%
going forward as a result of the US tax cut.
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 equity holders of the Parent ($)
Weighted average number of ordinary shares
Diluted weighted average number of ordinary shares
Profit per share (cents)
Diluted profit per share (cents)
Year ended
31 December
2017
$
913,250
11,403,236
12,123,812
8.0
7.5
Year ended
31 December
2016
$
484,669
10,690,410
10,825,113
4.5
4.4
12 Acquisitions
During 2017, the Group purchased franchisee operations in Indianapolis and Northern Virginia. These acquisitions
not only are expected to contribute revenue and earnings but also strengthen the Group’s corporate execution
capabilities in the US. In the US such corporate presence supports the ALD franchise system.
On 7 June 2017, the Group completed the reacquisition of its Indianapolis franchise. The current franchise owner
has remained with the business as a corporate manager to grow it faster with corporate support. Indianapolis
strengthens corporate presence in the Midwest of the United States along with prior acquisitions of Detroit (2015)
and Cincinnati (2016) and, as noted in the Subsequent Events, the Q1 2018 acquisition of Louisville.
On 8 August 2017, the Group completed the reacquisition of its Northern Virginia franchise and combined it with
its Washington D.C. location which opened 8 May 2017 to create a new regional corporate center.
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Notes to the Financial Statements
continued
12 Acquisitions continued
These can be summarised as follows:
Fair value of assets and
liabilities acquired
Equipment
Net assets acquired
Consideration
Cash
Accounts receivable balance applied
Note payable
Total consideration
Intangible assets arising on acquisition
(see note 13)
Indianapolis
$
Northern
Virginia
$
Totals
$
44,373
44,373
125,000
23,174
229,174
377,348
5,000
5,000
70,000
–
–
70,000
49,373
49,373
195,000
23,174
229,174
447,348
332,975
65,000
397,975
The intangible assets arising on Indianapolis and Northern Virginia of $397,975 is included in additions to goodwill
and indefinite life intangible assets for owned & operated stores (see note 13).
The amount of deferred consideration for 2017 acquisitions as well as the remaining deferred consideration for
acquisitions made in 2015 and 2016 (after discounting anticipated cash flows to evaluate the fair value), can be
summarized as follows:
Current
T&M Tech LLC (South Michigan Franchise)
Cincinnati
NRW
Sydney
Indianapolis
Total current deferred consideration
Non-Current
T&M Tech LLC (South Michigan Franchise)
Cincinnati
NRW
Sydney
Indianapolis
Total non-current deferred consideration
Year
acquired
2015
2016
2016
2016
2017
Year
acquired
2015
2016
2016
2016
2017
Year ended
31 December
2017
$
Year ended
31 December
2016
$
64,654
48,302
67,456
263,747
115,839
559,998
62,115
58,212
307,540
134,379
–
562,246
Year ended
31 December
2017
$
Year ended
31 December
2016
$
149,187
112,079
–
–
113,335
374,601
215,094
159,128
61,508
176,495
–
612,225
The Group acquired additional assets in Sydney during 2017 leading to an increase in the current deferred
consideration.
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Notes to the Financial Statements
continued
13 Intangible assets
Goodwill and other indefinite life intangible assets
Group
Cost
At 1 January 2016
Additions
At 31 December 2016
Additions (see note 12)
At 31 December 2017
Impairment
At 1 January 2016
Impairment in year
At 31 December 2016
Impairment in year
At 31 December 2017
Carrying amount
At 31 December 2016
At 31 December 2017
Goodwill
Acquisitions
$
Owned &
Operated
stores
$
Goodwill
on franchisor
activities
$
1,493,729
831,380
2,325,109
–
2,325,109
1,493,729
–
1,493,729
–
1,493,729
907,316
606,124
1,513,440
397,975
1,911,415
75,000
–
75,000
–
75,000
636,711
–
636,711
–
636,711
–
–
–
–
–
Totals
$
3,037,756
1,437,504
4,475,260
397,975
4,873,235
1,568,729
–
1,568,729
–
1,568,729
831,380
831,380
1,438,440
1,836,415
636,711
636,711
2,906,531
3,304,506
The carrying value of Goodwill Acquisitions at 31 December 2017 relate to goodwill additions arising on the
acquisition of Indianapolis and Northern Virginia in 2017.
Goodwill and indefinite life intangible assets on owned & operated stores comprises legacy owned stores together
with additions arising from reacquisitions of franchise operations in 2015, 2016 and 2017. Additions in 2017 relate
to Indianapolis and Northern Virginia (see note 12).
Goodwill on Franchisor Activities relates to the royalty income franchise business.
Where appropriate consideration of separately identifiable intangible assets has been considered in the evaluation
of the fair value of assets acquired and the determination of the fair value of goodwill arising. For the acquisitions in
2017, 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
47
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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 or indefinite life intangible
assets are allocated to appropriate cash generating units which can be summarised as follows:
Goodwill Acquisitions – Indianapolis and Northern Virginia - are separately categorized as cash generating units.
Goodwill or indefinite life intangible assets 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 or indefinite life intangible assets have been allocated are tested for
impairment annually. If the recoverable amount of the cash generating unit is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss
recognised for goodwill is not recovered in a subsequent period.
The key assumptions/inputs used for the impairment assessment based on the forecast cash flow and revenues for
2018 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
25
2
1
This has resulted in no impairment charge being required in 2017 (2016: $nil).
Based upon the sensitivity analysis had the estimated discount rate used been 2% higher and the perpetual revenue
growth rate used been 1% lower in these calculations the Group would still not have incurred any material impairment
for any of the categories of goodwill or indefinite life intangible assets.
Water Intelligence plc
48
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Notes to the Financial Statements
continued
13 Intangible assets continued
$
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Water Intelligence plc
49
l
.
s
t
s
o
c
t
n
e
m
p
o
e
v
e
d
e
t
i
s
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r
i
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s
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a
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b
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A
(4) 249986 Water Intelligence RA pp32-pp62.qxp_(4) 249986 Water Intelligence RA pp25-pp56.qxp 23/05/2018 12:46 Page 50
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 2016
Acquired on acquisition of subsidiary
Additions
Exchange differences
Disposals
At 31 December 2016
Acquired on acquisition of subsidiary
Additions
Exchange differences
Disposals
At 31 December 2017
Accumulated depreciation
At 1 January 2016
Depreciation expense
Exchange differences
At 31 December 2016
Acquired on acquisition of subsidiary
Eliminated on disposals
Depreciation expense
Exchange differences
At 31 December 2017
Carrying amount
At 31 December 2016
At 31 December 2017
Equipment &
displays
$
Motor
vehicles
$
Leasehold
Improvements
$
657,425
47,693
254,096
(279)
–
958,935
49,373
327,748
2,086
(486,533)
851,609
571,112
65,426
(148)
636,390
–
(485,278)
120,122
800
272,034
248,535
20,871
93,843
–
–
363,249
–
102,229
2,655
(106,678)
361,455
227,400
21,499
(33)
248,866
–
(103,237)
46,615
645
192,889
123,418
–
–
–
–
123,418
–
15,000
–
(123,418)
15,000
123,418
–
–
123,418
–
(123,418)
682
–
682
Total
$
1,029,378
68,564
347,939
(279)
–
1,445,602
49,373
444,977
4,741
(716,629)
1,228,064
921,930
86,925
(181)
1,008,674
–
(711,933)
167,419
1,445
465,605
322,545
579,575
114,383
168,566
–
14,318
436,928
762,459
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 2017 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 $656,485 (2016: $393,354).
Water Intelligence plc
50
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Notes to the Financial Statements
continued
15 Investment in subsidiary undertakings
Company
Cost
At 31 December 2016
Exchange difference
At 31 December 2017
Impairment
At 31 December 2016
Exchange difference
At 31 December 2017
Carrying amount
At 31 December 2016
At 31 December 2017
Subsidiary
Undertakings
$
13,158,810
653,508
13,812,318
6,400,906
–
6,400,906
6,757,904
7,411,412
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:
Water Intelligence International Limited
(leak detection products and services)
Water Intelligence Australia Pty
American Leak Detection Holding Corp.
(holding company of ALD Inc.) *
American Leak Detection, Inc.
(leak detection product and services)
Qonnectis Group Limited (dormant)
NRW Utilities Limited (dormant)
Interest
held
%
100%
100%
100%
100%
Registered office address
201 Temple Chambers 3-7
Temple Avenue, London,
EC4Y 0DT
1 Farrer Place, Sydney,
NSW 2000
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
Country of
incorporation
England and
Wales
Australia
US
US
England and
Wales
England and
Wales
* Subsidiaries owned directly by the Parent Company. As noted in the Chairman’s Statement, acquisitions, especially franchise reacquisitions
are part of the growth strategy of the Group. The Parent’s subsidiary, American Leak Detection, Inc. has reacquired one franchise by
purchasing 60% upfront and having an unrestricted option to acquire the remaining 40% at a preset price at any time in the future. As a
result, American Leak Detection, Inc., in the table above, has a minority interest subject to consolidation.
Water Intelligence plc
51
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Notes to the Financial Statements
continued
16 Inventories
Group Inventories
Group
Year ended
31 December
2017
$
Year ended
31 December
2016
$
359,973
327,501
During the year ended 31 December 2017, an expense of $3,334,101 (2016: $1,586,095) was recognised in the
Consolidated Statement of Comprehensive Income, including business to business expenses of $2,518,840
(2016: $653,433). There has been no write down of inventories during 2017.
17 Trade and other receivables
Group
Company
Year ended
31 December
2017
$
Year ended
31 December
2016
$
Year ended
31 December
2017
$
Year ended
31 December
2016
$
Trade notes receivable
59,075
42,445
–
–
All non-current receivables are due within five years from the end of the reporting period.
Trade receivables
Prepayments
Due from Group undertakings
Accrued royalties receivable
Trade notes receivable
Other receivables
Due from related party
Current portion
Group
Company
Year ended
31 December
2017
$
Year ended
31 December
2016
$
Year ended
31 December
2017
$
Year ended
31 December
2016
$
1,458,112
328,142
–
476,744
76,218
315,969
165,130
2,820,315
816,843
494,713
–
428,983
122,197
227,621
115,722
2,206,079
–
4,891
1,704,886
–
–
41,010
–
1,750,787
–
27,840
1,092,595
–
–
38,008
–
1,158,443
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 37 days (2016: 26 days).
As at the 31 December 2017, trade receivables of $116,088 (2016: $70,395) 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)
Water Intelligence plc
52
Year ended
31 December
2017
$
Year ended
31 December
2016
$
42,328
73,760
116,088
92
27,404
42,991
70,395
92
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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
Australian Dollar
Year ended
31 December
2017
$
Year ended
31 December
2016
$
2,398,632
317,513
104,170
2,820,315
1,833,602
338,677
33,799
2,206,078
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned
above. The Group does not hold any collateral as security.
18 Cash and cash equivalents
Group
Company
Year ended
31 December
2017
$
Year ended
31 December
2016
$
Year ended
31 December
2017
$
Year ended
31 December
2016
$
Cash at bank and in hand
774,767
1,056,888
76
268,785
19 Trade and other payables
Trade payables
Accruals and other payables
Due to Group undertakings
Group
Company
Year ended
31 December
2017
$
Year ended
31 December
2016
$
Year ended
31 December
2017
$
Year ended
31 December
2016
$
659,547
768,962
–
1,428,509
494,263
456,462
–
950,725
148,401
87,700
2,371,414
2,607,515
15,041
84,727
1,283,315
1,383,083
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs and
are payable within 3 months. The average credit period taken for trade purchases is 16 days (2016: 16 days).
20 Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group
Deferred tax (liability)/assets
2017
$
2016
$
(115,233)
(305,081)
Water Intelligence plc
53
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Notes to the Financial Statements
continued
20 Deferred Tax continued
The movement in deferred tax liabilities is as follows:
2017
Temporary differences:
Net operating profit (loss) (non-current)
Short term timing differences
2016
Temporary differences:
Net operating profit (loss) (non-current)
Short term timing differences
Opening
balance
$
–
–
(305,081)
(305,081)
Opening
balance
$
–
–
(64,449)
(64,449)
Recognized
in the income
statement
$
–
–
189,848
189,848
Recognized
in the income
statement
$
–
–
(240,632)
(240,632)
Closing
balance
$
–
–
(115,233)
(115,233)
Closing
balance
$
–
–
(305,081)
(305,081)
At the balance sheet date, the Group’s UK trading subsidiaries had unused tax losses of £3,473,249 (2016:
£3,459,553) available for offset against future profits. £593,205 (2016: £590,866) represents unrecognised deferred
tax assets thereon at 17%. The deferred tax asset has not been recognised due to uncertainty over timing of
utilization.
21 Share capital
The issued share capital in the year was as follows:
Group & Company
Ordinary Shares
Number
Shares held in
treasury Number
At 31 December 2016 11,473,833
At 31 December 2017 11,402,649
–
151,184
Total Number
11,473,833
11,553,833
Group & Company
At 31 December 2016
At 31 December 2017
Share Capital
$
Share Premium
$
64,257
65,305
926,787
980,436
On 4 January 2017, the Company announced it purchased 73,600 ordinary shares of 1 penny each in the capital of
the Company ("Ordinary Shares") at a price of 88.5 pence per Ordinary Share. Following this transaction, the
Company held 73,600 Ordinary Shares in treasury which carry no voting rights.
Water Intelligence plc
54
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Notes to the Financial Statements
continued
21 Share capital continued
At 30 June 2017, two executives - David Silverstone and Scott Weiner – changed their employment status. In
connection with the terms of their respective employment, the Company reacquired ordinary shares from each after
their respective exercise of certain options. The 80,000 shares pursuant to the exercise of options by Scott Weiner
and David Silverstone, as outlined above, were admitted to trading on AIM on 13 September 2017.Following this
option exercise, the issued share capital of the Company carrying voting rights is 12,153,833. Following the purchase
of these 80,000 shares by the Company, the Company holds 151,184 Ordinary Shares in treasury which carry no
voting rights and the issued share capital of the Company carrying voting rights reduces to 12,002,649. The issued
share capital of the Company carrying voting rights is 12,002,649 shares, which is divided into 11,402,649 Ordinary
Shares admitted to trading on AIM, and 600,000 Partly Paid Shares of 1 penny each which are not admitted to trading
on AIM. The total number of voting rights in the Company, excluding Treasury shares will therefore be 12,002,649.
Reverse acquisition reserve
The reverse acquisition reserve was created in accordance with IFRS3 Business Combinations and relates to the
reverse acquisition of Qonnectis Plc by ALDHC in July 2010. Although these Consolidated Financial Statements
have been issued in the name of the legal parent, the Company it represents in substance is a continuation of the
financial information of the legal subsidiary ALDHC. A reverse acquisition reserve was created in 2010 to enable
the presentation of a consolidated statement of financial position which combines the equity structure of the legal
parent with the reserves of the legal subsidiary. Qonnectis Plc was renamed Water Intelligence Plc on completion
of the reverse acquisition on 29 July 2010.
22 Obligations under operating leases
The future aggregate minimum lease payments under non-cancellable operating leases are set out below.
2017
No later than one year
Later than one year, and not later than five years
Total
2016
No later than one year
Later than one year, and not later than five years
Total
Land & Buildings
$
69,296
4,400
73,696
Land & Buildings
$
136,256
73,459
209,715
Other
$
179,951
420,459
600,410
Other
$
105,220
229,392
334,612
Total
$
249,247
424,859
674,106
Total
$
241,476
302,851
544,327
The operating lease commitments above apply to the Group; the Company has no operating leases. All leases relate
to vehicles.
Water Intelligence plc
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Notes to the Financial Statements
continued
23 Financial instruments
The Group has exposure to the following key risks related to financial instruments:
i. Market risk (including foreign currency risk management)
ii.
iii.
iv.
Interest rate risk
Credit risk
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 (2016: none) and the Group did not have any derivative or hedging instruments.
The Group uses financial instruments including cash, loans and finance leases, as well as trade receivables and
payables that arise directly from operations.
Due to the simple nature of these financial instruments, there is no material difference between book and fair values.
Discounting would not give a material difference to the results of the Group and the Directors believe that there are
no material sensitivities that require additional disclosure.
Fair value of financial assets and financial liabilities
The estimated difference between the carrying amount and the fair values of the Group’s financial assets and financial
liabilities is not considered material.
Credit risk
The Group’s principal financial assets are bank balances, cash, trade and other receivables. The Group’s credit risk
is primarily attributable to its trade receivables. Receivables are regularly monitored and assessed for recoverability.
The Group has no significant concentration of credit risk as exposure is spread over a number of customers.
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.
Water Intelligence plc
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Notes to the Financial Statements
continued
23 Financial instruments continued
Categories of financial instruments
Loans and receivables
Cash and cash equivalents
Trade and other receivables – current
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
Group
Company
Year ended
31 December
2017
$
–
774,767
2,820,315
59,075
Year ended
31 December
2016
$
Year ended
31 December
2017
$
Year ended
31 December
2016
$
–
1,056,888
2,206,079
42,445
–
76
1,750,787
–
–
268,785
1,158,443
–
1,428,509
394,525
1,635,311
559,999
374,600
950,725
492,453
1,327,593
562,246
612,225
2,607,515
–
–
–
–
1,383,083
–
–
–
–
Borrowings
Bank Loans
Term Loan. The Group had a commercial banking relationship with Liberty Bank (“Liberty”). During 2014 the loan
was refinanced and the term of the loan was reset for 5 years to 2019. The principal amount outstanding at 5
December 2016 was $1,574,801. As of 5 December 2016, interest on the loan was 5.75% annually, with monthly
installments of principal and interest amounting to $52,959 per month.
On December 5, 2016, the Group replaced Liberty with People’s United Bank (“People’s”) and closed on a new term
loan with People’s. The note refinanced the outstanding note from Liberty Bank and reset the term for 4 years to
2020. The principal amount outstanding at 31 December 2017 is $1,227,874 (2016: $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 PlainSight Systems (PSS), among
others, to guarantee the loan.
Working Capital Line of Credit. The Group also had a working capital line of credit with Liberty. The line bore interest
at a rate equal to 3.62% at December 5, 2016 and was due on demand. The line of credit was secured by substantially
all of the assets of the Group. PSS and other related parties also guaranteed the obligation. As part of the change in
the banking relationship, the Group paid off amounts owing under the Liberty line of credit by drawing upon a
$500,000 line of credit established by People’s.
The line bears interest at a rate equal to LIBOR plus 3.00%. As of December 31, 2017, the interest rate was 3.77%.
The Group must make monthly interest only payments on the unpaid balance until its maturity in December 2018.
However, on March 6, 2018, the line was increased to $2,000,000 and the maturity date was extended to December
2019. The line of credit is secured by substantially all of the assets of the Group and other related parties including
PSS. The balance outstanding on the working capital line of credit as of December 31, 2017, and 2016 was $228,133
and $251,519, respectively.
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Notes to the Financial Statements
continued
23 Financial instruments continued
Acquisition Line of Credit. Reacquiring ALD franchises is part of the Group’s growth strategy. In addition to the
$2,000,000 line of credit, People’s has provided the Group a $1,500,000 acquisition line of credit (“ALOC”). The
ALOC has a two-year draw period. The line bears interest at a rate equal to LIBOR plus 3.00%. As of December 31,
2017, the interest rate was 3.62%. Commencing January 1, 2017, the Group has made monthly interest-only
payments on any advances outstanding. However, as part of the Agreement, such interest-only payments would
be converted into a term loan if any ALOC advance exceeded $250,000 or automatically at the end of a two-year
draw period. Upon conversion, the term loan would bear interest at a rate per annum equal to three (3) percentage
points in excess of People’s four year cost of funds interest rate. The line of credit is secured by substantially all of
the assets of the Group and the guarantee of other related parties including PSS. The balance outstanding as of
December 31, 2017, was $584,750. There was no balance outstanding as of December 31, 2016.
In connection with the People’s working capital line of credit and ALOC, the Group is required to comply with certain
financial and non-financial covenants to be performed on a consolidated basis. The most restrictive of these
covenants includes a debt service coverage ratio to be tested quarterly and a minimal semiannual increase in capital
funds to be tested semiannually. The Group was in compliance with those requirements at December 31, 2017.
Financial Instruments
Term loan
Working Capital Line of Credit
Acquisition Line of Credit
Total
Current
Non-Current
Year ended
31 December
2017
$
Year ended
31 December
2016
$
Year ended
31 December
2017
$
Year ended
31 December
2016
$
394,525
–
–
394,525
492,453
–
–
492,453
833,349
228,133
584,750
1,646,232
1,075,593
252,000
–
1,327,593
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 2017 were $236,590 (2016: $230,666). No
foreign exchange contracts were in place at 31 December 2017 (2016: Nil).
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Notes to the Financial Statements
continued
23 Financial instruments continued
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities were:
Assets
Sterling and Australian Dollars
Liabilities
Sterling and Australian Dollars
Group
Company
Year ended
31 December
2017
$
Year ended
31 December
2016
$
Year ended
31 December
2017
$
Year ended
31 December
2016
$
598,004
828,291
1,750,863
1,427,228
467,946
264,242
2,607,515
1,383,083
As shown above, at 31 December 2017 the Group had Sterling denominated monetary net assets of $130,059
(2016: $564,049). If Sterling weakens by 10% against the US dollar, this would decrease assets by $13,006
(2016: $56,405) with a corresponding impact on reported losses.
Interest rate risk management
The Group is potentially exposed to interest rate risk because the Group borrows and deposits funds at both fixed
and floating interest rates. However, at the year end, the borrowings are only subject to fixed rates.
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the year ended 31 December 2016 would not materially
change if market interest rates had been 1% higher/lower throughout 2016 and all other variables were held
constant.
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
2017
Fixed interest rate instruments principal
Other financial liabilities
2016
Fixed interest rate instruments principal
Other financial liabilities
0-6 months
$
6-12 months
$
>12 months
$
Total
$
220,297
–
215,244
–
220,297
–
215,244
–
881,187
–
1,321,781
–
1,389,558
–
1,820,046
–
The Company has no non-derivative financial liabilities.
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Notes to the Financial Statements
continued
23 Financial instruments continued
Derivatives
The Group and Company have no derivative financial instruments.
Fair values
The Directors consider that the carrying amounts of financial assets and financial liabilities approximate their fair values.
24 Contingent liabilities
The Directors are not aware of any material contingent liabilities.
25 Related party transactions
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, Water
Intelligence International, ALDHC and ALD. The financial results of these related party transactions are reviewed by
an independent director of Water Intelligence plc, the parent of Water Intelligence International, ALDHC and ALD.
One set of inter-Group transactions surrounds its banking facilities. As set forth in detail in Note 23 (Borrowings),
the Group has a term loan, working capital line of credit, and acquisition line of credit with People’s. Each of these
borrowings are guaranteed by PSS and certain related parties. For the PSS’s on-going guarantee, ALD pays 0.75%
per annum based on the outstanding balance of the loans 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 People’s Bank. Interest income
related to the PSS receivable amounted to $10,302 and $7,378 for the years ending 31 December 7 and
31 December 2016, respectively. The guarantee fee expense for the PSS guarantee amounted to $10,496 and
$13,296 for the years ended 31 December 2017 and 31 December 2016, respectively. The related
receivable/prepaid balance remaining for PSS was $165,130 and $115,722 at 31 December 2017 and 2016,
respectively.
During the year, the Company had the following transactions with its subsidiary companies:
Water Intelligence International Limited
Balance at 31 December 2016
Net loans to subsidiary
VAT transferred under group registration
Other expenses recharged and exchange differences
Balance at 31 December 2017
ALDHC
Balance at 31 December 2016
Balance at 31 December 2017
$
1,092,595
622,590
68,582
(78,881)
1,704,886
$
(376,729)
(376,729)
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Notes to the Financial Statements
continued
25 Related party transactions continued
ALD Inc.
Balance at 31 December 2016
Loans to WI
Other expenses recharged and exchange differences
Balance at 31 December 2017
$
(906,586)
(460,082)
(628,017)
(1,994,685)
26 Subsequent events
On the 4 January 2018, the Company announced the signing and launch of the Company’s second formal national
contract with one of the top 5 insurance companies in the US. The agreement extends the Group’s formal business-
to-business channel.
On the 10 January 2018, the Group announced two strategic partnerships to extend its technology/innovation
profile. ALD is partnering with Flo Technologies, Inc, to provide nation-wide distribution and service capabilities for
Flo’s smart home water security and conservation system. The Group is partnering with Tagasauris, Inc. to develop
new products for both video marketing and e-commerce. Both Flo Technologies and Tagasauris use artificial
intelligence as part of their respective product functionality.
On the 11 January 2018, David Silverstone exercised a portion of his options holdings to subscribe for a total of
10,000 ordinary shares of 1p each at an exercise price of $0.67 per ordinary share. Subsequently, David Silverstone
sold the 10,000 ordinary shares at a price of $2.65.
On the 26 February 2018, the Group announced a contract between WII’s Sydney, Australia, corporate location and
Hunter Water Corporation, a state-owned water company. This strategic contract enables WII to support ALD’s
Australian franchisees with additional municipal opportunities.
On 7 March 2018, the Group announced that it had strengthened its capital base in order to support its growth
plans. First, it raised approximately $5.75 million through the issue of an aggregate of 2,171,320 new ordinary shares
in a placing and subscription. Such equity issuance was oversubscribed. Second, the Group increased its working
capital line with People’s Bank by $1.75 million.
On 7 March 2018, the Group announced that it had made certain board changes to strengthen its execution capabilities.
David Silverstone moved from executive director to non-executive director. John Weigold moved from non-executive
director to executive director. Laura Hills was appointed as Non-Executive Director of the Company. Robert Mitchell
resigned from the board to take an operating role to launch a renewables line of business for the Group.
On the 7 March 2018, the Group continued its growth strategy of selectively reacquiring some of its ALD franchises.
It announced the reacquisition of its Louisville, Kentucky, franchise. Louisville, a strongly performing operation,
is situated adjacent to the Indianapolis and Cincinnati corporate locations in the central Midwest of the United States.
Together these locations form a strategic set of corporate resources to execute sales and support growth of
franchisees throughout the Midwest. This cluster of corporate operated locations also better enables the Company
to execute the launch of operations in Chicago during 2018.
On 15 March 2018, the Group announced the acquisition of its Bakersfield, California, franchise. The Group plans
to expand operations in this territory rapidly given the size of the opportunity and importance of water to this leading
center for agriculture in the US.
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Notes to the Financial Statements
continued
26 Subsequent events continued
On 15 May 2018, the Group announced the acquisition of its South Florida franchise. The Group plans to expand
operations in this territory rapidly given the strength of its existing corporate operations immediately to the north in
Ft. Lauderdale / Miami. The Group plans to launch international expansion efforts to the Caribbean and Mexico
from its expanded Miami operation.
The provisional fair values of the acquisitions subsequent to year end are detailed below:
Fair value of assets and liabilities acquired
Equipment
Net assets acquired
Consideration
Cash
Deferred consideration – discounted to present value
Total consideration
Indefinite life intangible assets on acquisition
South Florida
$’000
Louisville
$’000
Bakersfield
$’000
80
80
150
205
355
275
95
95
465
1,084
1,549
1,454
44
44
252
–
252
208
Totals
$’000
219
219
867
1,289
2,156
1,937
27 Control
The Company is under the control of its shareholders and not any one party. The shareholdings of the directors and
entities in which they are related are as outlined within the Director’s Report.
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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 the
offices of Weil Gotshal & Manges, 110 Fetter Lane, London EC4A 1AY at 11.30 a.m. on 19 June 2018.
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.
THAT the Company’s annual accounts for the financial year ended 31st December 2017, together with the
last directors’ report and the auditor’s report on those accounts and the directors’ report, be received and
adopted.
2.
3.
4.
5.
6.
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 Laura Hills who was appointed by the board on 6 March 2018.
To re-appoint as a director David Silverstone 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 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,
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Notice of Annual General Meeting
continued
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 5,000,000;
(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 subparagraphs (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: 16 May 2018
Registered Office:
201 Temple Chambers
3-7 Temple Avenue
London
EC4Y 0DT
Water Intelligence plc
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Notice of Annual General Meeting
continued
Notes:
1.
2.
3.
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 11.30 a.m. on 15 June 2018 (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).
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 48 hours prior to the time of the AGM (weekends and public holidays excluded) or, in the case of
an adjournment 48 hours prior to the time of the adjourned AGM (weekends and public holidays excluded),
shall be entitled to attend and vote at the AGM, or any adjournment.
Water Intelligence plc
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Perivan Financial Print 249986
Water Intelligence plc
(cid:7)
Group Annual Report and Financial Statements
(cid:7)
for the Year Ended 31 December 2017
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
(cid:7)
Company number 03923150
(cid:7)
(cid:7)