Water Intelligence plc
Group Annual Report and Financial Statements for
the Year Ended 31 December 2018
Company number 03923150
Group Annual Report and Financial Statements
for the year ended 31 December 2018
Contents
Page
2 Company Information
3 Chairman’s Statement
8 Strategic Report
14 Directors’ Report
18 Corporate Governance Statement
23 Statement of Directors’ Responsibilities
24
Independent Auditors’ report to the members of Water Intelligence plc
28 Consolidated Statement of Comprehensive Income
29 Consolidated Statement of Financial Position
30 Company Statement of Financial Position
32 Consolidated Statement of Changes in Equity
32 Company Statement of Changes in Equity
33 Consolidated Statement of Cash Flows
34 Company Statement of Cash Flows
35 Notes to the Financial Statements
Water Intelligence plc
1
Company Information
Directors & Advisers
Directors
Executive Chairman
Executive Director
Patrick DeSouza
Bobby Knell
Laura Hills Non-Executive Director
Michael Reisman Non-Executive Director
David Silverstone Non-Executive Director
Company Secretary
and Registered Office
Adrian Hargrave
27-28 Eastcastle Street
London
United Kingdom
W1W 8DH
Company number
Registered in England and Wales number 03923150
Nominated adviser and broker WH Ireland Limited
Independent Auditor
Registrar
Bankers
24 Martin Lane
London
EC4R 0DR
Crowe UK LLP
St Brides House
10 Salisbury Square
London EC4Y 8EH
Neville Registrars Limited
Neville House
Steelpark Road
Halesowen
B62 8HD
Barclays Bank PLC People’s United Bank
1 Churchill Place
London
E14 5HP
265 Church Street
New Haven
CT 06510
USA
Water Intelligence plc
2
Chairman’s Statement
Overview.
We had another remarkable year both in terms of financial and operating performance. We delivered on
our annual commitment in these pages for sustainable, multinational growth. Year-over-year, we grew
revenue by 45% to $25.5 million (2017: $17.6 million) and profit before tax even faster by 53% to $1.8
million (2017: $1.1 million). Further, our shareholders benefited with fully diluted EPS growth of 21.3% to
9.1 cents per share (2017: 7.5 cents per share). Our balance sheet is strong and we have cash required
to execute our growth plan. Moreover, as we will discuss below, robust financial performance results over
the last five years underscore not only sustained growth but also an acceleration of that growth path. Water
Intelligence profits before tax adjusted for non-core costs and non-cash amortization expense at $2.4 million
exceeded 2018 market expectations.
Operationally, the foundations have been laid for continued strong performance. We have expanded cross-
selling efforts between our American Leak Detection (ALD) and Water Intelligence International (WII)
subsidiaries so that we can capture an entire matrix of opportunities – residential, commercial, municipal,
clean water and wastewater – as complementary business lines with reduced customer acquisition costs.
Further, we have reinvested profits and are launching new proprietary products for each subsidiary to
sustain growth in market capture. Yet, before discussing our strong 2018 performance and current
momentum, we should underscore that demand from the global marketplace has provided us with a tailwind
to deliver a very valuable company for our investors as we continue to scale operations.
Water and infrastructure services, as a global investment category, continues to gain salience because
market demand for solutions is anticipated to remain strong irrespective of volatile macroeconomic or
political conditions. Market research indicates that total global spending on water and wastewater currently
amounts to $771 billion with capital expenditure expected to rise between 2019-2023 by 4.7% compounded
annually, which is higher than forecasts of worldwide economic growth. Moreover, the water infrastructure
crisis has reached areas typically less visible to the marketplace. On March 7, 2019 the Wall Street Journal
published “American Homeowners and Their Insurers Face a Flooding Crisis From Within.” The article
indicated that over the last five years, the frequency of water-damage claims is rising affecting 1 in 50
homeowners and posing a $13 billion problem for insurance companies. The article identified a hot new
market for innovation called “InsureTech.” Water remains our most precious natural resource around the
world and may be considered a safe haven for investors.
The research marketplace is responding to such demand. Columbia University, with whom we have a
strong relationship, has recently announced the launch of its “2019: A Year of Water: An Interdisciplinary
Investigation.” University of Chicago’s Molecular Engineering Institute, where we are an industrial affiliate,
has made water and wastewater a core area of research. We are well-positioned to help with
commercialization of such research given our sales and distribution reach, especially given our national
insurance channel. For our leadership team, the critical need to conserve water and minimize water-related
damage is a call to create a world-class company that can provide cutting-edge solutions for an entire
matrix of market opportunities as identified above: residential, commercial, municipal, clean water and
wastewater. Because of global market demand and our current operational footprint with sales and
distribution across the US and in the UK, Australia and Canada, we are seeing many international
opportunities to expand our range of solutions both organically and through acquisition.
We have momentum financially and operationally and we have accelerated our efforts during the first third
of 2019 across all business lines that form our strategic plan: We have signed another major insurance
company partnership to feed the growth of our franchise royalty base; sold new franchises; closed three
strategic reacquisitions of franchises; reaped strong organic growth across corporate locations; expanded
of our municipal business, particularly in the U.S.; and unveiled a new proprietary technology product for
diagnosing sewer blockages. These wins will reinforce our financial performance not only for 2019 but also
for 2020 and beyond. We and our stakeholders are ready for the exciting journey ahead.
Water Intelligence plc
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Chairman’s Statement
Financial Performance and Attributes for Scaling Operations
Financial Performance
As noted above, we have reaffirmed our stated objective of sustainable multinational growth. Water
Intelligence revenue growth for 2018 was again strong at 45% year-over-year reaching $25.5 million (2017:
$17.6 million). Profit before tax grew even faster at 53% year-over-year to $1.8 million (2017: $1.1 million).
These results are not atypical. Rather, they reflect a consistent pattern of high performance that is
accelerating. From 2014 to 2018, we achieved compound annual growth rates (CAGR) of 37% in terms of
revenue and 32% in terms of profit before tax (2014: Revenue of $7.2 million; PBT of $0.6 million). More
recently, from 2016 to 2018, we achieved an even higher revenue CAGR of 45% and a higher PBT CAGR
of 51% (2016: Revenue of $12.2 million; PBT of $0.8 million). And, of course, these accelerating
percentage increases have taken place over a base of numbers that is getting larger each year.
Our extraordinary results are reflected across both ALD and WII subsidiaries. We will discuss various key
performance indicators (KPI’s) in our Strategic Report and draw on segmental information tables provided
herein. Our core ALD business grew strongly year-over-year as consumers continue to face higher water
bills in the US and our business-to-business channel delivers more jobs from insurance companies seeking
to minimize claims by deploying our minimally invasive leak detection solutions. As conveyed in our
segmental tables, ALD revenue grew 45% to $22.6 million (2017: $15.5 million). ALD profit before tax grew
43% to $3.0 million (2017: $2.1 million).
Two comments highlight the success of our business plan. First, given ALD’s sales footprint in 46 states
of the US, we continue to prioritize our franchise System as our main distribution base of solutions. We will
drive this centerpiece of our business strategy even as we unlock shareholder value with selective franchise
reacquisitions and conversions into corporate-operated locations. In absolute terms, despite franchise
reacquisitions during 2018 that reduced the possible pool of royalty income, we grew royalty income 5.7%
to $6.3 million (2017: $5.9 million). We should underscore that our royalty income masks somewhat the
scale of the ALD franchise business. Since we derive such royalties from a percentage (6-10%) of the
gross sales of our franchisees, the actual sales to end-user customers of our ALD franchisees grew to
approximately $85 million. As we have noted, combined with our corporate-operated sales, total sales to
third parties from our ALD brand exceed $100 million.
To enlarge the revenue base of the franchise System, we continue to grow our business-to-business
insurance channel through which our corporate administration sources residential leak detection jobs from
major insurance companies via a central processing system and then feeds the franchise system directly.
Sales attributable to the business-to-business channel grew 93% to $5.0 million (2017: $2.6 million). This
channel is expected to continue its rapid growth, reinforced by our May 2019 national insurance contract
win – our third formal contract with one of the major insurance companies. During 2018 this channel
generated approximately 50,000 jobs (2017: 35,000). While the profit margins on such channel sales are
lower than margins based on royalty where franchisees source jobs, such as pool leaks, at a local level,
the trade-off is sensible as layering-in a big, supplementary business line that expands the ALD brand. The
added administration / marketing expense assumed by corporate operations leading to channel sales with
8% margin versus franchise royalty with 20% margin has the collateral benefit of advancing the brand and
market capture for an important $13 billion pain point, as noted above, for water-damage insurance claims.
Second, the selective reacquisition of franchises and conversion into corporate-operated locations
continues to unlock shareholder value. As a strategic matter, reacquisitions provide regional corporate
support for continued franchisees’ growth. As a financial matter, total sales from corporate locations grew
70% to $10.1 million (2017: $5.9 million) as corporate staff executed shoulder-to-shoulder with our
franchisees in expanding our common ALD brand. In executing corporate operations, we have been able
to grow such locations faster than they were growing before they became corporate operations. In our
Strategic Report, to distinguish organic growth from growth simply through reacquisition, we show that
corporate operated locations held before January 1, 2017 have organically grown sales 34%. (2018: $8.0
million; 2017: $5.9 million). Further, margins improve after we reinvigorate the corporate location unlocking
significant shareholder value as we detail in the Strategic Report. More generally, profit margins from
corporate-operated locations improved to 12% in 2018 from 4% in 2017. Such improvement in margins
Water Intelligence plc
4
Chairman’s Statement
generated incremental profits during 2018 of $1.0 million (2018: $1.2 million; 2017: $0.2 million) that we
could reinvest. Our operating plan for 2019 will be to keep pushing sales growth of corporate locations but
continue to increase margins to levels closer to that of franchisees which are typically above 20%. Hence
selective reacquisitions can be a driver of the share price reflecting an organic expansion of profits and
equity multiple.
We are executing the same process of growth and unlocking shareholder value with our WII subsidiary. It
is useful to remember that WII is a relatively new addition, launching in Q4 2016 to take advantage of the
growth in infrastructure spending among municipalities in both clean water and wastewater. Because ALD
is focused on providing residential and commercial solutions but well known in communities across the US,
our goal is to use the municipal expertise of WII to layer-in a supplementary business line leveraging ALD’s
presence and reputation for excellence across the US. During 2018, WII grew 39% to $2.9 million (2017:
$2.1 million); a growth trajectory similar to that of ALD. Moreover, after initial start-up losses during 2017,
we are now not only growing sales but also generating profit before taxes. As the segmental information
indicates, during 2018 we had a substantial swing of approximately $200,000 in moving from “red” to
“black”. (2018: $0.03 million; 2017: ($0.16) million). Further, we are pleased with the synergies unlocked
among operating units. During 2018, we used municipal wins to support growth in corporate sales both in
Sydney, after a franchise reacquisition, and in select locations across the US. During 2019 we are using
the same strategy to support corporate sales in Ontario, Canada after a recent franchise reacquisition and
municipal work across the US with several new contracts. These efforts supplement the growth of the ALD
brand.
Our strong financial performance reinforces our already strong balance sheet. Cash as of December 31,
2018 was approximately $5.0 million and net cash after taking into account all bank debt (short and long-
term) was approximately $2.6 million. Moreover, during 2018, we generated free cash flow of $1.1 million
in cash from operations (post-tax and working capital movements). This represented an 80% growth in
free cash flow year-over-year (2017: $0.6 million). As a result, our business plan and financial capability to
execute such plan is on a solid footing.
Attributes for Scaling Rapidly
Our mission has been to create a world-class multinational growth company. The size and importance of
the global addressable market for clean water and wastewater solutions affords us a great opportunity to
seize. To date, we have executed our plan in disciplined way. With our performance over the last five
years, we have put ourselves in position to make good on our long-run ambition. However, in getting from
here to there, scaling of operations is always a challenge for every successful company.
In tandem with our financial performance reported above, we would like to communicate to our shareholders
that our execution plan has achieved five attributes that reinforce our ability to manage growth and scale
operations: (i) a critical mass of existing sales to leverage into more sales (reduced customer acquisition
costs); (ii) strong momentum with sales to push through any near-term bumps; (iii) a complementary matrix
of product offerings to smooth out growth over the medium term; (iv) a suite of products that improve the
long-run microeconomics of the business (i.e. reinforce upselling and cross-selling); and (v) brand
differentiation for ready consumer choice at all times. These attributes support our efforts to accelerate
execution towards the next milestone of $250 million of total sales (franchise and corporate).
First, we have gained critical mass to take advantage of the market opportunity. Under IFRS accounting,
Water Intelligence revenue passed $25 million during 2018. However, as noted above, between direct
sales and indirect sales to end-users via our franchise system (recorded as royalty income), Water
Intelligence has really passed over $100 million in sales to customers of our brand. Coupled with our sales
and distribution footprint in 46 states of the US, UK, Australia and Canada, we have a real base of
operations and brand recognition from which to reach the next level of $250 million of direct and indirect
sales of our solutions. Moreover, geographic distribution of operations in three continents provides us
sufficient leverage for market capture. Given the size of the global addressable market for preventing water
loss and dealing with wastewater, we can not only expand much deeper in our current geographies but
also, at some point, extend operations into Latin America from the US, and into Asia, Middle East and Africa
Water Intelligence plc
5
Chairman’s Statement
with strategic partners. As noted below, we are already exploring working with a major Japanese company
to expand into Asia. Our WII team has operating experience in all of these extended geographies.
Second, as discussed above, we have strong momentum from which to take advantage of having critical
mass. From 2016-18, we have achieved a revenue CAGR of 45% and a profit before tax CAGR of 51%;
and that horizon shows acceleration from 2014-18 which yielded a 37% revenue CAGR and 31% profit
before tax CAGR. Our team already has a good feel for digesting strong growth.
Third, we have established a platform with a suite of solutions that provides a matrix of complementary
offerings for customers: (i) products and services for leak detection and repair of both clean water and
wastewater pipes; (ii) applications and experience in delivering for consumers, businesses and
municipalities; and (iii) two operating subsidiaries for execution focus – one on each side of the Atlantic.
Such a platform provides structure for taking advantage of critical mass and momentum from
complementary business lines.
Fourth, our broad solutions matrix enables lower customer acquisition costs and, correspondingly,
increased margins from reduced marketing and delivery expenses. Scale always requires improving the
microeconomics of market capture to enable greater efficiencies and reinvestment. Our complementary
business lines enable us to provide solutions all along the water value chain from monitoring to pinpoint
leak detection to repair to prevention. Our range of solutions provide customers with ready means of
addressing all of their problems in a comprehensive way and our technicians with opportunities for efficient
upselling since they are already on-site. Moreover, our two complementary subsidiaries – ALD for
residential and commercial solutions and WII for municipal solutions – enable cross-selling opportunities
reducing customer acquisition costs. Such upsales and cross-sales opportunities transform the economics
available for Water Intelligence. For example, we gain customer leads for municipal contracts based on our
reputation in providing solutions for homeowners in residential communities and vice versa. Additionally,
once we pinpoint the water leak, customers prefer for us to also finish the job with repair thus creating
operating efficiencies and value for customers. Beyond these operating efficiencies, it must be
remembered that our core value proposition of leak detection and repair with minimal invasion enables
Water Intelligence to maintain its pricing margins.
Finally, we have strengthened our brand by creating a products and services matrix that is distinguishable
because of its use of proprietary and third-party technologies to enable precision detection and repair of
pipes to produce minimally-invasive outcomes. Moreover, while we have been achieving high financial
performance, we have not forgotten to reinvest in our technology profile. For our WII business, during 1H
we are rolling-out our proprietary sewer diagnostic product. We provided a first public viewing in February
at the Worldwide Water and Wastewater Technology and Equipment Show in Indianapolis and received
strong interest from both potential customers and distribution partners. We are currently reviewing a
licensing structure given the proprietary nature of our product. Meanwhile, to further activate our ALD
distribution platform with the broader offering of home services solutions, we are developing an e-commerce
and video display technology to advance direct-to-consumer product sales to help with water-related
problems such as water quality. In March 2019 we provided demonstrations in Tokyo with a major
Japanese corporation with whom we would like to sell Water Intelligence solutions in Asia.
First Third of 2019 and Outlook
We have taken advantage of these attributes to accelerate the pace of execution during the first third of
2019. We have achieved wins for every part of our business plan. First, we have continued to expand the
core ALD franchise business and our royalty income base by closing our third major insurance company
partnership to feed our business-to-business channel. Second, after making our franchise System more
valuable through reacquisitions, we have begun to sell franchises again thus adding high gross margin
revenue and profits. Third, we have continued to unlock shareholder value through the strategic re-
acquisition of franchises: Ontario, Canada; South Atlanta; and Orlando, Florida. As indicated, reacquired
corporate-operated locations continue to achieve strong organic growth. Our WII subsidiary has won
additional strategic municipal contracts to help grow the upper northeastern part of North America: Eastern
Michigan; Upstate New York; Ontario, Canada. These wins during the first third of the year will add critical
Water Intelligence plc
6
Chairman’s Statement
mass and momentum to the development of our operating platform. As we roll-out our new technologies
during Q2 and Q3, we will be reinforcing our brand definition setting the stage for further acceleration as
we head into 2020.
We are excited by the prospects for 2019. Our products and solutions cultivate a technology profile for the
marketplace. We see ourselves in this light and not in traditional analyst categories such as “support
services.” To date, water management has lagged behind other aspects of the smart home such as
information, gas and electric. We aim to change that and seek to capitalize on the “Insuretech” opportunity.
Our technology profile and recurring income from royalty and business-to-business channels enable us to
navigate towards a higher valuation multiple based on our asset characteristics.
We remain confident about delivering on our vision to create a world-class water infrastructure services
company. The addressable market is huge and technology is transforming the nature of solutions. We are
in a great position to help lead change with respect to a natural resource that is precious and inspires
passion.
Dr. Patrick DeSouza
Executive Chairman
8 May 2019
Water Intelligence plc
7
Strategic Report
Business Review and Key Performance Indicators
The Chairman’s Statement, on pages 3-7, 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 by the degree of
franchise-operated and corporate-operated locations and their respective priorities on residential,
business-to-business and municipal customers. 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 $100 million of sales to end-users of the brand that is expressed through direct sales via
corporate-operated locations and indirect sales measured by royalty income from franchisees, which, in
turn, is based on franchisee gross sales to end-users. With its installed and growing base of residential
customers, ALD can also upsell technology home services products to meet growing consumer demand
for solutions to water loss and water quality. Meanwhile, WII, our UK-based operation that the Group
acquired in Q4 2016, focuses on municipal solutions given the world-wide problem of failing water
infrastructure. WII’s solutions are also technology-centered. It is exclusively a corporate-run unit that will
lead the Group’s international expansion. WII does have the capability to execute ALD service offerings
and is currently doing so at our corporate-operated location in Sydney. WII also cross-sells
complementary municipal offerings to ALD.
The Group’s strategy includes both organic growth from ALD and WII solutions, as well as, unlocking
sales growth and shareholder value through acquisition, especially by selectively converting ALD
franchises to corporate-operated locations. In doing so, some amount of the $85 million in indirect sales
via our franchise System can be converted from royalty income to the Group’s direct P&L (currently
approximately $20 million of direct sales). One measure of unlocking value for shareholders from such
reacquisitions is based on our ability to grow converted corporate locations faster than would be the
case under franchisee operation. 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 royalty 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 capital formation by monitoring
the level of net borrowings.
Six key performance indicators (KPIs) are used by the board to monitor the above described business
model: (i) growth in ALD franchise royalty income, (ii) growth in ALD franchise-related activities that
include both business to business sales and sales of parts and equipment, (iii) growth in ALD corporate-
operated locations in the United States, (iv) growth in WII corporate activities located outside the United
States, (v) non-core costs and (vi) net borrowings. These six indicators are reported to the Board on a
monthly basis and used to assist the board in the management of the business.
2018 Conclusions Drawn From 6 KPIs:
i.
ii.
iii.
ALD Franchise System is expanding as indicated by royalty growth reinforcing our “One-Stop
Shop” distribution platform
ALD Business-to-Business Channel led by insurance jobs is expanding Franchise System
ALD Corporate-operated locations add to critical mass of Group revenue and profits and
selective reacquisitions from expanding our franchise System unlocks Group’s shareholder
equity value
iv. WII has achieved early traction and contributes complementary international municipal sales to
ALD brand
Non-core costs, largely legal transactions costs, are an acceptable tradeoff relative to the
operating benefits
Net-borrowing position is favorable for Group’s continued growth and business plan
v.
vi.
Water Intelligence plc
8
Strategic Report
Franchise Royalty Income.
(i)
The continued growth of the core ALD franchise business is the foundation for the business strategy of the
Group. ALD is the centerpiece of the Group’s distribution strategy as a “One-Stop Shop” platform because
of its sales footprint in 46 states of the US and multiple locations in Australia and Canada. Moreover,
because of the recurring nature of its royalty stream, the Group is able to increase shareholder value in its
capital formation with a mix of debt and equity. As System-wide franchisee sales increase, the Board can
decide whether to selectively reacquire franchises and convert them to corporate operated locations adding
critical mass of revenue and earnings to the Group or to keep adding high margin royalty income. Royalty
income in 2018 grew in absolute terms by 6% compared with 2017 despite significant reacquisitions during
2018 which had the effect of reducing the eligible pool of royalty income. Such royalty growth is attributable
in part to the benefits arising from the Group’s insurance channel which expands the franchise System.
Profits before tax from this business line grew by 1% as the Group reinvested by adding staff expenses to
further develop business-to-business partnerships to fuel future royalty growth. The Group has 105
franchises at the end of 2018 which represents a decrease of 4 franchises (2017: 109). The decreases
were the results of reacquisition and conversion into corporate-run locations. Performance from royalty
income is as follows:
Total USA
International
Total Group Royalty Income
Profit before tax (see note 4)
Year ended
31 December
2018
$'000
6,087
178
6,265
1,448
Year ended
31 December
2017
$'000
5,688
237
5,924
1,428
Change
%
7%
(25)%
6%
1%
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 of their respective 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. Jobs for franchisees are sourced by the Group from insurance companies
using a centralized processing system. The jobs are then dispatched to franchisees from corporate
administration. 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 grew
by 69% compared to 2017 largely because of the growth of the Group’s business to business channel.
Profits before tax grew 54% compared with 2017. Performance from franchise-related activities are as
follows:
Parts and equipment sales
Business-to-Business sales
Sales of Franchise Units
Total Revenue from US Other Activities
Profit before tax (see note 4)
Year ended
31 December
2018
$'000
1,076
5,023
55
6,154
484
Year ended
31 December
2017
$'000
1,039
2,601
10
3,649
315
Change
%
4%
93%
453%
69%
54%
Water Intelligence plc
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Strategic Report
U.S. Corporate Operated Locations.
(iii)
Corporate-run locations support the franchise System with marketing and execution support in further
developing territories. Performance of the US corporate-run locations is an indication of the success of the
Group’s strategy to selectively reacquire ALD franchises and open new locations to meet increasing market
demand for our minimally invasive leak detection and repair solutions. Corporate-operated locations
supplement royalty income and add a critical mass of revenue and profits directly to the Group accounts.
The Group directly operates 15 territories, an increase of 4 territory (2017: 11). Sales growth from
corporate-operated locations grew strongly both organically and from reacquisitions when compared with
2017.
This KPI table has been redesigned for 2018 to add information for the Board. We have begun to measure
the difference between corporate growth through reacquisitions of franchisees and corporate-operated
organic growth. We have included a line item for corporate locations owned during the comparison years.
Holding aside 2018 franchise reacquisitions, sales growth from corporate-operated locations owned prior to
2017 grew 34% to $8 million. Profit before taxes also grew both in absolute terms and, importantly in terms
of margin (2018:12%; 2017: 4%) despite increased reinvestment expense for accelerated sales growth.
Table (iii) also enables us to assess the trade-off between franchise royalty growth and corporate-operated
growth by examining yield in terms of Group profit before tax. Corporate store profit before tax amount to
$1.2 million. By comparison, ALD corporate-operated 2018 sales of $10.1 million would have produced
only approximately $0.28 million of profit before tax for the Group if such $10.1 million of sales to end-users
had originated from franchisees subject to a 7.25% royalty to the Group. ($10.1 million of sales multiplied
by 7.25% royalty equals approximately $0.73 million; and $0.73 million is then multiplied by 23% profit
margin of royalty income - see KPI #1 – to yield $0.28 million). The incremental profit of approximately $0.9
to 1 million of profits when derived from corporate operations ($1.21 million vs. $0.28 million) adds valuation
to the Group at its trading multiple. On the other hand, as a risk adjusted matter, recurring royalty revenue
is especially valuable for optimal capital formation through non-dilutive bank finance. The Board will use
this KPI to evaluate the trade-offs. Performance from corporate-operated locations is as follows:
Revenue
Full Year 2018 and 2017
New locations
Profit before tax (see note 4)
Year ended
31 December
2018
$'000
10,141
7,961
2,180
1,213
Year ended
31 December
2017
$'000
5,948
5,948
-
350
Change
%
70%
34%
N/A
247%
International Corporate Operated Locations.
(iv)
The Group continues to strengthen its multinational presence through its UK-based WII subsidiary. WII
was established during Q4 2016 with the acquisition of NRW Utilities Ltd. WII expanded its operational
scope by managing the corporate location established in Sydney, Australia after the reacquisition of a
former ALD franchisee.
The objective was for UK-based WII to lead the Group’s international expansion. Sales have grown
strongly at 39% during 2018 to $2.9 million. (2017: $2.1 million). Most importantly, within a year of
operations WII has had a sizeable swing of $0.2 million in moving from start-up losses to profits while still
achieving strong sales growth. Moreover, while still leading the Group’s international growth strategy, WII
is working during 2019 to accelerate the pace of cross-selling to the US, Australian and Canadian
operations of ALD unlocking shareholder value. Performance from Water Intelligence International is as
follows:
Water Intelligence plc
10
Strategic Report
Water Intelligence International
Sydney
Total Revenue from International
Corporate Activities
(Loss)/Profit before tax (see note 4)
Year ended
31 December
2018
$'000
1,628
1,279
Year ended
31 December
2017
$'000
1,398
696
Change
%
16%
83%
2,907
31
2,094
39%
(157)
Into profit
Non-Core Costs.
(v)
During 2018, the Group incurred what are considered to be non-core costs relating to (i) legal costs
relating to transactions executed for the future growth of the business and (ii) a prepayment issue for a
service that had not been performed at year end. As discussed herein, understanding non-core costs,
as distinct from continuing operating costs, enables the Board to evaluate capital allocation choices
made to accelerate operations organically and to scale through acquisition. In 2018, there were
$287,000 of non-core costs. During 2017, there were $198,000 of non-core costs. Please see table
below for details:
Product development legal costs
Corporate store extraordinary legal and post-acquisition
Pre-payment provision
Share reorganization and capital raising
Legal costs of acquisitions
Other legal costs
Total
Year ended
31 December 2018
$’000
60
32
60
-
-
135
287
Year ended
31 December 2017
$’000
-
-
-
141
19
38
198
Net Borrowings.
(vi)
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
macroeconomic environment, bank debt is a relatively cheaper cost of capital than equity. Despite the
growth of annual royalty income to $6.2 million which far exceeds the yearly amortization of the debt
the Board takes a conservative approach to capital formation. During 2018 net debt was eliminated
through a combination of an equity issuance and growth of cash from operations. Net cash is currently
approximately $2.6 million.
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 Borrowings/(Cash)
Water Intelligence plc
11
Year ended
31 December
2018
$'000
1,616
822
2,438
3,569
1,239
208
5,016
(2,578)
Year ended
31 December
2017
$'000
813
1,217
2,030
601
397
59
1,057
973
Strategic Report
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.
Other Risks
There is a risk that existing and new customer relationships and R&D will not lead to the sales growth.
The Group is reliant on a small number of skilled managers. Further, the Group is reliant on effective
relationships with its franchisees, especially in the US.
By order of the Board
Patrick DeSouza
Executive Chairman
8 May 2019
Water Intelligence plc
12
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 2018.
Principal Activities
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” 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 28 to
34.
2018 was marked by sustained and balanced multinational growth for both ALD and WII – ideal for
scaling of operations. Total revenue grew 45% and profit before tax grew 53% when compared
with 2017. Our ALD subsidiary grew revenue 45% and profit before tax 43% when compared with
2017. Our WII subsidiary grew revenue 39% and turned sharply from start-up losses in 2017 to
profits alongside its revenue growth in 2018. More generally, Water Intelligence 2018 results are
consistent with its 2016-18 CAGR of 45% revenue growth and 51% profit before tax growth and
faster than its 2014-18 CAGR of 37% revenue growth and 32% profit before tax growth. The splits
between ALD and WII revenue remained consistent with 2017 with approximately 88.6% of total
revenue attributable to ALD and 11.4% of total sales attributable to WII.
Going Concern
The Directors have prepared a business plan and cash flow forecast for the period to April 2020. The
forecast contains certain assumptions about the level of future sales and the level of margins achievable.
These assumptions are the Directors’ best estimate of the future development of the business. The
Directors acknowledge that the Group in the near-term is funded mainly on cash generation by its
profitable US-based franchise business, ALD. However, the Directors also note that the Group has net
cash of $2.6 million on its balance sheet as of December 31, 2018 and have diversified its operations
further with WII. Moreover, after an oversubscribed capital raise in March 2017, the Directors believe that
funding will be available on a case-by-case basis for different additional initiatives. The Directors conclude
that the Group will have adequate cash resources both to pursue its growth plan and to accelerate
execution if it so chooses. The Directors are satisfied that the Group has adequate resources to continue
in operational existence for the foreseeable future and accordingly, continue to adopt the going concern
basis in preparing the financial statements.
Research Design & Development
Expenditure on research and development, all of which was undertaken by third parties not related to
the Group, was $64,285 (2017: $10,752). The Group’s focus is currently on reinvestment for
commercialization of products not pure R&D; however, Group is committed to anticipate market
demands and has spent money on product development during the year, which has been capitalised.
Dividends
The Directors do not recommend the payment of a dividend (2017: $nil).
Share Price
On 31 December 2018, the closing market price of Water Intelligence plc ordinary shares was 233.0
pence. The highest and lowest prices of these shares during the year to 31 December 2018 were 450.0
pence and 171.5 pence respectively.
Water Intelligence plc
13
Directors’ Report
Capital Structure
Details of the authorised and issued share capital are shown in Note 21. No person has any special
rights of control over the Company’s share capital and all issued shares are fully paid.
Future Developments
Future developments are outlined in the Outlook section of the Chairman’s Statement on page 6.
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 17 January 2019, the Company announced that Bobby Knell would replace John Weigold as a director
on the Board of the Company, pending regulatory checks. This confirmation of this appointment was
announced on 12 March 2019. Bobby had been serving as a managing director at Water Intelligence
responsible for franchise relations for the last four years. Prior to this role, Mr. Knell founded and grew
the Dallas franchise of American Leak Detection into a multimillion dollar operation; an operation now run
by his son.
On 5 February 2019, the Company announced a series of corporate activity, including the acquisition of
Ontario (Niagara) franchise, expanding the Group’s corporate presence into Canada and upstate New
York; the sale of a new franchise territory for Youngstown, Ohio and financial support to a franchisee in
Idaho, accelerating its expansion into municipal offerings. In addition, the formal launch of the ORCA
municipal sewer product into the United States was announced.
On 7 March 2019, the Company announced the acquisition of its South Atlanta and Southern Georgia
franchise. This territory will be used to create a regional corporate presence to help accelerate
development of southeastern franchises. In addition, the franchise owner has agreed to stay with
American Leak Detection and open a new corporate location given his experience.
On 28 March 2019, the Company announced the acquisition of its Orlando, Florida franchise. The
acquisition enables the Group to set up another regional office in Florida to support the growth of the ALD
business throughout the southeast United States. Together, Orlando and Miami provide a critical mass of
operating personnel to grow the entire southeast United States providing residential, commercial and
municipal solutions. During 2H, the Company will be opening a Water Intelligence International office in
either Miami or Orlando in order to advance the Group's municipal line of business.
On 4 April 2019, the Company announced the sale of a territory in Southern Georgia. This territory was
undeveloped and used to be part of the franchise acquired by the Company on 7 March 2019. This
transaction allows for optimization of franchise territory in the region and could be a model across the US
enabling more sales coverage in support of our national channels and incentivizing ever greater
collaboration among corporate and franchise operations towards execution of our growth plan.
On 4 April 2019 the Board granted 475,000 options with an exercise price of 475p and a four-year vesting
requirement to employees and directors to incentivized continued high performance. In addition, a further
50,000 options with an exercise price of 350p and a four-year vesting requirement were issued to vendors
of reacquired franchises in 2019 and who are remaining in the employment of the Group.
On 25 April 2019, the Company announced five new municipal contracts in the US to be launched in Q2
by WII to underscore its value-add in cross-selling to territories being developed by ALD.
On 1 May 2019, the Company announced the launch of its third national insurance contract with a major
US insurance company and the expansion of its business-to-business channel.
Water Intelligence plc
14
Directors’ Report
The provisional fair values of the acquisitions subsequent to year end are detailed below:
Ontario
$’000
Orlando
$’000
Atlanta
$’000
Totals
$’000
Fair value of assets and liabilities acquired
Equipment
Vehicles
Other
Net assets acquired
41,224
51,435
125,140
217,799
27,800
46,300
-
74,100
-
-
-
-
69,024
97,735
125,140
291,899
Consideration
Cash
Deferred consideration – discounted to present
value
Total consideration
665,134
76,000
741,134
673,000
471,698
1,144,698
250,000
175,000
425,000
1,588,134
722,698
2,310,832
Intangible asset arising on acquisition
523,335
1,070,598
425,000
2,018,933
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 (Resigned 16 January 2019)
Bobby Knell (Appointed 12 March 2019)
Non-Executive Directors
Laura Hills (Appointed 6 March 2018)
Michael Reisman
David Silverstone
Robert Mitchell (Resigned 6 March 2018)
The biographical details of the Directors of the Company are set out on the Company’s website
www.waterintelligence.co.uk
Water Intelligence plc
15
Directors’ emoluments
2018
Executive Directors
P DeSouza
J Weigold
Non-Executive Directors
D Silverstone
L Hills
M Reisman
2017
Executive Directors
P DeSouza
Non-Executive Directors
D Silverstone
R Mitchell
M Reisman
J Weigold
Directors’ Report
Salary, Fees &
Bonus
Benefits Redundancy
$
$
479,417
125,000
22,455
-
21,000
20,000
20,000
-
-
-
665,417
22,455
$
-
-
-
-
-
Salary, Fees &
Bonus
Benefits Redundancy
$
450,000
21,000
103,645
21,000
15,000
610,645
$
-
-
-
-
-
-
$
-
-
-
-
-
-
Total
$
501,872
125,000
21,000
20,000
20,000
687,872
Total
$
450,000
21,000
103,645
21,000
15,000
610,645
Directors’ interests
The Directors who held office at 31 December 2018 and subsequent to year end had the following direct
interest in the ordinary shares of the Company at 31 December 2018 and at the date of this report,
excluding the shares held by Plain Sight Systems, Inc.:
Patrick DeSouza*
Michael Reisman*
David Silverstone
Jon Weigold
Laura Hills
Number of shares at
31 December 2018
4,192,110
173,466
-
-
89,331
% held at 31
December 2018
27.52
1.14
-
-
0.59
Number of shares at
8 May 2019
4,192,110
173,466
-
-
89,331
% held at 8 May
2019
27.52
1.14
-
-
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.
Water Intelligence plc
16
Directors’ Report
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.
State Street Nominees Limited
Amati AIM VCT
George D. Yancopoulos
Oryx International Growth Fund Limited
Number of shares
2,430,000
984,752
814,200
656,166
604,500
% held
19.98
7.09
5.34
4.31
3.97
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 UK LLP has expressed their willingness to continue in office. In accordance with section 489 of
the Companies Act 2006, resolutions for their re-appointment and to authorise the Directors to determine
the Independent Auditors’ remuneration will be proposed at the forthcoming Annual General Meeting.
Statement of disclosure to the Independent Auditor
Each of the persons who are directors at the time when this Directors' report is approved has
confirmed that:
so far as that director is aware, there is no relevant audit information of which the Company and the
Group's auditor is unaware; and
that director has taken all the steps that ought to have been taken as a director in order to be
aware of any relevant audit information and to establish that the Company and the Group's
auditor is aware of that information.
By order of the Board
Patrick DeSouza
Executive Chairman
8 May 2019
Water Intelligence plc
17
Corporate Governance
As a Board, we believe that practising good Corporate Governance is essential for building a successful
and sustainable business in the long-term interests of all stakeholders. Water Intelligence’s shares are
listed on AIM, a market operated by the London Stock Exchange.
With effect from September 2018, Water Intelligence has adopted the QCA Corporate Governance Code.
The Company has adopted a share dealing code for the Board and employees of the Company which is
in conformity with the requirements of Rule 21 of the AIM Rules for Companies. The Company takes steps
to ensure compliance by the Board and applicable employees with the terms of such code.
The following pages outline the structures, processes and procedures by which the Board ensures that
high standards of corporate governance are maintained throughout the Group.
Further details can be found on our website at www.waterintelligence.co.uk/corporate-board-and-
governance.
Takeovers and Mergers
The Company is subject to The City Code on Takeovers and Mergers.
Board
The Board, chaired by Patrick DeSouza, comprises two executive and three non-executive directors and it
oversees and implements the Company’s corporate governance programme. As Chairman, Dr. DeSouza
is responsible for the Company’s approach to corporate governance and the application of the principles
of the QCA Code. Michael Reisman and Laura Hills are the Company’s independent directors. The Board
is supported by two committees: audit and remuneration. The Board does not consider that it is of a size
at present to require a separate nominations committee, and all members of the Board are involved in the
appointment of new directors.
Each Board member commits sufficient time to fulfill their duties and obligations to the Board and the
Company. They are required to attend at least 4 Board meetings annually and join Board calls that take
place between formal meetings and offer availability for consultation when needed.
Board papers are sent out to all directors in advance of each Board meeting including management
accounts and accompanying reports from those responsible.
Meetings held during the period between 1 January 2018 and 31 December 2018 and the attendance of
directors is summarised below:
Patrick DeSouza
John Weigold
Michael Reisman
David Silverstone
Laura Hills (appointed 6
March 2018)
Robert Mitchell
(resigned 6 March 2018)
Board meetings
Possible (attended)
6/6
6/6
6/6
6/6
4/4
2/2
Audit committee
Possible (attended) Possible (attended)
Remuneration committee
2/2
2/2
1/1
1/1
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 member of the
Committee is David Silverstone. 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.
Water Intelligence plc
18
Corporate Governance
(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.
Board Experience
All five members of the board bring complementary skill sets to the Board. One director is female and four
are male. The board believes that its blend of relevant experience, skills and personal qualities and
capabilities is sufficient to enable it to successfully execute its strategy. In addition, the Board receives
regular updates from, amongst others, its nominated adviser, legal counsel and company secretary in
relation to key rule changes and corporate governance requirements, as well as regular liaison with audit
firms both in the UK and the US in respect of key disclosure and accounting requirements for the group,
especially as accounting standards evolve. In addition, each new director appointment is required to
receive AIM rule training from the Company’s nominated adviser at the time of their appointment.
Patrick J. DeSouza, Executive Chairman
Term of office: Appointed as Executive Chairman in July 2010.
Background and suitability for the role: Dr. DeSouza was Chief Executive Officer of American Leak
Detection prior to its reverse merger to create Water Intelligence plc. He is a graduate of Columbia
College, the Yale Law School and Stanford Graduate School. He has 25 years of operating and advisory
leadership experience with both public and private companies in the defence, software/Internet and asset
management industries. Over the course of his career, Dr. DeSouza has had significant experience in
corporate finance and cross-border mergers and acquisition transactions. He has practised corporate and
securities law as a member of the New York and California bars. Dr. DeSouza has also worked at the
White House as Director for Inter-American Affairs on the National Security Council. He is the author of
Economic Strategy and National Security (2000) and has been a visiting lecturer at Yale Law School.
Bobby Knell, Executive Director
Term of office: Appointed March 2019.
Background and suitability for the role: Bobby has been serving as a managing director at Water
Intelligence responsible for franchise relations for the last four years. Prior to this role, Bobby founded
and grew the Dallas franchise of American Leak Detection into a multimillion dollar operation; an
operation now run by his son. His appointment allows the alignment of interests between corporate
operations and the growing American Leak Detection franchise business to continue growing strongly.
Michael Reisman, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 30 July 2010.
Background and suitability for the role: Professor Reisman currently serves as Myres S. McDougal
Professor of International Law at the Yale Law School, where he has been on the faculty since 1965 and
has previously been a visiting professor in Tokyo, Berlin, Basel, Paris, Geneva and Hong Kong. He is a
graduate of Yale Law School. Professor Reisman is the President of the Arbitration Tribunal of the Bank
for International Settlements and a member of the Advisory Committee on International Law of the
Department of State. He has served as arbitrator and counsel in many international cases. He was also
President of the Inter-American Commission on Human Rights of the Organization of American States.
Because of his experience and the international character of the Company, Professor Reisman leads
matters of governance and remuneration.
Water Intelligence plc
19
Corporate Governance
Laura Hills, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 6 February 2018.
Background and suitability for the role: Laura has more than 30 years’ experience as a legal professional,
having spent 10 years working for the Overseas Private Investment Corporation (OPIC), where she
served as Associate General for the agency’s finance program, supervising a team of lawyers on all
finance transactions ranging from micro-lending and small business to multi-creditor infrastructure project
financing in emerging market countries. Prior to this, she spent time in Argentina where she served as a
foreign associate to various practices, with a focus on international trade, tax and domestic antitrust
issues. Since 2002, Ms. Hills has worked at Hills, Stern & Morley LLP, an emerging markets legal
boutique based in Washington D.C. Given her background in finance and transactions, Laura heads the
Audit Committee. Laura holds undergraduate, graduate and law degrees from Stanford University. Laura
brings considerable expertise in negotiating on infrastructure and renewables related transactions
globally.
David Silverstone, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 6 February 2018, having previously been an
Executive Director since November 2011.
Background and suitability for the role: David has been involved in water issues since the early 1970s. He
served as Connecticut’s first consumer advocate on utility issues from 1974 to 1977. He then practiced
law focusing on utility issues representing water, electric and gas utilities, consumer groups, large
consumers and small power producers until 1999. From 1999 to 2000 he was Group Vice-President and
Chief Administrative Officer of The Southern Connecticut Gas Company, a local gas distribution company.
From 2001 until his retirement in 2008 he was Chief Executive Officer of the South Central Connecticut
Regional Water Authority based in New Haven, Connecticut. The Authority has over 400,000 consumers,
1600 miles of pipe, and an annual operating budget of over $75 million. Since his retirement he has been
Chairman and Chief Executive Officer of Science Park Development Corporation, a non-profit company
charged with the redevelopment of commercial space adjacent to Yale University into a high
tech/bioscience mixed use development. Mr. Silverstone graduated from Lehigh University with a B.A, and
from Columbia University School of Law with a J.D. David’s experience in the water sector provides the
Board with additional insight and knowledge as to how to work with the wider water industry
The Group has a non-Board Chief Financial Officer, Pat LaMarco, who reports regularly to the Executive
Directors and assist in the preparation of Board materials and in reviewing the budget and ongoing
performance.
The Company Secretary is responsible for ensuring that Board procedures are followed and that all
applicable rules and regulations are complied with. Adrian Hargrave currently performs the role of
Company Secretary, providing an advisory role to the Board. The Company Secretary is supported and
guided in this role by the Company’s legal advisors.
The Directors have access to the Company’s CFO, NOMAD, Company Secretary, lawyers and auditors
as and when required and are able to obtain advice from other external bodies when necessary.
Board Performance and Effectiveness
The performance and effectiveness of the Board, its committees and individual Directors is reviewed by
the Chairman and the Board an ongoing basis. Training is available should a Director request it, or if the
Chairman feels it is necessary. The performance of the Board is measured by the Chairman and Michael
Reisman, one of the non-executive directors, with reference to the Company’s achievement of its strategic
goals.
Risk Management
Water Intelligence plc
20
Corporate Governance
The Directors recognise their responsibility for the Group’s system of internal control and have established
systems to ensure that an appropriate and reasonable level of oversight and control is provided. The
Group’s systems of internal control are designed to help the Group meet its business objectives by
appropriately managing, rather than eliminating, the risks to those objectives. The controls can only
provide reasonable, not absolute, assurance against material misstatement or loss.
The Executive Chairman with the assistance of the Company Secretary and the Chief Financial Officer
manages a risk register for the group that identifies key risks in the areas of corporate strategy, financial,
clients, staff, environmental and the investment community. The Governance Committee of the board are
provided with a copy of the register. The register is reviewed periodically and is updated as and when
necessary.
Within the scope of the annual audit, specific financial risks are also evaluated in detail, including in
relation to foreign currency, interest rates, debt covenants, taxation and liquidity.
The annual budget is reviewed and approved by the Board. Financial results, with comparisons to budget
and latest forecasts are reported on a monthly basis to the Board together with a report on operational
achievements, objectives and issues encountered. Significant variances from plan are discussed at Board
meetings and actions set in place to address them.
Approval levels for authorisation of expenditure are at set levels throughout the management structure
with any expenditure in excess of pre-defined levels requiring approval from the Executive Chairman and
the Chief Financial Officer.
Measures continue to be taken to review and embed internal controls and risk management procedures
into the business processes of the organisation and to deal with areas of improvement which come to the
management’s and the Board’s attention. We expect the internal controls for the business to change as
the business expands both geographically and in terms of product development.
The Company’s auditors are encouraged to raise comments on internal control in their management letter
following their audit, and the points raised and actions arising are monitored through to completion by the
Audit Committee.
Corporate Culture
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. There is a
professional Human Resources Director, Ann Tennero. Ms.Tennero reports to David Silverstone who is
responsible at the Board level. Mr. Silverstone ensures that the Group’s policies are upheld and providing
the necessary resources. All members of the Board have significant experience in matters of public policy.
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 an employee handbook that is provided to all employees upon starting their employment
within the Group.
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.
Water Intelligence plc
21
Corporate Governance
In addition, all directors and senior employees are required to abide by the Group’s share dealing code,
which was updated in 2016 to reflect changes made to legislation following the introduction of the Market
Abuse Regulation.
Audit Committee Annual Review
The role of the Audit Committee is to monitor the quality of internal controls and check that the financial
performance of the Group is properly assessed and reported on. It receives and reviews reports from the
Chief Financial Officer, other members of management and external auditors relating to the interim and
annual accounts and the accounting and internal control systems in use throughout the Group. The
members of the Audit Committee are Laura Hills (Chairman) and David Silverstone.
The Executive Chairman and Chief Financial Officer are invited to attend parts of meetings, with other
senior financial managers required to attend when necessary. The external auditors attend meetings to
discuss the planning and conclusions of their work and meet with the members of the Committee. The
Committee is able to call for information from management and consults with the external auditors directly
as required.
The objectivity and independence of the external auditors is safeguarded by reviewing the auditors’ formal
declarations, monitoring relationships between key audit staff and the Company and tracking the level of
non-audit fees payable to the auditors.
The Committee met twice during the year, to review the 2017 annual accounts and the interim accounts to
30 June 2018. The Committee reviewed with the independent auditor its judgements as to the
acceptability of the Company’s accounting principles.
In particular, the Committee discussed the application of the new accounting standards, IFRS9 and
IFRS15, and the future application of IFRS16. The Committee reviewed and discussed the auditor’s
comments on improvements which could be made to the internal controls. In addition, the Committee
monitors the auditor firm’s independence from Company management and the Company.
Remuneration Committee Annual Review
The Remuneration Committee convenes not less than once a year and during the year it met on one
occasion. The Committee comprises Michael Reisman and Laura Hills, with Michael Reisman as
Chairman. The Remuneration Committee is responsible for reviewing the performance of Executive
Directors and determining the remuneration and basis of service agreement. The Remuneration
Committee also determines the payment of any bonuses to Executive Directors and the grant of options.
Where appropriate the Committee consults the Executive Chairman regarding its proposals. No Director
plays a part in any discussion regarding his or her own remuneration.
Relations with Shareholders
The Company is available to hold meetings with its shareholders to discuss objectives and to keep them
updated on the Company’s strategy, Board membership and management.
The board also welcome shareholders’ enquiries, which may be sent via the Company’s website
www.waterintelligence.co.uk.
Water Intelligence plc
22
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
the Group's website
available on a website. Financial Statements are published on
(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
Water Intelligence plc
23
Statement of Directors’ Responsibilities
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 2018, which comprise:
the Group statement of comprehensive income for the year ended 31 December 2018;
the Group and parent company statements of financial position as at 31 December 2018;
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 2018 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.
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 $165,000, based on a measure of profit before taxation. We
Water Intelligence plc
24
Independent Auditors’ report to the members of
Water Intelligence plc
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 $5,000. 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.
This is not a complete list of all risks identified by our audit.
Key audit matter
Revenue recognition
How the scope of our audit addressed the key
audit matter
Our audit procedures consisted of:
from
financial statements.
Revenue is recognised in accordance
with the accounting policy set out in
This
the
includes the transition to IFRS 15 –
Revenue
contracts with
customers. The accounting policy
contains a number of judgements,
particularly in recognising when the
risks and rewards of ownership have
is
passed
the buyer.
the
determined with reference
the
underlying
purchaser.
This
to
contract
with
to
Impairment of intangible assets
to
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.
Reviewing management’s assessment of the impact of
IFRS 15 on the revenue streams in the business and the
accounting policies
Validating that revenue is recognised in accordance with
the accounting policies through testing an appropriate
sample of income from each revenue stream.
Assessing the appropriateness of the related
disclosures in the financial statements.
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
Water Intelligence plc
25
Independent Auditors’ report to the members of
Water Intelligence plc
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.
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.
Water Intelligence plc
26
Independent Auditors’ report to the members of
Water Intelligence plc
Responsibilities of the directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 18, 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.
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 U.K. LLP
Statutory Auditor
St Brides House
10 Salisbury Square
London
EC4Y 8EH
8 May 2019
Water Intelligence plc
27
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2018
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
Notes
4
7
13
8
9
10
Year ended
31 December
2018
$
25,466,651
Year ended
31
December
2017
$
17,615,178
(5,669,616)
(3,334,101)
19,797,035
14,281,077
48,027
(104,652)
(327,201)
(17,450,905)
33,671
(62,397)
(317,259)
(12,668,525)
(17,834,731)
(13,014,510)
1,962,304
28,003
1,266,567
13,928
(235,957)
(135,461)
1,754,350
(468,624)
1,285,726
1,145,034
(286,330)
858,704
1,294,701
(8,975)
1,285,726
913,250
(54,546)
858,704
Other Comprehensive Income
Exchange differences arising on translation of foreign
operations
Total comprehensive profit for the year
24
(439,517)
(39,038)
846,209
819,666
Attributable to:
Equity holders of the parent
Non-controlling interests
Profit per share attributable to equity holders of Parent
Basic
Diluted
11
11
The results reflected above relate to continuing activities.
855,184
(8,975)
846,209
Cents
9.7
9.1
874,212
(54,546)
819,666
Cents
8.0
7.5
The accompanying notes on pages 35 to 66 are an integral part of these financial statements.
Water Intelligence plc
28
Consolidated Statement of Financial Position
as at 31 December 2018
Notes
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
13
13
14
17
16
17
18
21
21
21
21
23
12
20
19
23
12
2018
$
2017
$
6,254,967
2,423,565
1,732,527
618,005
11,029,064
451,465
4,211,981
5,016,406
9,679,852
20,708,916
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
101,915
6,887,739
-
1,001,150
239,740
(743,198)
(27,758,088)
33,246,277
12,975,535
65,305
980,436
(210,150)
1,001,150
135,088
(303,681)
(27,758,088)
32,021,892
5,931,952
100,499
39,158
1,448,303
879,307
316,221
2,643,831
1,635,311
374,600
115,233
2,125,144
2,550,280
989,736
1,449,035
4,989,051
20,708,916
1,428,509
394,525
559,999
2,383,033
10,479,287
The financial statements of Water Intelligence plc, company number 03923150, were approved by the
board of Directors and authorised for issue on the 8 May 2019. They were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 35 to 66 are an integral part of these financial statements.
Water Intelligence plc
29
Company Statement of Financial Position
as at 31 December 2018
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
2018
$
2017
$
15
17
18
21
21
21
19
6,971,382
6,971,382
7,411,412
7,411,412
4,818,232
48,164
4,866,396
11,837,778
1,750,787
76
1,750,863
9,162,275
101,915
6,887,739
-
1,001,150
239,740
(2,013,369)
5,360,880
11,578,055
65,305
980,436
(210,150)
1,001,150
135,088
(1,472,274)
6,055,205
6,554,760
259,723
259,723
2,607,515
2,607,515
11,837,778
9,162,275
The loss for the financial year in the financial statements of the parent Company was $694,325 (2017:
costs $601,301), which related entirely to Plc costs.
The financial statements of Water Intelligence plc, company number 03923150, were approved by
the board of Directors and authorised for issue on the 8 May 2019. They were signed on its behalf
by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 35 to 66 are an integral part of these financial statements.
Water Intelligence plc
30
Consolidated Statement of Changes in Equity
for the year ended 31 December 2018
Share
Capital
$
Share
Premium
$
Shares
held in
Treasury
$
Capital
Redemption
Reserve
$
Reverse
Acquisition
Reserve
$
Merger
Reserve
$
Share
based
payment
reserve
$
Foreign
exchange
reserve
$
Retained
(Losses)/
Earnings
$
Non-
controlling
interest
$
Total
$
Total
Equity
$
As at 1 January 2017
64,257
926,787
Issue of Ordinary Shares
1,048
53,649
-
-
-
-
(27,758,088)
1,001,150
72,691
(264,643)
31,108,642
5,150,796
93,704
5,244,500
-
-
-
-
-
54,697
Share buyback
-
-
(210,150)
- - - - - -
(210,150)
Share-based payment expense
-
-
Profit for the year
-
-
Other comprehensive loss
-
-
-
-
-
--
-
-
-
-
-
-
-
-
62,397
-
-
-
-
-
-
62,397
-
-
-
-
913,250
913,250
(54,546)
858,704
(39,038)
-
(39,038)
-
(39,038)
-
-
-
54,697
(210,150)
62,397
As at 31 December 2017
65,305
980,436
(210,150)
As at 1 January 2018
65,305
980,436
(210,150)
Issue of Ordinary Shares
Purchase Non-controlling
interest (NWAR)
36,610
5,907,303
210,150
-
Share-based payment expense
-
Capital Contribution by non-
controlling interests
-
Profit for the year
-
-
Other comprehensive loss
-
-
As at 31 December 2018
101,915
6,887,739
-
-
-
-
-
--
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(27,758,088)
1,001,150
135,088
(303,681)
32,021,892
5,931,952
39,158
5,971,110
(27,758,088)
1,001,150
135,088
(303,681)
32,021,892
5,931,952
39,158
5,971,110
-
-
-
-
-
-
-
-
-
6,154,063
-
6,154,063
(70,316)
(70,316)
(29,684)
(100,000)
-
-
-
104,652
-
104,652
104,652
-
-
-
-
-
--
-
-
-
-
-
-
-
1,294,701
-
-
100,000
100,000
1,294,701
(8,975)
1,285,726
-
(27,758,088)
1,001,150
239,740
(743,198)
33,246,277
12,975,535
100,499
13,076,034
-
(439,517)
-
(439,517)
-
(439,517)
The accompanying notes on pages 35 to 66 are an integral part of these financial statements.
Water Intelligence plc
31
Company Statement of Changes in Equity
for the year ended 31 December 2018
Share
Capital
$
64,257
Share
Premium
$
926,787
1,048
53,649
-
-
-
-
-
-
-
-
Shares held
in Treasury
$
-
-
(210,150)
-
-
-
65,305
65,305
980,436
(210,150)
980,436
(210,150)
36,610
5,907,303
210,150
-
-
-
-
-
-
101,915
6,887,739
-
-
-
-
Capital
Redemption
Reserve
$
Merger
Reserve
$
Share
based
payment
reserve
$
Foreign
exchange
reserve
$
Retained
(Losses)/
Earnings
$
Total Equity
$
-
-
-
-
-
-
-
-
-
-
-
-
-
1,001,150
72,691
(1,919,342)
6,656,506
6,802,049
-
-
-
-
-
-
-
62,397
-
-
-
-
-
-
-
-
-
54,697
(210,150)
62,397
(601,301)
(601,301)
447,068
-
447,068
1,001,150
135,088
(1,472,274)
6,055,205
6,554,760
1,001,150
135,088
(1,472,274)
6,055,205
6,554,760
-
-
-
-
-
104,652
-
-
-
-
-
-
-
6,122,424
104,652
(694,325)
(694,325)
(541,095)
-
(541,095)
1,001,150
239,740
(2,013,369)
5,360,880
11,578,055
As at 1 January 2017
Issue of Ordinary Shares
Share buyback
Share-based payment expense
Profit for the year
Other comprehensive loss
As at 31 December 2017
As at 1 January 2018
Issue of Ordinary Shares
Share-based payment expense
Profit for the year
Other comprehensive loss
As at 31 December 2018
The following describes the nature and purpose of each reserve within owners’ equity:
Share capital
Share premium
Amount subscribed for share capital at nominal value.
Amount subscribed for share capital in excess of nominal value.
Shares held in treasury
Amounts received for buyback of shares
Merger reserve
Non-distributable reserve arising on reverse acquisition.
Share based payment reserve
Amounts recognised for the fair value of share options granted in accordance with IFRS 2.
Foreign exchange reserve
Foreign exchange differences on re-translation.
Retained profits/(losses)
Cumulative net profits/(losses) recognised in the Financial Statements.
The accompanying notes on pages 35 to 66 are an integral part of these financial statements.
Water Intelligence plc
32
Consolidated Statement of Cash Flows
for the year ended 31 December 2018
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
Year ended
31 December
2018
$
Year ended
31 December
2017
$
1,754,350
`
355,897
327,201
104,652
235,957
(28,003)
1,145,034
168,817
317,259
62,397
135,461
(13,928)
Operating cash flows before movements in working capital
2,750,054
1,815,040
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
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
(91,492)
(1,950,597)
682,256
(32,471)
(654,040)
(30,301)
1,390,221
1,098,228
(267,636)
(476,178)
1,122,585
622,050
(789,591)
(352,574)
(330,174)
(1,762,917)
28,003
(3,207,253)
36,610
5,907,302
210,150
(235,957)
926,472
(518,270)
6,326,307
4,241,639
774,767
5,016,406
(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
The accompanying notes on pages 35 to 66 are an integral part of these financial statements
Water Intelligence plc
33
Company Statement of Cash Flows
for the year ended 31 December 2018
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
2018
$
Year ended
31 December
2017
$
(694,325)
(601,301)
104,652
(589,673)
(3,067,445)
(2,448,857)
62,397
(538,904)
(592,344)
1,017,992
(6,105,975)
(113,256)
-
(6,105,975)
-
(113,256)
36,610
5,907,303
210,150
6,154,063
1,048
53,649
(210,150)
(155,453)
48,088
(268,709)
76
268,785
48,164
76
The accompanying notes on pages 35 to 66 are an integral part of these financial statements.
Water Intelligence plc
34
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 and repair 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 27-28
Eastcastle Street, London W1W 8DH.
The Company is listed on AIM of the London Stock Exchange. These Financial Statements were
authorised for issue by the Board of Directors on 8 May 2019.
Adoption of new and revised International Financial Reporting Standards
2
A number of new and revised standards, including IFRS 9 and 15, are effective for annual periods
beginning on or after 1 January 2018. Adoption of these standards, on a modified retrospective basis,
has not had an impact on the Group’s financial statements, except the following, set out below:
IFRS 9 Financial Instruments came into effect on 1 January 2018 and impacted the rules
relating to the classification, measurement and impairment of financial assets. The Group
holds all financial assets with the intention of collecting the contractual cash flows, and no
contractual terms have failed the “solely payments of principal and interest” test. In addition,
moving from the “incurred credit loss” model under IAS 39 to the “expected credit loss model”
had no effect on the results for the year ending 31 December 2017.
IFRS 15 (Revenue from Contracts with Customers) came into effect on 1 January 2018
replacing IAS 18 Revenue and related interpretations. It dealt with revenue recognition and
established principles for reporting useful information to users of financial statements about
the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s
contracts with customers. Revenue is recognized when a customer obtains control of a good
or service and thus has the ability to direct the use and obtain the benefits from the good or
service. The Group has carried out a review of existing contractual arrangements as part of
this process to identify the customer contracts, the performance obligations, the transaction
price and when the performance obligation is satisfied, and has determined that there was no
material impact on the Group’s revenue streams as set out in the sub-section “Revenue
Recognition” below. Particularly in respect of the sale of franchise territories, the Group will
monitor on an ongoing basis the correct apportionment for each such sale between opening
package fees, which are delivered upon or shortly after such a sale and territorial fees, which
are deferred over the length of the franchise agreement and released to the combined
statements of comprehensive income on a straight-line basis. The Group does not expect
such sales to be a material part of the Group’s revenue or income.
In addition, for the financial year commencing 1 January 2019, the Group and Company will adopt
IFRS 16, replacing IAS 17, in respect of its treatment of operating leases. On implementation of IFRS
16, the Group will recognise a right of use asset and corresponding liability in respect of its current
lease obligations.
As set out in note 22, the Group has a number of property and vehicle leases. The future aggregate
minimum lease payments under non-cancellable operating leases at 31 December 2018 was $833,150,
which would need to be fair valued and recognised as a liability on the consolidated balance sheet with
a right to use asset also recognised.
In 2018 the charge recognised in the consolidated income statement relating to operating leases was
$707,490 (2017: $640,154) and was disclosed within operating expenses. Under IFRS 16, this charge
would be reversed and a depreciation charge for the right of use asset would be recognised as well as
an interest charge on the liability. The group has calculated that on transition the group will recognize
Water Intelligence plc
35
Notes to the Financial Statements
a right-of-use asset and corresponding lease liability estimated at $0.8m. There is not expected to be
any material impact on the statement of comprehensive income.
3
Significant accounting policies
Basis of preparation
These Financial Statements of the Group and Company are prepared on a going concern basis,
under the historical cost convention (with the exception of share-based payments and goodwill) and
in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations
issued by the International Accounting Standards Board (IASB) and adopted by the European Union,
in accordance with the Companies Act 2006. The Parent Company’s Financial Statements have also
been prepared in accordance with IFRS and the Companies Act 2006.
The preparation of Financial Statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts
of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The Financial Statements are presented in US Dollars ($), 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
2020. 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 on a mixture of cash generation by
its profitable US-based, ALD franchise business and its existing cash position, as well as available
banking facilities. 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 2018. 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.
Water Intelligence plc
36
Notes to the Financial Statements
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 2018 is $624,009 (2017: $601,301).
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.
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
Water Intelligence plc
37
Notes to the Financial Statements
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 2018 was £1 = US$1.2670 (2017: £1 = US$1.2491). The average
exchange rate for the year 31 December 2017 were £1 = US$1.3354 (2017: £1 = US$1.2880).
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.
(ii) 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.
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 measured based on consideration to which the Group expects to be entitled in a contract
with a customer and excludes amounts collected on behalf of third parties.
The Group recognises revenue when it transfers control of a product or service to a customer.
Water Intelligence plc
38
Notes to the Financial Statements
Franchise royalty income
The Group receives royalties from franchisees in various percentages of their gross monthly sales.
Royalties are paid monthly in arrears based on the sales generated by franchisees in that month and
as such 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. In the case of Part and Equipment Sales,
revenue is recognised when the item is delivered to franchisees, in the case of business-to-business
sales, the sale is recognised when the franchisee is assigned the relevant work and in the case of
franchise sales, cash is typically irredeemably received upfront and are included in deferred income
until all set up requirements have been performed, with a small portion being recognised throughout
the life of the franchise agreement.
U.S. Corporate operated locations
Sales of other goods and products, in particular corporate-operated locations, 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. Except 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.
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.
Loans and receivables
Trade receivables, loans, and other receivables held with the objective to collect the contractual cash
flows are classified as subsequently measured at amortised cost. These are initially measured at fair
value plus transaction costs. At each period end, there is an assessment of the expected credit loss in
accordance with IFRS 9; with any increase or reduction in the credit loss provision charged or released
to other selling and administrative expenses in the statement of comprehensive income. IFRS 9 was
adopted as at 1 January 2018 and as permitted the prior year actuals comparatives were not restated.
Cash and cash equivalents
Cash and cash equivalents 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
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not
held at fair value through profit or loss. ECLs are based on the difference between the contractual
cash flows due in accordance with the contract and all the cash flows that the Group expects to
receive, discounted at an approximation of the original effective interest rate. The expected cash
flows will include cash flows from the sale of collateral held or other credit enhancements that are
integral to the contractual terms.
The Group always recognises lifetime expected credit losses ("ECL") for trade receivables and
contract assets. The expected credit losses on these financial assets are estimated using a provision
matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to
the debtors, general economic conditions and an assessment of both the current as well as the
forecast conditions at the reporting date, including time value of money where appropriate.
For all other financial instruments, the Group recognises lifetime ECL when there has been a
significant increase in credit risk since initial recognition. However, if the credit risk on the financial
instrument has not increased significantly since initial recognition, the Group measures the loss
allowance for that financial instrument at an amount equal to 12‑month ECL.
Water Intelligence plc
39
Notes to the Financial Statements
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
reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if
the asset’s carrying amount is greater than its estimated recoverable amount. Assets that are no
longer of economic use to the business are retired.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount
and are recognised within other (losses) or gains in the income statement.
Goodwill
Goodwill represents the excess of the fair value of the consideration over the fair values of the
identifiable net assets acquired.
Goodwill arising on acquisitions is not subject to amortisation but is subject to annual impairment
testing. Any impairment is recognised immediately in the Consolidated Statement of Comprehensive
Income and not subsequently reversed.
Other intangible assets
Intangible assets are recorded as separately identifiable assets and recognised at historical cost less
any accumulated amortisation. These assets are amortised over their definite useful economic lives
on the straight-line method.
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.
Water Intelligence plc
40
Notes to the Financial Statements
The asset’s residual values and economic lives are reviewed, and adjusted if appropriate, at each
balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount
if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount
and are recognised within other (losses) or gains in the Statement of Comprehensive Income.
Research and development
Research expenditure is recognised as an expense when incurred. Costs incurred on development
projects (relating to the design and testing of new or improved products) are recognised as intangible
assets when the following criteria are fulfilled.
It is technically feasible to complete the intangible asset so that it will be available for use or
resale;
Management intends to complete the intangible asset and use or sell it;
There is an ability to use or sell the intangible;
It can be demonstrated how the intangible asset will generate possible future economic
benefits;
Adequate technical, financial and other resource to complete the development and to use or sell
the intangible asset are available; and
The expenditure attributable to the intangible asset during its development can be reliably
measured.
Other development expenditures that do not meet these criteria are recognised as an expense in the
period incurred. Development costs previously recognised as an expense are not recognised as an
asset in a subsequent period. Capitalised development costs are recorded as intangible assets and
are amortised from the point at which they are ready for use on a straight-line basis over the asset’s
estimated useful life.
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that
is subject to risks and returns that are different from those of other business segments.
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.
Water Intelligence plc
41
Notes to the Financial Statements
The key judgements in respect of the preparation of the financial statements are in respect of the
accounting for acquisitions, determination of separately identifiable assets on acquisition, the
determination of cash generating units, the evaluation of segmental information, the evaluation of
whether there is any indication of any impairment in investments, intangibles, goodwill or receivables
and whether deferred tax assets should be recognized for tax losses.
The estimates and assumptions that have a risk of causing material adjustment to the carrying amounts
of assets and liabilities within the next financial year are the fair value of assets arising on acquisition
(see note 12), carrying value of the goodwill, the carrying value of the other intangibles (see note 13)
and the carrying value of the investments. Please see relevant notes for these areas.
4
Segmental Information
In the opinion of the Directors, the operations of the Group currently comprise five operating segments,
being (i) Franchise royalty income, (ii) Franchise-related activities (including product and equipment sales,
business-to-business sales and sales of franchises), (iii) U.S. 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 especially
Canada and Australia. No single customer accounts for more than 10% of the Group's total external
revenue.
The following is an analysis of the Group’s revenues and profits from operations and assets by
business segment.
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
One-Time costs
Total
Water Intelligence plc
42
Year ended
Year ended
31 December
31 December
2018
$
6,264,839
6,153,652
10,140,892
2,907,268
25,466,651
2017
$
5,924,353
3,649,200
5,947,805
2,093,820
17,615,178
Year ended
Year ended
31 December
31 December
2018
$
1,447,989
484,036
1,213,304
31,219
(1,135,435)
(286,762)
1,754,350
2017
$
1,427,858
315,099
349,609
(157,141)
(592,778)
(197,613)
1,145,034
Notes to the Financial Statements
Assets
Franchise royalty income
Franchise related activities
US corporate operated locations
International corporate operated locations
Total
Amortization
US corporate operated locations
International corporate operated locations
Total
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
Year ended
31 December
31 December
2018
$
8,946,370
1,764,171
7,648,032
2,350,344
2017
$
4,748,391
359,972
3,739,931
1,630,993
20,708,917
10,479,287
Year ended
Year ended
31 December
31 December
2018
$
298,357
28,844
327,201
2017
$
290,858
26,401
317,259
Year ended
31 December
2018
Year ended
31 December
2017
$
-
-
278,884
77,013
355,897
$
-
-
151,427
15,992
167,419
Year ended
31 December
2018
$
Year ended
31 December
2017
$
40
235,916
235,957
3,283
132,178
135,461
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 and corporate-operated
locations in Australia and Canada. Meanwhile, WII has corporate-operated activities outside the
Water Intelligence plc
43
Notes to the Financial Statements
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 indicated herein, the Group has had strong
balanced growth in the US and abroad and across ALD and WII. Between 2018 and 2017,
International/Outside the US has grown to $3.1 million from $2.3 million. However, the percentage
of International sales to Total sales has remained relatively constant at 12.1% (2017: 13.2%)
Total Revenue
Franchise
royalty income
Corporate
owned Stores
Franchise
related
activities
International
corporate
Total
Year ended 31 December 2018
Year ended 31 December 2017
US
$
International
$
Total
$
US
$
International
$
Total
$
6,087,083
177,756
6,264,849
5,687,764
236,590
5,924,354
10,140,892
- 10,140,892
5,947,805
6,153,652
-
6,153,652
3,649,200
-
-
5,947,805
3,649,200
-
2,907,268
2,907,268
-
2,093,820
2,093,820
22,381,627
3,085,024 25,466,651 15,284,769
2,330,410 17,615,179
5
Expenses by nature
The Group’s operating profit has been arrived at after charging:
Raw materials and consumables used
Employee costs
Operating lease rentals
Depreciation charge
Amortization charge
Marketing costs
R & D
Foreign exchange (gain)/loss
Auditors remuneration
Fees payable to the Company’s auditor for audit of
Parent Company and Consolidated Financial
Statements
Fees payables to the Company’s auditor for other
services (assurance related services)
Year ended
31 December
2018
$
661,264
9,579,521
Year ended
31 December
2017
$
851,482
7,313,155
Note
6
707,490
355,897
327,201
243,799
4,285
5,131
640,154
167,419
317,259
215,006
10,752
(8,162)
Year ended
31 December
2018
$
Year ended
31 December
2017
$
41,545
71,482
-
-
The Group auditors are not the auditors of the US subsidiary companies. The fees paid to the auditor
of the US subsidiary companies were $100,910 (2017: $125,445) for the audit of these companies
and $48,582 (2017: $nil) for other services.
Water Intelligence plc
44
Notes to the Financial Statements
6
Employees and Directors
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
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
2018
$
Year ended
31 December
2017
$
687,872
8,203,268
583,729
104,652
9,579,521
610,645
6,246,178
393,935
62,397
7,313,155
Year ended
31 December
2018
$
Year ended
31 December
2017
$
687,872
17,892
104,652
810,416
610,645
20,102
61,114
691,861
The highest paid Director received emoluments of $501,872 (2017: $450,000).
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
7
Share options
Year ended
31 December
2018
$
Year ended
31 December
2017
$
5
22
106
20
20
173
5
7
86
20
6
124
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.
Water Intelligence plc
45
Notes to the Financial Statements
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
2018
1,005,000
160,000
-
(310,000)
855,000
745,000
Weighted
average
exercise
price ($)
2018
1.02
3.36
-
0.86
1.43
Number
of share
options
2017
1,765,000
-
-
(80,000)
1,685,000
Weighted
average
exercise
price (£)
2017
1.12
-
-
0.67
1.15
1.08
1,005,000
1.02
Fair value of share options
During the year, the Group granted 160,000 Share Options to certain Employees, with exercise
prices ranging from of £2.25 to £3.48 ($3.15 to $4.52).
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 71.98p to 109.69p. This is based on risk-free
rates ranging from 1.24% to 1.44% and volatility ranging from 42% to 45%.
The Black Scholes calculations for the options granted during the year resulted in a charge of $104,652
(2017: $62,397) which has been expensed in the year. As the options granted prior to 2016 had no vesting
period, none of the charge expensed in 2018 related to options granted prior to 2016.
The weighted average remaining contractual life of the share options as at 31 December 2018 was 6.68
years (2017: 7.33 years).
Options arrangements that exist over the Company’s shares at year end and at the time of the report are
detailed below:
At report
date
Grant
317,500
ALDHC Plan (1)
250,000
2013 Directors (2)
177,500
2015 Options (3)
200,000
2016 Directors (4)
-
2016 Directors (4)
220,000
2016 Employee (5)
210,000
2016 Employee (5)
2018 Acquisition (6) 135,000
25,000
2018 Acquisition (7)
475,000
2019 Employee (8)
50,000
2019 Acquisition (9)
2018
317,500
250,000
177,500
200,000
-
220,000
210,000
135,000
25,000
-
-
2017
Date of
Grant
417,500 01/12/2013
250,000 01/08/2013
337,500 08/06/2015
200,000 13/06/2016
50,000 13/06/2016
220,000 19/12/2016
210,000 19/12/2016
- 06/03/2018
- 08/10/2018
- 04/04/2019
- 04/04/2019
Total
2,177,500
1,535,000
1,685,000
All share options are equity settled on exercise.
From
Exercise period
To
Exercise
price
01/12/2023
$1.14 01/12/2013
01/08/2023
$1.30 01/08/2013
08/06/2025
$0.67 08/06/2015
13/06/2026
$1.26 13/06/2016
13/06/2026
$0.92 13/06/2016
19/12/2026
$1.24 19/12/2019
19/12/2026
$1.56 19/12/2019
$3.15 06/03/2021 06/03/2028
$4.52 08/10/2021 08/10/2028
04/04/2029
$6.24 04/04/2023
04/04/2029
$4.59 04/04/2023
(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.
Water Intelligence plc
46
Notes to the Financial Statements
(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 options 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 vendors, retained as employees, were granted an option to purchase 135,000 New Ordinary
Shares at a price of $3.15 pursuant to the acquisition of a franchise based in Louisville, Kentucky. These options have
a three-year vesting requirement.
(7) On 8 October 2018, certain vendors, retained as employees, were granted an option to purchase 25,000 New Ordinary
Shares at a price of $4.52 pursuant to the acquisition of the territories around Portland, Oregon from a franchise. These
options have a three-year vesting requirement.
(8) On 4 April 2019, certain employees were granted options to purchase 475,000 New Ordinary Shares at a price of $6.24
based on 2018 performance and as an incentive for future performance. These options have a four-year vesting
requirement.
(9) On 4 April 2019, certain vendors, retained as employees, were granted options to purchase 50,000 New Ordinary Shares
at a price of $4.59 pursuant to the acquisition of franchises acquired in 2019. These options have a four-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.
8
Finance income
Interest income
9
Finance expense
Interest expense
Year ended
31 December
2018
$
28,003
Year ended
31 December
2017
$
13,928
Year ended
31 December
2018
$
235,957
Year ended
31 December
2017
$
135,461
Water Intelligence plc
47
Notes to the Financial Statements
Year ended
31 December
2018
$
Year ended
31 December
2017
$
10
Taxation
Group
Current tax:
Current tax on profits in the year
267,636
476,178
Prior year over provision
Total current tax
Deferred tax current year
Deferred tax prior year
Deferred tax (credit)/expense (note 20)
Income tax expense
-
267,636
200,988
-
476,178
(189,848)
-
-
200,988
468,624
(189,848)
286,330
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
(2018: 26.7% versus 2017: 25%)
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 recognized
Adjust deferred tax rate to 25%
Changes in rates
1,754,350
1,145,034
366,568
398,289
19,737
-
11,946
69,988
(6,925)
-
-
7,310
65,187
2,996
(1)
43,377
(82,657)
87,340
903
(229,104)
Taxation expense recognized in income statement
468,624
286,330
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.
As also set forth, in Note 20, at the balance sheet date, the Group’s UK trading operations had unused
tax losses of £4,276,906 (2017: £3,473,249) available for offset against future profits. £727,074 (2017:
£593,205) represents unrecognized deferred tax assets thereon at 17%. The deferred tax asset has not
been recognized due to uncertainty over timing of utilization.
The effective rate for tax for 2018 is 26.7% (2017: 25.0%). It is anticipated that the Group will use
this effective tax rate of 26.7% (due to 2017 US tax cut) going forward.
Water Intelligence plc
48
Notes to the Financial Statements
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)
12
Acquisitions
Year ended
31
December
2018
$
1,294,701
Year
ended 31
December
2017
$
913,250
13,401,624 11,403,236
14,304,790
9.7
9.1
12,123,812
8.0
7.5
During 2018, the Group purchased franchisee operations in Louisville, Kentucky; Bakersfield,
California; South Florida and Portland, Oregon. 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 American Leak Detection franchise system.
On 7 March 2018, the Group completed the reacquisition of its Louisville, Kentucky franchise. The
franchise owner has remained with the business as Vice President for Midwest operations to add depth
to the corporate team and reinforce the Midwestern hub created through the acquisition of this
franchise and previous reacquisitions.
On 15 March 2018, the Group completed the reacquisition of its Bakersfield, California franchise. As
part of this re-acquisition, there was a minority investment from the franchise to the north of Bakersfield,
which covers the city of Fresno. This franchisee helps provide management expertise to grow this
significant opportunity in Central California.
On 15 May 2018, the Group completed the reacquisition of its South Florida franchise, spanning from
the southern counties of Miami to Key West. This has been combined with American Leak Detection's
fast growing and highly profitable corporate operation which is located immediately to the north,
spanning Ft. Lauderdale and Miami, in order to form a significant regional operation in the Southeast
US.
On 9 October 2018, the Group completed the reacquisition of the territories of Portland, Oregon and
certain parts of Washington State (the "Portland Region") from a franchise owner, who remains a
franchisee and continues to develop the rest of their territory. This reacquisition enables American
Leak Detection to set up a regional corporate office to support the growth of its franchisees in the
northwest United States.
These can be summarised as follows:
Fair value of assets and
liabilities acquired
Equipment
Vehicles
Net assets acquired
Louisville
$
Bakers-
field
$
Indiana
Plumbing
$
South
Florida
$
Portland
$
Adjust-
ments
$
Totals
$
55,878
39,393
95,270
33,275
11,200
44,475
17,600
60,574
78,174
50,000
30,000
80,000
119,454
119,000
238,454
-
-
-
276,207
260,167
536,373
Water Intelligence plc
49
Notes to the Financial Statements
Consideration
Cash
Note payable
Total consideration
Intangible assets arising on
acquisition (see note 13)
465,000 252,000
1,084,058
-
1,549,058 252,000
90,674 150,000
- 211,561
646,250
615,477
90,674 361,561 1,261,727
18,650 1,622,574
(34,335) 1,876,760
(15,685) 3,499,335
1,453,788 207,525
12,500 281,561 1,023,273
(15,685) 2,962,961
The intangible assets arising on the above acquisitions of $2,966,147 is included in additions to
goodwill and indefinite life intangible assets for owned & operated stores (see note 13).
Following acquisitions all Franchises are classed as one cash generating unit therefore cannot
separately disclose revenue and profit for each individual franchise.
The amount of deferred consideration for 2018 acquisitions as well as the remaining deferred
consideration for acquisitions made in 2015, 2016 and 2017 (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
Kentucky
South Florida
Portland
Total current deferred consideration
Non-Current
T&M Tech LLC (South Michigan franchise)
Cincinnati
NRW
Sydney
Indianapolis
Kentucky
South Florida
Portland
Total non-current deferred consideration
Year
acquired
2015
2016
2016
2016
2017
2018
2018
2018
Year
acquired
2015
2016
2016
2016
2017
2018
2018
2018
Year ended
31 December
2018
$
74,282
55,712
-
55,631
102,073
523,745
22,116
615,476
1,449,035
Year ended
31 December
2018
$
72,389
54,292
-
-
-
560,313
192,313
-
879,307
Year ended
31 December
2017
$
64,654
48,302
67,456
263,747
115,839
-
-
-
559,999
Year ended
31 December
2017
$
149,187
112,079
-
-
113,335
-
-
-
374,600
Water Intelligence plc
50
Notes to the Financial Statements
13
Intangible assets
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.
Goodwill and other indefinite life intangible assets
Group
Cost
Goodwill
Acquisitions
$
Owned &
Operated stores
$
Goodwill on
franchisor
activities
$
Totals
$
At 1 January 2017
2,325,109
1,513,440
636,711
4,475,260
Additions (see note 12)
At 31 December 2017
Additions (see note 12)
At 31 December 2018
Impairment
-
397,975
-
397,975
2,325,109
220,025
2,545,134
1,911,415
2,742,936
4,654,351
636,711
-
636,711
4,873,235
2,962,961
7,836,196
At 1 January 2017
1,493,729
75,000
-
1,568,729
Impairment in year
-
- -
-
At 31 December 2017
Impairment in year
1,493,729
12,500
75,000
-
-
At 31 December 2018
1,506,229
75,000
Carrying amount
-
-
1,568,729
12,500
1,581,229
At 31 December 2017
831,380
1,836,415
636,711
3,304,506
At 31 December 2018
1,038,905
4,579,351
636,711
6,254,967
The increase in carrying value of Goodwill Acquisitions at 31 December 2018 relate to goodwill additions
arising on the acquisition outlined in Note 12 above during 2018.
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, 2017 and 2018.
Details on additions in 2018 can be found in note 12 above.
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 2018, 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
51
Notes to the Financial Statements
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 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 material impairment charge being required in 2018 (2017: $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
52
Notes to the Financial Statements
13
Intangible assets continued
Other Intangible assets table
Product
development
$
Covenants
not to compete
$
Customer
Lists
Trademarks
Patents
$
$
Website
$
$
164,880
290,000
350,357
5,293,817
23,692
-
-
-
-
-
-
90,000
164,880
-
164,880
290,000
-
290,000
350,357
-
350,357
5,293,817
-
5,293,817
23,692
-
23,692
90,000
-
90,000
Enterprise
Solution
Development
$
-
107,000
107,000
350,471
457,471
Cost
At 1 January 2017
Additions
At 31 December 2017
Additions
At 31 December 2018
Accumulated amortisation
At 1 January 2017
164,880
276,667
244,071
2,894,985
23,692
-
Amortisation expense
-
6,667
26,401
261,691
- 22,500
At 31 December 2017
164,880
283,334
6,666
-
270,472
3,156,676
23,692
22,500
28,844
(2,103)
261,691
-
-
-
30,000
-
-
-
164,880
290,000
297,213
3,418,367
23,692
52,500
Total
$
6,122,746
197,000
6,319,746
350,471
6,610,217
3,604,295
317,259
3,921,554
327,201
(2,103)
4,246,652
-
-
-
-
-
-
-
6,666
-
-
79,885
53,144
2,137,141
1,875,450
-
-
67,500
37,500
107,000
457,471
2,398,192
2,423,565
Amortisation expense
Exchange differences
At 31 December 2018
Carrying amount
At 31 December 2017
At 31 December 2018
All intangible assets have been acquired by the Group.
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.
Water Intelligence plc
53
Notes to the Financial Statements
14
Property, plant and equipment
Cost
At 1 January 2017
Acquired on acquisition of
subsidiary
Additions
Exchange differences
Disposals
At 31 December 2017
Reclassification
Acquired on acquisition of
subsidiary
Additions
Exchange differences
Disposals
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Eliminated on disposals
Depreciation expense
Exchange differences
At 31 December 2017
Reclassification
Eliminated on disposals
Depreciation expense
Exchange differences
At 31 December 2018
Carrying amount
At 31 December 2017
At 31 December 2018
Equipment &
displays
$
Motor
Vehicles
$
Leasehold
Improvements
$
Total
$
958,935
363,249
123,418
1,445,602
49,373
327,748
2,086
(486,533)
851,609
(137,747)
50,875
666,251
(1,881)
(703)
1,428,404
636,390
(485,278)
120,122
800
272,034
(70,792)
(703)
220,609
(537)
420,611
-
-
49,373
102,229
2,655
(106,678)
361,455
(49,998)
71,774
542,711
(8,382)
-
917,560
248,866
(103,237)
46,615
645
192,889
(116,953)
-
133,924
(4,079)
205,781
15,000
-
(123,418)
15,000
-
-
-
-
-
15,000
123,418
(123,418)
682
-
682
-
-
1,364
-
2,046
444,977
4,741
(716,629)
1,228,064
(187,745)
122,649
1,208,962
(10,263)
(703)
2,360,964
1,008,674
(711,933)
167,419
1,445
465,605
(187,745)
(703)
355,897
(4,616)
628,437
512,620
1,007,793
235,521
711,779
14,318
12,954
762,459
1,732,527
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 2018 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 $1,234,492 (2017: $656,485).
Water Intelligence plc
54
Notes to the Financial Statements
15
Investment in subsidiary undertakings
Company
Cost
At 31 December 2017
Exchange difference
At 31 December 2018
Impairment
At 31 December 2017
Exchange difference
At 31 December 2018
Carrying amount
At 31 December 2017
At 31 December 2018
Subsidiary
Undertakings
$
13,812,318
(440,030)
13,372,288
6,400,906
-
6,400,906
7,411,412
6,971,382
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)
Registered office address
27-28 Eastcastle Street,
London, United Kingdom,
W1W 8DH
1 Farrer Place, Sydney, NSW
2000
199 Whitney Avenue, New
Haven, Connecticut 06511
U.S.
199 Whitney Avenue, New
Haven, Connecticut 06511
U.S.
27-28 Eastcastle Street,
London, United Kingdom,
W1W 8DH
27-28 Eastcastle Street,
London, United Kingdom,
W1W 8DH
Country of
incorporation
England and
Wales
Australia
US
US
England and
Wales
England and
Wales
Interest
held
%
100%
100%
100%
100%
* Subsidiaries owned directly by the Parent Company. These subsidiaries – WII and ALDHC –
represent the two principal business lines of the Parent Company. Water Intelligence Australia and
American Leak Detection are also wholly-owned by the two principal subsidiaries and indirectly owned
by the Parent.
The Company’s strategy involves acquisitions, especially of franchisees. American Leak Detection
has reacquired one franchise, Bakersfield on 15 March 2018, by purchasing 100% upfront and at the
same time sold 40% of the franchise. American Leak Detection has an unrestricted option to acquire
the remaining 40% at a preset price at any time in the future.
Water Intelligence plc
55
Notes to the Financial Statements
16
Inventories
Group Inventories
Group
Year ended
31 December
2018
$
451,465
Year ended
31 December
2017
$
359,973
During the year ended 31 December 2018, an expense of $5,446,010 (2017: $3,334,101) was
recognized in the Consolidated Statement of Comprehensive Income, including business to business
expenses of $4,806,466 (2017: $2,518,840). There has been no write down of inventories during
2018.
17
Trade and other receivables
Trade notes receivable
Group
Company
Year ended
31 December
2018
$
618,005
Year ended
31 December
2017
$
59,075
Year ended
31 December
2018
$
Year ended
31 December
2017
$
-
-
All non-current receivables are due within five years from the end of the reporting period.
Group
Company
Year ended
31 December
2018
Year ended
31 December
2017
Year ended
31 December
2018
Year ended
31 December
2017
$
2,209,382
697,123
-
520,478
191,988
357,487
235,523
4,211,982
$
$
-
1,458,112
4,735
328,142
4,660,040
-
-
476,744
-
76,218
315,969
123,540
165,130 29,917
$
-
4,891
1,704,886
-
-
41,010
-
2,820,315
4,818,232
1,750,787
Trade receivables
Prepayments
Due from Group undertakings
Accrued royalties receivable
Trade notes receivable
Other receivables
Due from related party
Current portion
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.
Accrued royalties receivable are never reclassified to trade receivables as, should any royalties be
withheld or unpaid, the Group has the right to take back the relevant franchise.
The average credit period taken on sales is 39 days (2017: 37 days).
Water Intelligence plc
56
Notes to the Financial Statements
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
2018
$
3,534,868
558,450
118,663
Year ended
31 December
2017
$
2,398,632
317,513
104,170
4,211,981
2,820,315
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
2018
$
Year ended
31 December
2017
$
774,767
Year ended
31 December
2018
$
48,164
Year ended
31 December
2017
$
76
Cash at bank and in hand
5,016,406
19
Trade and other payables
Trade payables
Accruals and other payables
Due to Group undertakings
Group
Company
Year ended
31 December
2018
$
1,350,941
1,199,339
-
Year ended
31 December
2017
$
659,547
768,962
-
Year ended
31 December
2018
$
146,878
112,845
-
Year ended
31 December
2017
$
148,401
87,700
2,371,414
2,550,280
1,428,509
259,723
2,607,515
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 (2017:16 days).
20
Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group
Deferred tax (liability)/assets
2018
$
2017
$
(316,221)
(115,233)
Water Intelligence plc
57
Notes to the Financial Statements
The movement in deferred tax liabilities is as follows:
2018
Temporary differences:
Net operating profit (loss) (non-current)
Short term temporary differences
2017
Temporary differences:
Net operating profit (loss) (non-current)
Short term temporary differences
Opening
balance
$
-
-
(115,233)
(115,233)
Opening
balance
$
-
-
(305,081)
(305,081)
Recognized in
the income
statement
$
-
-
(200,988)
(200,988)
Recognized in
the income
statement
$
-
-
189,848
189,848
Closing
balance
$
-
-
(316,221)
(316,221)
Closing
balance
$
-
-
(115,233)
(115,233)
At the balance sheet date, the Group’s UK trading subsidiaries had unused tax losses of £4,276,906
(2017: £3,473,249) available for offset against future profits. £727,074 (2017: £593,205) represents
unrecognized deferred tax assets thereon at 17%. The deferred tax asset has not been recognized due to
uncertainty over timing of utilization.
21
Share capital
The issued share capital in the year was as follows:
Group & Company
At 31 December 2017
At 31 December 2018
.
Group & Company
At 31 December 2017
At 31 December 2018
Ordinary Shares
Number
11,402,649
13,883,969
Shares held in
treasury Number
151,184
-
Total Number
11,553,833
13,883,969
Share capital
$
65,305
101,915
Share premium
$
980,436
6,887,739
On 11 January 2018, the Company announced that David Silverstone, a director of the Company
exercised a portion of his options holdings to subscribe for a total of 10,000 new ordinary shares.
These shares were admitted to trading on AIM on 12 January 2018 and immediately sold.
On 7 March 2018, the Company announced a capital raising, pursuant to which the Company sold
2,021,320 new ordinary shares and 151,184 shares out of treasury. In addition, Patrick DeSouza,
Executive Chairman of the Company, exercised a portion of his options to subscribe for 300,000 new
ordinary shares. All of these shares were admitted to trading on AIM on 13 March 2018. In addition,
Patrick DeSouza received 750,000 Partly Paid Shares (being ordinary shares with voting rights and
Water Intelligence plc
58
Notes to the Financial Statements
no economic rights until fully paid) in exchange for increasing the guarantee he is providing over the
Company’s bank facilities.
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.
2018
No later than one year
Later than one year, and not later than five years
Total
2017
No later than one year
Later than one year, and not later than five years
Total
Land &
Buildings
$
69,296
Other
$
237,463
Total
$
306,759
4,400
521,991
526,391
73,696
Land &
Buildings
$
69,296
4,400
73,696
759,454
833,150
Other
$
179,951
420,459
600,410
Total
$
249,247
424,859
674,106
The operating lease commitments above apply to the Group; the Company has no operating leases.
All leases relate to vehicles and office space
23
Financial instruments
Market risk (including foreign currency risk management)
Interest rate risk
The Group has exposure to the following key risks related to financial instruments:
i.
ii.
iii. Credit risk
iv.
Liquidity risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s
objectives, policies and processes for measuring and managing risk, and the Group’s management
of capital. Further quantitative disclosures are included throughout these consolidated Financial
Statements.
The Directors determine, as required, the degree to which it is appropriate to use financial instruments
or other hedging contracts or techniques to mitigate risk. The main risk affecting such instruments is
foreign currency risk which is discussed below. Throughout the year ending 31 December 2018 no
trading in financial instruments was undertaken (2017: 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.
Water Intelligence plc
59
Notes to the Financial Statements
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, cash equivalents, trade and other
receivables. The Group’s credit risk is primarily attributable to its trade receivables and cash and
cash equivalents. 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. As
at 31 December 2018, 59.81% was held with one counterparty with a credit rating of Aaa and a further
23.72% was held with another counterparty with a credit rating of A1.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses
a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses,
trade receivables have been grouped based on the shared credit risk characteristics and the days
past due. The expected loss rates are based on the historic payment profiles of sales and the credit
losses experienced within this period. The historical loss rates are adjusted to reflect current and
forward-looking information.
As the Group does not hold any collateral, the maximum exposure to credit risk is represented by the
carrying amount of the financial assets as at the end of each reporting period.
As at 31 December 2018, trade receivables of $470,976 (2017: $116,088) were past due but not
impaired. These relate to a number of customers for whom there is no history of default. The ageing
analysis of these trade receivables is as follows:
Ageing of past due but not impaired receivables
60-90 days
90+ days
Average age (days)
Year ended
31 December
2018
$
109,963
364,013
470,976
96
Year ended
31 December
2017
$
42,328
73,760
116,088
92
The Group believes that no impairment allowance is necessary in respect of trade receivables that are past
due but not impaired. This is based on the Group’s good historic track record of collection for all such
receivables.
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.
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
60
Notes to the Financial Statements
Categories of financial instruments
Group
Company
Loans and receivables
Cash and cash equivalents
Trade and other receivables – current
Year ended
31 December
2018
$
-
5,106,406
4,211,982
Year ended
31 December
2017
$
-
774,767
Year ended
31 December
2018
$
-
48,164
4,818,232
Year ended
31 December
2017
$
-
76
1,750,787
2,820,315
Trade and other receivables – non-current
618,605
59,075
--
-
-
Financial Liabilities measured at
amortised cost
Trade and other payables
Borrowings – current
Borrowings – non-current
Deferred consideration – current
Deferred consideration – non-current
Borrowings
2,550,283
989,736
1,448,303
1,449,035
879,307
1,428,509
259,724
2,607,515
394,525
-
1,635,311
-
559,999
-
-
-
-
-
-
374,600 -
-
Bank Debt
The Group has a commercial banking relationship with People’s United Bank (“People’s”). The relationship
involves three facilities: (i) term loan that was a refinancing of a previous term loan with a different bank
(2016 Term Loan); (ii) a working capital line of credit (WC Line) and (iii) an acquisition line of credit, primarily
for franchise reacquisitions (ALOC 1 Line).
2016 Term Loan. The 2016 Term Loan was initiated on December 5, 2016 and is a four-year term
loan amortizing through 2020. The principal amount outstanding at 31 December 2018 was $838,196
(2017: $1,227,874). 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. People’s requires PlainSight
Systems (PSS), among others, to guarantee the loan.
WC Line. The WC Line was initiated on 5 December 2016 with $500,000 availability. The WC Line supports
various short-term needs of the Group from support for our business-to-business insurance channel to fleet
and inventory management. On March 6, 2018, to support the Group’s growth, People’s increased the WC
Line from $500,000 to $2,000,000 with a maturity date of December 2019. The WC Line bears interest at
LIBOR plus 3.00%. At 31 December 2018, the interest rate was 5.38%. The balance outstanding at 31
December 2018 was $228,133 (2017: $228,133). The WC Line is secured by substantially all of the assets
of the Group and guarantees from other related parties including PSS.
ALOC 1. ALOC 1 supports the Group’s growth strategy primarily with respect to franchise reacquisitions.
ALOC 1 was initiated on 5 December 2016 with $1,500,000 of availability. ALOC 1 has two annual draw
periods that are interest only and convert into a four-year term loan at the end of the draw period. Upon
conversion, the term loan would bear interest at a rate per annum equal to 3.00% 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.
In December 2017, the first draw period of ALOC 1 ended. $584,750 was converted into ALOC 1’s first.
term loan in accordance with the bank agreement (ALOC 1T1). ALOC 1T1 requires monthly amortization
of $13,585 and carries an interest rate of 5.40% (as of 31 December 2017). The balance outstanding as
of 31 December 2018 was $460,974 (2017: $584,750). The maturity date of ALOC 1T1 is 1 December
2021.
Water Intelligence plc
61
Notes to the Financial Statements
In December 2018, the second and final draw period of ALOC 1 ended. $926,472 was converted into
ALOC 1’s second term loan in accordance with the bank agreement (ALOC 1T2). ALOC 1T2 requires
monthly amortization of $21,884 and carries an interest rate of 6.24% (as of 31 December 2018). The
balance outstanding as of 31 December 2018 was $926,472. The maturity date of ALOC 1T2 is 1 December
2022.
In connection with the People’s banking facilities, the Group is required to comply with certain financial and
non-financial covenants to be performed on a consolidated basis. These covenants include (i) a debt
service coverage ratio to be tested quarterly and (ii) a minimal semi-annual increase in capital funds to be
tested semi-annually. The Group was in compliance with those requirements at 31 December 2018.
Current
Non-Current
Financial Instruments
2016 Term loan
Working Capital Line of Credit
Acquisition Line of Credit
- ALOC1T1, converted into term loan
- ALOC1T2, converted into term loan
Less: Loan Closing Costs
Total
Year ended
31 December
2018
$
408,989
228,133
352,614
141,910
210,704
-
Year ended
31 December
2017
$
Year ended
31 December
2018
$
429,207
394,525
-
-
-
-
-
-
1,034,832
319,064
715,768
(15,736)
1,448,303
989,736
394,525
Year ended
31 December
2017
$
833,349
228,133
584,750
584,750
-
(10,931)
1,635,301
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, short and medium
term borrowings and equity comprising issued capital, reserves and retained earnings. Other than
with respect to Bank Debt, 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 outside US sources in
2018 were $177,756 (2017: $236,590). No foreign exchange contracts were in place at 31 December 2018
(2017: Nil).
Water Intelligence plc
62
Notes to the Financial Statements
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary
liabilities were:
Group
Company
Year ended
31 December
2018
$
Year ended
31 December
2017
$
Year ended
31 December
2018
$
Year ended
31 December
2017
$
945,987
598,004
4,866,396
1,750,863
529,081
467,946
259,724
2,607,515
Assets
Sterling and Australian
Dollars
Liabilities
Sterling and Australian
Dollars
As shown above, at 31 December 2018 the Group had Sterling denominated monetary net assets of
$416,006 (2017: $130,059). If Sterling weakens by 10% against the US dollar, this would decrease net
assets by $41,601 (2017: $13,006) with a corresponding impact on reported losses. Changes in exchange
rate movements resulted in a loss from exchange differences on a translation of foreign exchange of
$439,573 in 2018 (2017: loss of $39,038), resulting primarily from the share issuance during the year in
Pound Sterling and subsequent intercompany transfer accounted in US Dollars.
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. The floating rate borrowings at the year end are $1,615,579 (2017:$812,883).
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the year ended 31 December 2018 would
not materially change if market interest rates had been 1% higher/lower throughout 2018 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 April 2020. 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 primarily 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
2018
Payables
Borrowings
Deferred consideration
2017
Payables
Borrowings
Deferred consideration
0-6 months
$
6-12 months
$
>12 months
$
Total
$
2,550,283
272,182
764,396
1,428,509
220,297
210,312
-
717,554
684,639
-
174,228
349,687a
-
1,448,303
879,307
-
1,635,311
374,600
2,550,283
2,438,039
2,328,342
1,428,509
2,029,836
934,599
Water Intelligence plc
63
Notes to the Financial Statements
The Company has no non-derivative financial liabilities.
Derivatives
The Group and Company have no derivative financial instruments.
Fair values
The Directors consider that the carrying amounts of financial assets and financial liabilities
approximate their fair values.
Reconciliation of liabilities arising from financing activities
The changes in the Group’s liabilities arising from financing activities can be classified as follows:
At 1 January 2018
Cash flows
- Repayment
- Proceeds
Non-cash
- Acquisition
- Fair value
- Reclassification
As at 31 December 2018
At 1 January 2017
Cash flows
- Repayment
- Proceeds
Non-cash
- Acquisition
- Fair value
- Reclassification
As at 31 December 2017
Long-term
borrowings
$
1,635,311
(518,270)
926,472
-
-
(595,211)
1,448,303
Long-term
borrowings
$
1,327,593
(122,644)
332,434
-
-
97,928
1,635,311
Short-term
borrowings
$
394,525
-
-
-
-
595,211
989,736
Short-term
borrowings
$
492,453
-
-
-
-
(97,928)
394,525
Total
$
2,029,836
(518,270)
926,472
-
-
2,438,088
Total
$
1,820,046
(122,644)
332,434
-
-
-
2,029,836
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 to the Company.
PSS provides a technology license to Water Intelligence and ALD on terms favorable to Water Intelligence
and ALD. The license is royalty-free for the first $5 million of sales for products developed with PSS
technology. PSS also guarantees the bank debt of Water Intelligence as described below.
During the normal course of operations, there are intercompany transactions among PSS, Water
Intelligence plc, ALDHC and ALD. In previous years, PSS charged administrative fees to the Company to
cover activities taken on behalf of company business, including research. The financial results of these
related party transactions are reviewed by an independent director of Water Intelligence plc, the parent of
ALDHC and ALD.
Water Intelligence plc
64
Notes to the Financial Statements
As described in Note 7, the Company's parent (and the Company as co-borrower) have different credit
facilities with Peoples. For the PSS guarantee, ALD pays 0.75% per annum based on the outstanding
balance of the loan calculated at the end of each month. 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 the bank. Interest income related to the PSS receivable amounted to $13,686 and
$10,302 for the years December 31, 2018 and 2017, respectively. The guarantee fee expense for the PSS
guarantee amounted to $16,877 and $10,496 for the years ended December 31, 2018 and 2017,
respectively. During 2018 the Company paid expenses on behalf of PSS in the amount of $43,677. The
related receivable/prepaid balance remaining is $205,606 and $165,130 at December 31, 2018 and 2017,
respectively. The net receivable outstanding as of December 31, 2018 is $188,729 (2017: $154.634).
During the year, the Company had the following transactions with its subsidiary companies:
Water Intelligence International Limited
Balance at 31 December 2017
Net loans to subsidiary
Other expenses recharged and exchange differences
Balance at 31 December 2017
ALDHC
Balance at 31 December 2017
Loans prepaid by WI capital raise
Balance at 31 December 2018
ALD Inc.
Balance at 31 December 2017
Loans repaid by WI capital raise
Loans to WI
Other expenses recharged and exchange differences
Balance at 31 December 2018
26
Subsequent events
$
1,704,886
-
817,914
2,522,800
$
(376,729)
376,729
-
$
(1,994,685)
5,030,851
(605,195)
(293,731)
2,137,240
On 17 January 2019, the Company announced that Bobby Knell would replace John Weigold as a director
on the Board of the Company, pending regulatory checks. This confirmation of this appointment was
announced on 12 March 2019. Bobby had been serving as a managing director at Water Intelligence
responsible for franchise relations for the last four years. Prior to this role, Mr. Knell founded and grew
the Dallas franchise of American Leak Detection into a multimillion dollar operation; an operation now run
by his son.
On 5 February 2019, the Company announced a series of corporate activity, including the acquisition of
Ontario (Niagara) franchise, expanding the Group’s corporate presence into Canada and upstate New
York; the sale of a new franchise territory for Youngstown, Ohio and financial support to a franchisee in
Idaho, accelerating its expansion into municipal offerings. In addition, the formal launch of the ORCA
municipal sewer product into the United States was announced.
On 7 March 2019, the Company announced the acquisition of its South Atlanta and Southern Georgia
franchise. This territory will be used to create a regional corporate presence to help accelerate
Water Intelligence plc
65
Notes to the Financial Statements
development of southeastern franchises. In addition, the franchise owner has agreed to stay with
American Leak Detection and open a new corporate location given his experience.
On 28 March 2019, the Company announced the acquisition of its Orlando, Florida franchise. The
acquisition enables the Group to set up another regional office in Florida to support the growth of the ALD
business throughout the southeast United States. Together, Orlando and Miami provide a critical mass of
operating personnel to grow the entire southeast United States providing residential, commercial and
municipal solutions. During 2H, the Company will be opening a Water Intelligence International office in
either Miami or Orlando in order to advance the Group's municipal line of business.
On 4 April 2019, the Company announced the sale of a territory in Southern Georgia. This territory was
undeveloped and used to be part of the franchise acquired by the Company on 7 March 2019. This
transaction allows for optimization of franchise territory in the region and could be a model across the US
enabling more sales coverage in support of our national channels and incentivizing ever greater
collaboration among corporate and franchise operations towards execution of our growth plan.
On 4 April 2019 the Board granted 475,000 options with an exercise price of 475p and a four-year vesting
requirement to employees and directors to incentivized continued high performance. In addition, a further
50,000 options with an exercise price of 350p and a four-year vesting requirement were issued to vendors
of reacquired franchises in 2019 and who are remaining in the employment of the Group.
On 25 April 2019, the Company announced five new municipal contracts in the US to be launched in Q2
by WII to underscore its value-add in cross-selling to territories being developed by ALD.
On 1 May 2019, the Company announced the launch of its third national insurance contract with a major
US insurance company and the expansion of its business-to-business channel.
The provisional fair values of the acquisitions subsequent to year end are detailed below:
Ontario
$’000
Orlando
$’000
Atlanta
$’000
Totals
$’000
Fair value of assets and liabilities acquired
Equipment
Vehicles
Other
Net assets acquired
41,224
51,435
125,140
217,799
27,800
46,300
-
74,100
-
-
-
-
69,024
97,735
125,140
291,899
Consideration
Cash
Deferred consideration – discounted to present
value
Total consideration
665,134
673,000
250,000
1,588,134
76,000
471,698
175,000
722,698
741,134
1,144,698
425,000
2,310,832
Intangible asset arising on acquisition
523,335
1,070,598
425,000
2,018,933
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.
Water Intelligence plc
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