Water Intelligence plc
Group Annual Report and Financial Statements for
the Year Ended 31 December 2019
Company number 03923150
Group Annual Report and Financial Statements
for the year ended 31 December 2019
Contents
Page
2 Company Information
3 Chairman’s Statement
7 Strategic Report
13 Directors’ Report
17 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
24 Martin Lane
London
EC4R 0DR
Broker
15 Fetter Lane
London
EC4A 1BW
Dowgate Capital Limited
Independent Auditor
Registrar
Bankers
Crowe UK LLP
St Brides House
10 Salisbury Square
London EC4Y 8EH
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen West Midlands
B63 3DA
Barclays Bank PLC People’s United Bank
1 Churchill Place
London
E14 5HP
265 Church Street
New Haven
CT 06510
USA
Water Intelligence plc
2
Chairman’s Statement
Overview.
We closed the last Annual Report with a look at the first third of 2019 followed by our outlook on the year
ahead. We indicated that we remained confident about delivering on our vision of a world-class water
infrastructure services company. As reported below, we delivered again. We had another remarkable year
both in terms of financial and operating performance. We completed a five-year growth plan that produced
compounded annual growth in sales of 35% and profits before tax of 33%.
Similarly, at the end of this year’s Chairman’s Statement, we will be reviewing the first third of 2020 and
then presenting our Outlook for the remainder of the year. One might think that our tone would be
circumspect with the Covid-19 crisis marking the first third of this year. On the contrary, we remain confident
about our prospects. As discussed below, we are navigating the crisis well and accelerating our growth
plans in order to distinguish ourselves from others in the marketplace.
Global demand for preventing water loss through infrastructure products and services is only increasing,
crisis or not. Moreover, as illuminated by Covid-19, consumer demand for solutions to public health
concerns emerging from sanitary overflow and poor wastewater infrastructure as people “shelter in place”
is also becoming more acute. We remain confident about our ability to meet such market demand because
of our attention to scaling our business over the last five years as we discussed in last year’s report. We
have also reinvested into proprietary new products, such as a residential sewer diagnostic tool that will be
deployed in the market during Q3 2020. In fact, because of our extensive and growing sales footprint – over
$125 million in sales to third parties from both franchise operations (from which our royalty income is
derived) and corporate operations - across 46 states of the US, we are much more than a valuable water
infrastructure services company. Rather, having provided solutions for over 200,000 customers across the
US, we are becoming an even more valuable distribution platform for follow-through sales that address
related water and wastewater problems – a “One Stop Shop”. As discussed below, we will be accelerating
this strategic direction.
2019 Group Fundamentals. As reflected by our 2019 results, we continue to scale nicely. During 2019,
much like 2018, more of our results dropped to the bottom-line as the rate of growth in statutory profits
before tax at 34% exceeded the rate of growth of revenue at 27%; of course, we were pleased by both
results. In absolute terms, revenue reached $32.36 million (2018: $25.47 million). Statutory profits before
tax reached $2.36 million (2018: $1.75 million). Profits before tax adjusted for non-cash and non-recurring
costs grew 34% to $3.35 million (2018: $2.47 million). Profit per share on a fully diluted basis grew 22% to
11.1 cents a share.
Our balance sheet also remained strong enabling us to reinvest to execute our long-range growth plan. At
31 December 2019, the Group had $5.3 million in cash. This amount balanced all borrowings and deferred
consideration from franchise reacquisitions which together totalled $5.3 million. Given our fundamentals,
our balance sheet is fairly conservative. Borrowings and deferred consideration are amortized over four-to-
five years while the Group has a store of $5.3 million in cash that itself is growing annually since we also
generate cash from operations. Strong growth and prudent corporate finance put us in a good position
during these uncertain times. Overall, assets grew 36% to $28.12 million (2018: $20.71 million).
Operating Businesses and KPIs. The Group has two wholly-owned operating subsidiaries: our flagship,
American Leak Detection (“ALD”) and our UK-based, Water Intelligence International (“WII”). These two
subsidiaries use acoustic and infrared technologies to provide minimally-invasive solutions for all types of
leak problems: residential, commercial and municipal. Our solutions apply to both potable and non-potable
water lines. The Group’s subsidiaries work closely together to execute a growth plan that envisions a “One-
Stop Shop” for customers as noted above. Our core business – American Leak Detection – focuses on
residential and commercial leak detection and repair solutions across the US, Canada and Australia. ALD
delivers services through both franchise-operated and corporate-operated locations. As noted above, sales
to third parties from our franchise locations are recorded as royalty income that is derived from such gross
sales. WII complements ALD by providing solutions for municipal customers for both clean water and
wastewater. Because of ALD’s reputation across the US, WII has been able to cross-sell municipal
solutions to an increasing number of communities in the US. Moreover, WII has been instrumental in
Water Intelligence plc
3
Chairman’s Statement
introducing municipal solutions to ALD’s Australian locations. In the near future, ALD will be returning the
favour by cross-selling into WII’s UK base of operations providing residential and commercial leak detection
and repair services. Working together each subsidiary reduces customer acquisition costs for the other
and enables efficiencies in service delivery.
The success of our two subsidiaries and overall growth plan are captured by certain KPIs set forth in our
Strategic Report. First, our core service delivery platform is expanding. Royalty growth from the ALD
franchise system remains strong. During 2019, ALD royalty income grew 4% to $6.5 million (2018: $6.2
million) in absolute terms despite four strategic reacquisitions that removed royalty income from the pool:
Ontario, Canada and in the US - South Atlanta; Orlando; and Tucson. The latter two locations previously
contributed significant royalty income. The health of our franchise system is important because its sales
and execution contribute to market presence across the US. Such reach produces an efficient multiplier
effect enabling the Group to be a significant distribution platform for additional follow-through sales to
customers. As a collateral benefit, monthly recurring royalty income enables the Group to optimize its
capital formation through bank debt, especially in today’s low interest rate environment.
Second, our insurance business-to-business channel continues to grow rapidly. Demand from national
insurance companies remains strong as water-related claims ($13 billion+ market) continue to grow along
with the price of water. Insurance companies seek to leverage ALD’s nationwide operational footprint to
provide minimally-invasive leak detection and repair services wherever claims arise. During 2019, our
insurance channel grew by 41% to $7.1 million (2018: $5.0 million). We added two national accounts last
year which will fuel continued growth in 2020 and beyond. As noted in the Strategic Report, the business-
to-business channel feeds our franchise system and enables scaling by providing jobs to the franchise
system at lower customer acquisition costs through a centralized corporate system.
Third, ALD corporate-run operations complement our franchise system by (i) executing our service offerings
and opening-up new offerings; and (ii) unlocking value in terms of financial performance. ALD corporate
operations are made up of both franchise locations that have been reacquired and greenfield operations.
During 2019 corporate-run operations grew 43% to $14.5 million (2018: $10.1 million). Profit before taxes
grew 67% to $2.0 million. (2018: $1.2 million). It should be noted, however, that such growth is not due
simply to reacquisition and conversion of franchisee revenue and profits into corporate revenue and profits.
We have demonstrated that corporate operations can add value to territories formerly run by franchisees.
If one evaluates corporate locations owned prior to January 1, 2018, sales grew 10% to $8.6 million (2018:
$7.8 million). Profit before taxes, on the other hand, grew 37% to $1.30 million (2018: $0.95 million). As
corporate-run operations increase profit margins while still reinvesting in growth, they unlock shareholder
value because the net profits that they produce are higher than foregone net royalty income for doing the
same execution activity in the location under the same brand.
Corporate operations also are helpful to the franchise system in introducing new service offerings. In
addition to standard ALD residential and commercial solutions, US corporate-run locations also have
introduced WII municipal solutions to the US. During 2019, US corporate locations built a book of business
amounting to $1 million in municipal contracts, $500,000 of which was executed during 2019. It should also
be noted that fast-growing corporate locations reinforce franchise operations with increased local marketing
presence and general management support.
Fourth, UK-based WII continues to grow steadily. WII complements ALD with municipal offerings and leads
our multinational growth efforts. During 2019, WII grew revenue by 16% to $3.37 million (2018: $2.9
million). As noted above, it introduced a new municipal offering in the US and is helping the franchise
system bid for more municipal contracts during 2020. In addition, WII is growing in Australia through its
Sydney operations and has begun to market its offerings in the EU and South Africa.
Our two operating businesses work synergistically and set the stage for providing more products and
services to our customers in order to handle an increasingly wide range of water infrastructure problems.
As we enter new geographies, we believe that offering a full service matrix of solutions for various types of
pipes (residential, commercial and municipal) and situations (clean water and wastewater) will be attractive
to our customers and will enhance our prospects for long-term growth.
Water Intelligence plc
4
Chairman’s Statement
Covid-19 and First Third of 2020.
Despite Covid-19, we look to remain ambitious with our growth plans. As an “essential service” provider,
we have continued to operate across the US, UK, Canada and Australia. We have contributed valuable
solutions in our communities with respect to clean water provisioning and solving for sanitary overflow as
homeowners “shelter in place”. To a degree, Covid-19 adversely impacts our 2Q 2020 performance relative
to our typical growth trajectory. Consumers have had to adjust to service providers visiting their homes
even though their demand for water and wastewater solutions has remained high. We are seeing evidence
that June performance is returning to our typical upward trajectory.
Nonetheless, we are still making prudent budgetary choices such as increasing our inventories of protective
personal equipment (PPE). We are taking actions to safeguard our various stakeholders: corporate
employees, franchisees, customers, business partners, such as insurance companies, and shareholders.
By working together in more proactive fashion, we are navigating the crisis as well as can be expected. In
certain ways, the Covid-19 crisis may have actually brought our company, our franchisees and our
customers closer together given the saliency of dealing with water loss and sanitary overflow alongside the
realities of shelter in place. The pandemic also reaffirms our decision during 2019 to invest in video e-
commerce technology as homeowners in a post-Covid-19 world will be more likely to seek information on-
line about water-related products and solutions.
Scottsdale Convention and First 60 Days.
In mid-March, before the onset of shelter in place policies, our American Leak Detection franchise System
and corporate leadership team gathered in Scottsdale, Arizona for our annual convention. This year’s
Convention proved to be special. As a testament to the commitment of our franchisees and corporate staff,
the event was extraordinarily well-attended with team members coming from across the US, UK, Canada
and Australia. The purpose of Convention 2020 was to communicate our next five-year growth plan. Given
the success of our last five years with compounded annual growth of 35% in revenue and 33% in profit
before taxes, our stakeholders expected a robust, ambitious plan.
I am proud to say that we had strong consensus in Scottsdale that Covid-19 would not deter us in our
mission to be a market leader in transforming the water infrastructure business through our use of minimally-
invasive technologies. We set, as our next target, to double total sales under our brand (whether franchise
or corporate) to $250 million by the end of 2023. Both franchise and corporate operations are committed
to making the necessary investments to reach this goal.
During the first sixty days after leaving Scottsdale, while Covid-19 created disruptions across the global
economy, we have been focused on taking clear steps to hit the ground running towards the revenue and
profit targets provided by our next five-year plan. We are immediately building on initiatives that have
marked the last five years.
First, we reacquired two franchises in strategic locations: Minneapolis, Minnesota and San Jose, California.
Both are accretive transactions and the territories have room for further organic growth. Minneapolis will
enable us to have a stronger presence in the Upper Midwest of the US where we already have traction in
winning municipal contracts with our UK-based Water Intelligence International offerings. We would like to
expand our municipal business from this base of operations. In addition, from Minneapolis, we may be able
to open some greenfield locations in Canada. San Jose, meanwhile will enable us to have a regional
corporate office in Silicon Valley. The Bay Area is currently home to two very successful multi-million dollar
franchises. Given the size of the addressable market and sensitivity of the entire Bay Area to sustainability
issues, we believe that the San Jose operation has the opportunity to work with the neighbouring franchises
and expand our presence significantly. Moreover, technology innovation is core to our brand and to our
future. We plan to work with partners in Silicon Valley to develop new products.
Second, we extended our national account structure with wins from regional insurance companies. Such
regional accounts enable us to deepen our insurance company relationships. We anticipate signing
additional accounts with national insurance companies prior to the end of Q3 2020.
Third, we started field trials to launch of our newest technology product – a residential sewer diagnostic
tool. We plan to go to market with this device over the summer. The sewer diagnostic tool is valuable in a
Water Intelligence plc
5
Chairman’s Statement
Covid and post-Covid world because sewer blockages will increase as homeowners dispose of sanitary
wipes in toilets. Conventional sewer diagnostic approaches use video cameras which are cumbersome.
Our tool uses acoustics and analyses the data efficiently in the cloud. Our product enables analysis of
blockages an order of magnitude faster than other products in the market.
As we develop our brand, we seek to introduce more technology products. We have strong R&D
relationships at Columbia University, Yale and University of Chicago. Pre-crisis, we were sponsoring a
water product design competition with Columbia Business School to mark the University’s Year of Water
Initiative. We anticipate the design competition to be rescheduled for later this year. With our reacquisition
of the San Jose franchise, we seek to partner with venture capital firms and Stanford University in launching
sustainability products. As noted above, because of our services footprint across the United States
touching over 200,000 homes annually, we are really a distribution platform for new products that
complement our service offerings.
Finally, as recently announced, we have signed a long-term relationship with the world’s leading cloud-
based CRM (customer relationship management) platform - Salesforce.com - to automate our execution
processes from dispatch of technicians to invoicing of customers to follow-up with additional customer
services and sales. In the 2018 Chairman’s Statement, we discussed certain attributes of scaling our
business. We noted that with our critical mass of sales and matrix of product and services offerings we had
the makings of a valuable distribution platform. With the integration of enterprise technology from
Salesforce.com, we are taking a giant step towards realizing efficiencies in execution and becoming a “One
Stop Shop” as we have communicated over the years. Further, we see our coming video e-commerce
offerings as a seamless complement whereby customers can be educated in sustainability, order products
and services on-line and have our technicians instantaneously scheduled and routed to deliver the solution.
Conclusion.
We are off to a good start in 2020 despite the Covid-19 crisis. The Covid-19 crisis has underscored the
value of our business both in good times and bad as an “essential service” provider. For our shareholders,
we are “acyclical” and a relative safe-haven. The crisis has also highlighted the value of our brand and
reputation in the United States as a trusted service provider on whom homeowners and insurance
companies may count. Navigated well, crises do present opportunities to distinguish oneself. We had an
excellent Convention in Scottsdale and have come out of the gates fast on a mission to make a difference
in the marketplace and to continue our trajectory of strong compounded annual growth for our next five-
year plan.
Dr. Patrick DeSouza
Executive Chairman
16 June 2020
Water Intelligence plc
6
Strategic Report
Business Review and Key Performance Indicators
The Chairman’s Statement, on pages 3 to 6, provides an overview of the year and the Outlook for Water
Intelligence plc and its subsidiaries, referred to as the “Group”. The business indicators offered below
are meant to capture for the Board not only the state of performance but also the evolution of our
business model to a platform company that is a “One-stop Shop” for growing base of customers through
additional cross-sales of solutions from across our business units and also the up-sales of technology
products to fulfil more of the needs of our 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 $125 million of sales to end-users of our brand. That critical mass of sales is derived from
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-centred. It is exclusively a
corporate-run unit that leads 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 and residential wastewater solutions to ALD for
municipal customers in the US.
The Group’s growth strategy is evaluated through key performance indicators (KPIs) and incorporates
both corporate-operated and franchise-operated organic growth from ALD and WII solutions, as well as,
unlocking additional sales growth and shareholder value through acquisition, especially by selectively
converting ALD franchises to corporate-operated locations. Such re-acquisitions of franchisee
operations enable some amount of the approximately $100 million in highly profitable franchisee sales
to end-users of our solutions, recorded as royalty income, to be converted to the Group’s direct P&L.
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 franchise e operation. As a by-
product of such acquisition-led P&L growth, it is also 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 and growing nature of monthly royalty income from the franchise business, the
Group is able to be efficient in its capital formation using both equity and bank 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.
2019 Conclusions Drawn From 6 KPIs:
i.
ii.
ALD Franchise System is expanding its sales and brand presence across the United States as
indicated by royalty growth which furthers our evolution as a “One-Stop Shop” distribution
platform. Royalty growth continues given market demand despite franchisee reacquisitions
which remove some royalty from the pool of eligible royalty income.
ALD Business-to-Business Channel takes advantage of our national execution presence under
one brand and, led by the growth of insurance company channel, is fuelling expansion in both
franchise-operated and corporate-operated locations.
Water Intelligence plc
7
Strategic Report
iii.
ALD corporate-operated locations add to critical mass of Group revenue and profits and through
selective reacquisitions from our expanding franchise System further unlocks the Group’s equity
value
iv. WII complements our ALD brand and contributes complementary municipal sales to the Group’s
v.
vi.
overall sales presence in the US and international geographies
Non-core costs, largely legal transactions costs, are an acceptable trade-off relative to the
operating P&L benefits of adding critical mass to the Group’s revenue and profits
Net-borrowing position is favourable for Group’s continued growth and business plan especially
given the consistent growth of monthly recurring income and low interest rate environment
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 centrepiece 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 profits to the Group or to keep adding high margin royalty income to the Group.
Royalty income in 2019 grew in absolute terms by 4% compared with 2018 despite significant reacquisitions
during 2019 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. Profit before taxes from this business line grew by 11%. The Group has 103 franchises at the
end of 2019 which represents a decrease of 2 franchises (2018: 105). The net decrease was the result
of the reacquisition and conversion of 4 franchises into corporate-run locations and an increase of 2
new franchises. Performance from royalty income is as follows:
Total USA
International
Total Group Royalty Income
Profit before tax (see note 4)
Year ended
31 December
2019
$'000
6,356
143
6,499
1,603
Year ended
31 December
2018
$'000
6,087
178
6,265
1,448
Change
%
4%
(20)%
4%
11%
Franchise-related Activities.
(ii)
US franchise-related activities provide supporting evidence for the strength of the core ALD business. Parts
and equipment sales are one 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 brand and sales footprint –
an important aspect of competitive strategy. Jobs for franchisees are sourced by Corporate headquarters
from insurance companies using a centralized processing system. The jobs are then dispatched to
franchisees from corporate administration with corporate administration taking liability and payment risk.
Finally, sales of franchise units represent the decision to develop a new territory through a franchisee. This
line item conveys the Group’s current priority with respect to adding corporate-operated locations as
opposed to franchisee-operated locations in order to develop and grow a territory. Revenue from franchise-
related activities in 2019 grew by 31% compared to 2018 largely because of the growth of the Group’s
business-to-business channel. Profit before taxes grew 24% in 2019 compared with 2018. Performance
from franchise-related activities are as follows:
Water Intelligence plc
8
Strategic Report
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
2019
$'000
854
7,106
90
8,050
601
Year ended
31 December
2018
$'000
1,076
5,023
55
6,154
484
Change
%
(21)%
41%
64%
31%
24%
US Corporate Operated Locations (ALD).
(iii)
Corporate-run locations both greenfield and initiated after reacquisition of franchise locations contribute
revenue and profits to the Group. In addition, such operations support the franchise System with strategy,
marketing and execution support in further developing territories. Performance of the US corporate-run
locations post-reacquisition is also an indication of the success of the Group’s strategy to selectively
reacquire ALD franchises to meet increasing market demand for our minimally invasive leak detection and
repair solutions. The Group directly operates 18 territories, an increase of 3 territory (2018: 15). Sales
growth from corporate-operated locations grew strongly both organically and from reacquisitions when
compared with 2018.
As set forth below, ALD Corporate-operated revenue grew 43% to $14.4 million (2018: $10.1 million).
Meanwhile profit before taxes grew strongly by 67% to a little more than $2 million (2018: $1.2 million). This
KPI table was redesigned in 2018 to add information for the Board. We have begun to measure the
difference between near-term corporate growth through reacquisitions of franchisees and longer-run
corporate-operated organic growth post reacquisition. We have included a line item for corporate locations
owned during the comparison years. Holding aside 2019 franchise reacquisitions, sales growth from
corporate-operated locations owned prior to 1 January 2018 grew 10% to $8.6 million (2018: $7.8 million).
Profit before taxes for the same subset of corporate-operated locations grew 37% to $1.3 million (2018:
$0.95 million).
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
$2 million. If the same $14.4 million of sales to the same customers was executed by a franchisee, the
Group would receive approximately $0.23 million or 11% of the profit before taxes. ($14.4 million of sales
multiplied by 6% royalty fee equals approximately $0.86 million of royalty income; and $0.86 million is then
multiplied by 27% profit margin of royalty income - see KPI #1 – to yield $0.23 million of profit before taxes
to the Group). Hence, when compared to the $2 million in corporate store profits before taxes contributed
to the Group, the incremental profit of reacquiring franchises unlocks shareholder value. On the other hand,
it should be noted that, recurring monthly royalty revenue is especially valuable for optimal capital formation
by reinforcing non-dilutive bank finance. The Board will use this KPI to evaluate the trade-offs.
Performance from corporate-operated locations is as follows:
Revenue
Locations owned prior to 1 January 2018
Year ended
31 December
2019
$'000
14,446
8,567
Year ended
31 December
2018
$'000
10,141
7,759
Change
%
43%
10%
Profit before tax (see note 4)
Locations owned prior to 1 January 2018
2,025
1,301
1,213
952
67%
37%
Water Intelligence plc
9
Strategic Report
International Corporate Operated Locations (WII)
(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 has expanded its
operational scope by managing the corporate location established in Sydney, Australia after the
reacquisition of a former ALD franchisee in 2017 and now Ontario, Canada after another reacquisition.
The objective was for UK-based WII to lead the Group’s international expansion. Sales have grown 16%
during 2019 to $3.4 million. (2018: $2.9 million). Most importantly, profits grew strongly. (2019: $0.22
million; 2018: $0.03 million). Performance from Water Intelligence International is as follows:
UK-based WII
Sydney, Australia
Ontario, Canada
Total Revenue from International
Corporate Activities
Profit before tax (see note 4)
Year ended
31 December
2019
$'000
1,386
1,421
562
3,369
226
Year ended
31 December
2018
$'000
1,628
1,279
Change
%
(15)%
11%
N/A
2,907
16%
31
630%
Non-Core Costs.
(v)
During 2019, 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 write off for
a service that had not been performed. 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 2019, there were $493,000 of non-
core costs. During 2018, there were $287,000 of non-core costs. Please see table below for details:
Product development legal costs
Technology product write-off
Plumbing unit write-off related to acquisition
Transaction-related employee costs
Transaction-related legal costs
Total
Year ended
31 December 2019
$’000
-
93
187
82
131
493
Year ended
31 December 2018
$’000
60
60
32
-
135
287
Net Borrowings.
(vi)
Management of financial resources is important for making various decisions regarding the
reinvestment rate in the growth of operations. As noted herein, the recurring income from franchise
royalty provides the Group with attractive attributes for using b ank debt to complement equity sources
of capital. In the current macroeconomic environment, bank debt is a relatively cheaper cost of capital
than equity. Net cash is currently approximately $2.0 million.
Water Intelligence plc
10
Strategic Report
Group
Lines of credit: acquisition and working capital
Term loan
Less: Cash
Held in US Dollars
Held in £ Sterling
Held in CDN Dollars
Held in AU Dollars
Total Net Borrowings/(Cash)
Year ended
31 December
2019
$'000
1,264
2,047
3,311
4,127
633
121
400
5,281
(1,970)
Year ended
31 December
2018
$'000
1,616
822
2,438
3,569
1,239
208
5,016
(2,578)
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 , Canada 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.
Covid-19 Risk
The Group delivers water and wastewater services and is considered a supplier of “essential services”
under governmental policies covering shelter-in-place. As such the Group has continued to operate
during the pandemic. While 2Q has produced slowing, as homeowners evaluated the risks of
residential delivery of solutions, a combination of Company health and safety protocols for our
technicians and the continued consumer demand for water and wastewater solutions has enabled the
Group to return to executing its operating plan. The Group has sufficient cash to execute its plan and
work protocols for the health and safety of all our stakeholders, especially our technicians and our
customers.
Other Risks
There is a risk that existing and new customer relationships and R&D will not lead to the sales growth
and increased profits. The Group is reliant on a small number of skilled managers. The Group is reliant
on effective relationships with its franchisees, especially in the US.
Water Intelligence plc
11
Strategic Report
Corporate Governance statement S172 of the UK’s Companies Act
Each director must act in a way that, in good faith, would most likely promote the success of the Group for
the benefit of its stakeholders. The Board of Directors consider, both individually and together, that they
have acted in the way they consider, in good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole (having regard to the stakeholders and matters
indicated in S172) in the decisions taken during the year ended 31 December 2019. Following is an
overview of how the Board performed its duties during 2019.
Shareholders
The Executive Chairman, Chief Financial Officer, members of the Board and senior executives on the
management team have regular contact with major shareholders. The Board receives regular updates on
the views of shareholders which are taken into account when the Board makes its decisions. During May
2019, the Company raised capital from largely its current shareholders and received feedback during that
process. Also, given investor communication, the Board continues to invest in Water Intelligence
International to grow both in the UK and US.
Employees
The Board recognizes the importance of advanced human capital to a technology and services-led
business. The Board works through its human resources director to provide on-going training and
benefits. It also provides advancement opportunities in its various corporate-operated locations. As
noted in the Directors’ Report, the Group has taken a variety of steps to address the COVID-19 pandemic
in terms of its employees.
Franchisees
The Group holds an annual convention for its franchisees which includes education and training sessions.
Franchisees have an Advisory Committee that provides input to the Board with quarterly meetings. One
of our Board members, Bobby Knell, successfully developed the Dallas franchise and retired as one of our
leading franchisees. He provides an additional channel for input from the franchise System.
Customers
ALD has a reputation for high quality service delivery across the United States for over thirty years. Given
the importance of our reputation with customers, especially insurance companies, the Board pays
significant levels of attention to the quality of our service delivery. Management gathers data that it
shares with the Board on customer satisfaction.
Community and Environment
The Group’s brand stands for the conservation of water and the importance of providing solutions to
wastewater leaks. Through our advertising and marketing the Group seeks to communicate to the public
the importance of sustainability, particularly with respect to water. For example, the Group took an active
role in not only providing leak detection services to local government in Flint, Michigan – a community
known for its lead in the water crisis – but also working to educate community members on the importance
of on-going water monitoring. The Board has sought to be active with respect to education and water.
During 2019 and 2020, members of the Board have worked with Columbia University to contribute to its
“Year of Water” education campaign. In that context, the Board has also worked with non-profits focused
on global water-related issues, especially among the poor in Africa.
By order of the Board
Patrick DeSouza
Executive Chairman
16 June 2020
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 2019.
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 29 to
35.
2019 was marked by sustained and balanced multinational growth for both ALD and WII – ideal for
scaling of operations. Total revenue grew 27% to $32.4 million and profit before tax grew 34% to
$2.36 million when compared with 2018. Our ALD subsidiary grew revenue 28% to $29 million
and profit before tax 24% to $2.13 million when compared with 2018. Our WII subsidiary grew
revenue 16% to $3.37 million and turned sharply upward in profit before taxes to $0.23 million.
More generally, Water Intelligence 2019 results are consistent with its 2014-19 CAGR of 35%
revenue growth and 33% profit before taxes growth even though the Group has grown much larger
in absolute terms of revenue and profit before taxes. The splits between ALD and WII revenue
remained consistent with 2018 with approximately 90% of total revenue attributable to ALD and
10% of total sales attributable to WII consistent with balanced growth.
Going Concern
The Directors have prepared a business plan and cash flow forecast for the period to April 2021. 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 and growing US-based franchise business, ALD. The Directors also note that the Group has
cash net of borrowings of $1.97 million on its balance sheet as of 31 December 2019 (see Strategic
Report) and has diversified its operations further with growth in WII. Moreover, after an oversubscribed
capital raise in May 2019, 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 pure research and development, all of which was undertaken by third parties not
related to the Group, was $10,152 (2018: $64,285). The Group’s focus is currently on reinvestment
for commercialization of products not pure R&D. The Group remains committed to anticipate market
demands and has spent money on new product development during the year which has been
capitalised.
Dividends
The Directors do not recommend the payment of a dividend (2018: $nil).
Share Price
On 31 December 2019, 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 2019 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 throughout the Chairman’s Statement on pages 3-6.
Financial Risk Management
Financial risk management is outlined in the principal risks and uncertainties section of the Strategic
Report on page 11.
Subsequent Events
On 15 June 2020, the Group announced that it has launched an implementation of Salesforce.com’s
customer relationship management software across its ALD corporate and franchise operations. The
implementation will enable ALD to automate its entire workflow from customer leads to service dispatch of
technicians anywhere in the US to customer reporting upon job completion to invoicing. The implementation
will produce much greater efficiencies and capability to execute on a faster rate of growth. ALD’s franchise
System will share in the licensing and implementation investment.
On 1 June 2020, the Group completed the reacquisition of its San Jose, California franchise territory within
the Group’s ALD franchise business. San Jose is a strategic reacquisition because of its location in Silicon
Valley. The Group plans to use this corporate base to advance its innovation roadmap and R&D. The
reacquisition also enables the Group to add further scale to Water Intelligence financially and operationally.
The purchase price was approximately $1.05 million. 2019 sales for San Jose franchise location were
approximately $0.7 million and pre-tax profits were approximately $0.2 million. The reacquisition also
reinforces growth in the Bay Area with its multimillion dollar franchises in the San Francisco and Berkeley
territories.
On 30 April 2020, the Group completed the reacquisition of its Minneapolis, Minnesota franchise within the
Group’s ALD franchise business. Minneapolis is a significant reacquisition that enables the Group to add
further scale to Water Intelligence financially and operationally. The purchase price was approximately $1.3
million to be paid evenly over four years. 2019 sales for the Minneapolis franchise location was
approximately $0.98 million and pre-tax profits were approximately $0.31 million. Operationally, the
reacquisition of Minneapolis creates a corporate base in the Upper Midwest region of the United States.
During 2019, the Group executed several significant municipal contracts in the Upper Midwest affording
cross-selling opportunities from the Group’s Water Intelligence International subsidiary.
The provisional fair values of the acquisitions subsequent to year end are detailed below:
Minneapolis
$
San Jose
$
Total
$
Fair value of assets and liabilities acquired
Equipment
Vehicles
Other
Net assets acquired
Consideration
Cash
Deferred consideration – discounted to present
value
Total consideration
64,730
40,922
10,990
116,642
69,397
-
16,000
85,397
132,127
40,922
26,990
200,039
329,670
983,012
1,312,682
380,000
667,000
1,047,000
707,670
1,650,012
2,357,682
Intangible asset arising on acquisition
1,196,040
961,603
2,157,643
Water Intelligence plc
14
Directors’ Report
During 2019, a claim was brought against the Company by a former franchise owner which was settled
subsequent to the end of the year in February 2020. The parties agreed to an adjustment to the original
purchase price for the reacquisition for the franchise. In addition, among other items, the former franchise
owner agreed to a covenant not to compete and an extension of confidentiality over intangible assets of
the Company in perpetuity. As such, the Company accrued the settlement as of 31 December 2019,
totalling a net amount of $200,000 and recorded a covenant not to compete asset in connection with the
accrual. The covenant not to compete commences in February 2020 for a period of one year from that
date.
COVID-19
PPP Program - The Paycheck Protection Program (PPP) brings much needed relief to business owners
affected by the coronavirus. Not only does this loan program provide funding to help cover payroll and other
expenses, but if used for qualifying purposes, part or all of the loan can be forgiven. ALD applied for and
received funding of $1,869,800 under this program in April 2020
Work Protocols and PPE - The Group reviewed all applicable Shelter-in-Place Orders and determined
that our operations qualify as services related to essential/critical infrastructure with respect to water
and wastewater and that we are able to continue to operate under those Orders. The Group has taken
health and safety measures with respect to all personnel and increased significantly its inventory of
Personal Protective Equipment (PPE). The Group has issued work protocols with respect to our
service technicians who are essential to the delivery of our water and wastewater solutions to
customers. All non-essential personnel have been notified to work remotely until further notice. All
employees have been instructed to comply with social distancing rules/requirements in their
jurisdictions, as well as other safety and health precautions including use of PPE, frequent hand-
washing and sanitizing of all equipment.
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 17January 2019)
Bobby Knell (Appointed 12 March 2019)
Non-Executive Directors
Laura Hills
Michael Reisman
David Silverstone
The biographical details of the Directors of the Company are set out on the Corporate Governance section
of the report and on the Company’s website www.waterintelligence.co.uk
Water Intelligence plc
15
Directors’ emoluments
2019
Executive Directors
P DeSouza
B Knell
J Weigold
Non-Executive Directors
D Silverstone
L Hills
M Reisman
2018
Executive Directors
P DeSouza
J Weigold
Non-Executive Directors
D Silverstone
M Reisman
L Hills
Directors’ Report
Salary, Fees &
Bonus
Benefits Redundancy
$
$
$
517,346
40,000
41,250
21,000
20,000
20,000
20,034
-
-
-
-
-
659,596
20,034
-
-
-
-
-
-
Salary, Fees &
Bonus
Benefits Redundancy
$
$
$
479,417
125,000
21,000
20,000
20,000
22,455
-
-
-
665,417
22,455
-
-
-
-
-
Total
$
537,380
40,000
41,250
21,000
20,000
20,000
679,630
Total
$
501,872
125,000
21,000
20,000
20,000
687,872
Directors’ interests
The Directors who held office at 31 December 2019 and subsequent to year end had the following direct
interest in the ordinary shares of the Company at 31 December 2019 and at the date of this report,
excluding the shares held by Plain Sight Systems, Inc.
Patrick DeSouza*
Michael Reisman*
David Silverstone
John Weigold
Laura Hills
Number of shares at
31 December 2019
5,042,110
177,599
-
-
114,230
% held at 31
December 2019
29.83
1.05
-
-
0.67
Number of shares at
1 June 2020
5,042,110
177,599
-
-
114,230
% held at 1
June 2020
29.83
1.05
-
-
0.67
*Included in the total above, Patrick DeSouza received (i) 600,000 Partly Paid Shares during 2016 (ii) 750,000 in March
2018 and (iii) 800,000 in May 2019. 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, I nc.
Share option schemes
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
Canaccord Genuity Group Inc.
Amati AIM VCT
George D. Yancopoulos
Number of shares % held
14.38
2,430,000
5.92
1,000,000
5.67
959,106
4.82
814,200
4.50
759,996
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
16 June 2020
Water Intelligence plc
17
Corporate Governance Statement
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.
IFRS 15 (Revenue from Contracts with Customers) came into effect 1 January 2018 replacing IAS 18
(Revenue and Related Interpretations). We have expanded our discussion in footnote 3 to cover each
type of customer: residential, business-to-business, municipal and franchise.
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 David Silverstone 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 fulfil their duties and obligations to the Board and the
Company. They are required to attend at least 4 Board meetings annually and join regular 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 2019 and 31 December 2019 and the attendance of
directors is summarised below:
Patrick DeSouza
Bobby Knell
Michael Reisman
David Silverstone
Laura Hills
Board meetings
Possible (attended)
6/6
6/6
6/6
6/6
6/6
Audit committee
Possible (attended) Possible (attended)
Remuneration committee
2/2
2/2
2/2
2/2
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 Michael Reisman. The Audit Committee is responsible for ensuring that the financial
Water Intelligence plc
18
Corporate Governance Statement
performance, position and prospects for the Company are properly monitored, controlled and reported on
and for meeting the auditors and reviewing their reports relating to accounts and internal controls.
(b) Remuneration Committee
Michael Reisman, Non-Executive Director, is Chairman of the Remuneration Committee. The other member
of the Committee is David Sliverstone. 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 has been Chairman of American Leak Detection
since 2006 and Executive Chairman since its reverse merger to create Water Intelligence plc in 2010. 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. He is a graduate of Columbia College, the Yale Law School
and Stanford Graduate School.
Bobby Knell, Executive Director
Term of office: Appointed March 2019.
Background and suitability for the role: The ALD franchise business is central to the operations and value
proposition of Water Intelligence. 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 multi-million dollar operation, an operation now run by
his son. His appointment furthers the alignment of strategy and interests between corporate operations
and the growing American Leak Detection franchise business.
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 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
Water Intelligence plc
19
Corporate Governance Statement
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, corporate
responsibility and remuneration. He is a graduate of Yale Law School.
Laura Hills, Non-executive Director
Term of office: Appointed as a non-executive director on 6 February 2018 and Vice-Chairman August
2019.
Background and suitability for the role: Laura has more than 30 years’ experience as a legal professional,
having spent 10 years working for 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. In 2002, Ms. Hills founded Hills, Stern & Morley LLP, an emerging
markets legal firm based in Washington D.C. Laura sits on the Board of the Gerald Ford Presidential
Foundation. Given her background in finance and transactions, Laura heads the Audit Committee. Laura
brings considerable expertise in negotiating on infrastructure and renewables related transactions
globally. Moreover, Ms. Hills experience with non-profits assists the Board in fulfilling its responsibility to
advance the mission of Water Intelligence to support underserved communities globally. Laura holds
undergraduate, graduate and law degrees from Stanford University.
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 attends all Board meetings and
reports regularly to the Board and assists in the preparation of Board materials and in reviewing the
budget and ongoing performance. Mr. Lamarco has significant tax and audit experience. Mr. Lamarco
was formerly a partner with RSM, a global accounting firm.
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.
Water Intelligence plc
20
Corporate Governance Statement
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
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. David Silverstone is responsible at the Board level. The Human
Resources Director reports directly to Mr. Silverstone. 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
Water Intelligence plc
21
Corporate Governance Statement
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.
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 Michael Reisman.
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 2018 annual accounts and the interim accounts to
30 June 2019. 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 standard, 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 two
occasions. The Committee comprises Michael Reisman and David Silverstone, 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
available on a website. Financial Statements are published on
the Group's website
(www.waterintelligence.co.uk) in accordance with legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the Directors
– the work carried out by the auditors does not involve the consideration of these matters and,
accordingly, and the auditors accept no responsibly for any changes that may have occurred in the
accounts since they were initially presented on the website. The Directors' responsibility also extends
to the ongoing integrity of the Financial Statements contained there
Water Intelligence plc
23
Independent Auditors’ report to the members of
Water Intelligence plc
Opinion
We have audited the financial statements of Water Intelligence plc (the “Parent Company”) and its
subsidiaries (the “Group”) for the year ended 31 December 2019, which comprise:
•
•
•
•
•
the Group statement of comprehensive income for the year ended 31 December 2019;
the Group and parent company statements of financial position as at 31 December 2019;
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 2019 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 $190,000 (2018: $165,000) based on a measure of profit before taxation.
Water Intelligence plc
24
Independent Auditors’ report to the members of
Water Intelligence plc
We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for
the audit of the financial statements. Performance materiality is set based on the audit materiality as
adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit
area having regard to the internal control environment.
Where considered appropriate performance materiality may be reduced to a lower level, such as, for
related party transactions and directors’ remuneration.
We agreed with management to report all identified errors in excess of $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
How the scope of our audit addressed the key
audit matter
Revenue recognition
Revenue is recognised in accordance
with the accounting policy set out in
the financial statements. The group
has a number of different revenue
streams, some of which contain
in
judgements,
recognising when
risks and
rewards of ownership have passed to
the buyer. This is determined with
reference to the underlying contract
with the purchaser and the nature of
the service provided.
particularly
the
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
future
Any significant
activity.
downturn in performance or activity
could also result in an impairment of
these assets.
Our audit procedures consisted of:
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
16 June 2020
Water Intelligence plc
27
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Administrative expenses
– Other Income
– Share-based payments
– Amortisation of intangibles
– Other administrative costs
Total administrative expenses
Operating profit
Finance income
Finance expense
Profit before tax
Taxation expense
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Other Comprehensive Income
Exchange differences arising on translation of foreign
operations
Fair value adjustment on listed equity investment (net of
deferred tax)
Total comprehensive profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Profit per share attributable to equity holders of Parent
Basic
Diluted
11
11
The results reflected above relate to continuing activities.
Notes
4
7
13
8
9
10
Year ended
31 December
2019
$
Year ended
31 December
2018
$
32,363,935
25,466,651
(7,448,289)
(5,669,616)
24,915,646
19,797,035
(176,960)
(319,041)
(21,723,670
)
(22,219,671)
48,027
(104,652)
(327,201)
(17,450,905)
(17,834,731)
2,695,975
61,754
1,962,304
28,003
(400,241)
(235,957)
2,357,488
(662,062)
1,754,350
(468,624)
1,695,426
1,285,726
1,695,033
393
1,695,426
1,294,701
(8,975)
1,285,726
(164,145)
(439,517)
584,378
-
2,115,660
846,209
2,115,267
393
2,115,660
Cents
11.7
11.1
855,184
(8,975)
846,209
Cents
9.7
9.1
The accompanying notes on pages 35 to 68 are an integral part of these financial statements.
Water Intelligence plc
28
Consolidated Statement of Financial Position
as at 31 December 2019
Notes
ASSETS
Non-current assets
Goodwill and indefinite life intangible assets
Listed equity investment
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
Equity investment 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
24
13
14
17
16
17
18
21
21
21
21
23
12
20
19
23
12
2019
$
2018
$
9,090,701
1,932,252
1,949,832
3,898,133
605,234
17,476,152
334,011
5,036,149
5,280,808
10,650,968
28,127,120
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
114,440
9,717,349
(539,834)
1,001,150
416,700
(907,344)
(27,758,088)
584,378
34,894,649
17,523,400
101,915
6,887,739
-
1,001,150
239,740
(743,198)
(27,758,088)
-
33,246,277
12,975,535
100,793
100,499
2,321,400
556,198
588,684
3,466,282
1,448,303
879,307
316,221
2,643,831
4,596,085
1,163,055
1,277,505
7,036,645
28,127,120
2,550,280
989,736
1,449,035
4,989,051
20,708,916
The financial statements of Water Intelligence plc, company number 03923150, were approved by the
Board of Directors and authorised for issue on 16 June 2020. They were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 35 to 68 are an integral part of these financial statements.
Water Intelligence plc
29
Company Statement of Financial Position
as at 31 December 2019
ASSETS
Non-current assets
Investment in subsidiaries
Listed equity investment
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
Equity investment reserve
Retained earnings
Non-current liabilities
Deferred tax liability
Current liabilities
Trade and other payables
TOTAL EQUITY AND LIABILITIES
Notes
2019
$
2018
$
15
24
7,206,394
1,932,252
9,138,646
6,971,382
-
6,971,382
17
18
21
21
21
5,006,073
195,750
5,201,824
14,340,470
4,818,232
48,164
4,866,396
11,837,778
114,440
9,717,349
(539,834)
1,001,150
416,700
(1,870,038)
584,378
4,599,878
14,024,022
101,915
6,887,739
-
1,001,150
239,740
(2,013,369)
-
5,360,880
11,578,055
20 146,094
146,094
-
-
19
170,353
259,723
170,353
14,340,470
259,723
11,837,778
The loss for the financial year in the financial statements of the parent Company was $ 759,209 (2018:
loss $694,325), 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 16 June 2020. They were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 35 to 68 are an integral part of these financial statements.
Water Intelligence plc
30
Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
Share
Capital
$
Share
Premium
$
Shares
held in
Treasury
$
Merger
Reserve
$
Share based
payment
reserve
$
Foreign
exchange
reserve
$
Reverse
Acquisition
Reserve
$
Equity
Investment
Reserve
$
Retained
(Losses)/
Earnings
$
Non-
controlling
interest
$
Total
$
Total
Equity
$
Issue of Ordinary Shares
Purchase Non-controlling interest
(NWAR)
Share-based payment expense
Capital Contribution by non-
controlling interest
Profit for the year
Other comprehensive loss
As at 1 January 2018
65,305
980,436
(210,150)
1,001,150
135,088
(303,681)
(27,758,088)
36,610
5,907,303
210,150
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32,021,892
5,931,952
39,158
5,971,110
-
6,154,064
-
6,154,064
(70,316)
(70,316)
(29,684)
(100,000)
-
-
-
-
-
-
-
-
-
-
-
-
--
-
- -
-
-
-
-
-
-
As at 31 December 2018
101,915
6,887,739
As at 1 January 2019
101,915
6,887,739
IFRS 16 Adjustment
-
-
Restated as at 1 January 2019
101,915
6,887,739
Issue of Ordinary Shares
Options purchase
Share-based payment expense
Share buyback
Profit for the year
Other comprehensive income
As at 31 December 2019
11,237
515
2,714,604
115,006
-
-
773
-
-
-
-
-
-
-
-
(539,834)
-
-
--
- -
-
- -
-
-
-
-
- -
1,001,150
-
114,440
9,717,349
(539,834)
- -
104,652
-
-
-
-
104,652
-
104,652
-
-
-
-
-
-
-
100,000
100,000
-
- -
-
-
1,294,701
1,294,701
(8,975)
1,285,726
-
(439,517)
-
-
-
(439,517)
-
(439,517)
-
-
-
-
1,001,150
239,740
(743,198)
(27,758,088)
1,001,150
239,740
(743,198)
(27,758,088)
-
-
-
-
1,001,150
239,740
(743,198)
(27,758,088)
-
-
-
-
-
-
-
-
176,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33,246,277
12,975,535
100,499
13,076,034
33,246,277
12,975,535
100,499
13,076,034
(44,869)
(44,869)
(99)
(44,968)
33,201,408
12,930,666
100,400
13,031,066
-
-
2,725,841
115,521
-
176,960
(1,792)
(540,853)
-
-
-
-
2,725,841
115,521
176,960
(540,853)
1,695,033
1,695,033
393
1,695,426
-
(164,146)
-
584,378
-
420,233
-
420,233
416,700
(907,344)
(27,758,088)
584,378
34,894,649
17,523,401
100,793
17,624,194
The accompanying notes on pages 35 to 68 are an integral part of these financial statements.
Water Intelligence plc
31
Company Statement of Changes in Equity
for the year ended 31 December 2019
Share
Premium
$
Shares held
in Treasury
$
Merger
Reserve
$
Share
based
payment
reserve
$
Foreign
exchange
reserve
$
Equity
Investment
Reserve
$
Retained
(Losses)/
Earnings
$
Total Equity
$
980,436
(210,150)
1,001,150
135,088
(1,472,274)
Share
Capital
$
65,305
36,610
5,907,303
210,150
-
-
-
-
-
-
-
-
101,915
6,887,739
101,915
6,887,739
11,237
2,714,604
515
-
773
-
-
115,006
-
-
-
-
-
-
-
-
-
-
-
-
-
(539,834)
-
-
-
-
-
-
-
-
-
104,652
-
-
-
-
-
-
(541,095)
1,001,150
239,740
(2,013,369)
1,001,150
239,740
(2,013,369)
-
-
-
-
-
-
-
-
176,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,055,205
6,554,760
-
-
-
6,154,063
-
104,652
(694,325)
(694,325)
-
(541,095)
5,360,880
11,578,055
5,360,880
11,578,055
-
-
-
2,725,841
115,521
176,960
(1,792)
(540,853)
(759,209)
(759,209)
114,440
9,717,349
(539,834)
1,001,150
416,700
(1,870,038)
584,378
4,599,878
14,024,022
143,331
584,378
-
727,708
As at 1 January 2018
Issue of Ordinary Shares
Share buyback
Share-based payment expense
Profit for the year
Other comprehensive loss
As at 31 December 2018
As at 1 January 2019
Issue of Ordinary Shares
Options purchases
Share-based payment expense
Share buyback
Profit for the year
Other comprehensive income
As at 31 December 2019
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 68 are an integral part of these financial statements.
Water Intelligence plc
32
Consolidated Statement of Cash Flows
for the year ended 31 December 2019
Year ended
31 December
Year ended
31 December
2018
2019
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
$
$
2,357,488
1,754,350
1,268,463
319,041
176,960
400,241
(61,754)
355,897
327,201
104,652
235,957
(28,003)
Operating cash flows before movements in working capital
4,460,439
2,750,054
Decrease/(Increase) in inventories
Increase in trade and other receivables
(Decrease)/Increase 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
Purchase of listed equity investment
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
Options exercised
Interest paid
Proceeds from borrowings
Repayment of borrowings
Repayment of lease liabilities
117,454
(811,396)
2,477,094
(91,492)
(1,950,597)
682,256
6,243,591
1,390,221
(535,693)
(267,636)
5,707,898
1,122,585
(3,104,796)
(200,000)
(1,201,780)
(741,130)
(2,480,417)
61,754
(789,591)
(352,574)
-
(330,174)
(1,762,917)
28,003
(7,666,369)
(3,207,253)
11,237
2,714,604
(540,853)
115,521
(400,241)
1,854,936
(808,520)
(723,812)
36,610
5,907,302
210,150
(235,957)
926,472
(518,270)
-
Net cash (used by)/generated from financing activities
2,222,873
6,326,307
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at end of year
264,402
5,016,406
5,280,808
4,241,639
774,767
5,016,406
The accompanying notes on pages 35 to 68 are an integral part of these financial statements
Water Intelligence plc
33
Company Statement of Cash Flows
for the year ended 31 December 2019
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
Decrease in trade and other payables
Cash used by operations
Income taxes
Net cash used by operating activities
Cash flows from investing activities
Purchase of listed equity investment
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
Options exercised
Year ended
31 December
2019
$
Year ended
31 December
2018
$
(759,209)
(694,325)
176,960
(582,249)
(187,842)
(181,053)
104,652
(589,673)
(3,067,445)
(2,448,857)
(951,144)
.(6,105,975)
-
(951,144)
-
(6,105,975)
)
(1,201,780)
(1,201,780)
-
-
11,237
2,714,604
(540,853)
115,521
36,610
5,907,303
210,150
-
Net cash (used by)/generated from financing activities
2,300,508
6,154,063
Increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at end of period
147,585
48,164
195,750
48,088
76
48,164
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 limited by shares. 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 St atements were
authorised for issue by the Board of Directors on 16 June 2020..
2
Adoption of a new International Financial Reporting Standards
Commencing 1 January 2019, the Group and Company adopted IFRS 16, replacing IAS 17, in respect
of its treatment of operating leases. On implementation of IFRS 16, the Group recognizes a right of
use asset and corresponding liability in respect of its current lease obligations.
Right of use asset
Accumulated Depreciation
Net Asset
Lease Liability
Retained Earnings
Deferred Rent/Taxes
2,415,643
(1,059,607)
1,356,036
1,427,080
(44,968)
(26,076)
During 2019, $736,880 was recorded as interest and depreciation expense in regards to operating
leases. Prior to the adoption of IFRS 16, this would have been recorded as rent expense in the amount
of $723,812
3
Significant accounting policies
Basis of preparation
These Financial Statements of the Group and Company are prepared on a going concern basis,
under the historical cost convention (with the exception of share-based payments and goodwill) and
in accordance with International Financial Reporting Standards (IF RS) and IFRIC interpretations
issued by the International Accounting Standards Board (IASB) and adopted by the European Union,
in accordance with the Companies Act 2006. The Parent Company’s Financial Statements have also
been prepared in accordance with IFRS and the Companies Act 2006.
The preparation of Financial Statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts
of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The Financial Statements are presented in US Dollars ($), rounded to the nearest dollar.
Water Intelligence plc
35
Notes to the Financial Statements
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
June 2021. 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 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.
With respect to the Covid-19 pandemic of 2020, the Group has reviewed all applicable Shelter-in-
Place Orders and have determined that our operations qualify as essential/critical infrastructure and
that we are able to continue to operate under those Orders. Our service technicians are essential to
the minimum basic operations of our business. All non-essential personnel have been notified to work
remotely until further notice. Employees who are critical to the minimum basic operations of the
business have been instructed to comply with social distancing rules/requirements in their
jurisdictions, as well as other safety and health precautions. In view of the forgoing, operations may
not be optimal, but management does not feel that there are any Going Concern issues concerning
COVID-19 at the time of publication.
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 2019. 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 Group (or one of its subsidiary
undertakings) obtains the power to govern the financial and operating policies of an investee entity
so as to derive benefits from its activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the
Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments
issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of
the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired
is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the income statement.
The acquisition of ALDHC in 2010 was accounted for as a reverse acquisition. The assets and
liabilities revalued at their fair value on acquisition therefore related to the Company. Both a merger
reserve and a reverse acquisition reserve were created to enable the presentation of a consolidated
statement of financial position which combines the equity structure of the legal parent with the
reserves of the legal subsidiary.
Inter-company transactions and balances and unrealised gains or losses on transactions between
Group companies are eliminated in full.
Parent Company income statement – UK head office only
The Company has taken advantage of Section 408 of the Companies Act 2006 in not presenting its
own Statement of Comprehensive Income. The Company’s loss after tax for the year ended 31
December 2019 is $759,209 (2018: $624,009).
Water Intelligence plc
36
Notes to the Financial Statements
Inventories
The inventories, consisting primarily of equipment, parts, and supplies, are recorded at the lower of
cost (FIFO) or market value.
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 incom e 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
Functional and presentational currency
(i)
Items included in the Financial Statements are measured using the currency of the primary economic
environment in which each entity operates
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 other comprehensive income.
Water Intelligence plc
37
Notes to the Financial Statements
Leases
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right
of use lease is initially measured at cost, which comprises the initial amount of the lease liability adjusted
for any lease payments made at or before commencement date plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the underlying asset. The right-of-use asset is subsequently
depreciated using the straight-line method from the commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the useful life of the right-of-use asset or the end of the
lease term. The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date discounted using the Group incremental borrowing rate.
Revenue recognition
IFRS 15 (Revenue from Contracts with Customers) came into effect on 1 January 2018 replacing IAS
18 Revenue and related interpretations. Under IFRS 15, 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.
Nature of the Business
Water Intelligence plc operates through two wholly-owned subsidiaries: American Leak Detection (ALD)
and Water Intelligence International (WII). Both subsidiaries provide precision water leak detection and
repair services. The services that are performed for various customers are discrete activities - locating a
water leak or fixing a leak. The services are not bundled. Each service has a price established in a rate
book. Depending on customer preference, a service technician may stop after locating the leak. The
customer would pay a fee for that service. Or following the leak detection service, the technician may also
provide repair services for separate fee depending on what is contracted for by the customer. Service jobs
are typically short in duration, usually 1-2 hours for a leak detection service. ALD delivers these services
through corporate locations and franchise locations across the United States and in Canada and Australia.
WII operates outside the United States and delivers services only through corporate locations.
Customers and Sources of Revenue
Residential. Both ALD and WII provide services to residential customers. Service technicians,
whether from franchise-operated locations or corporate-operated locations, provide services to
homeowners. When the service is delivered, the homeowner is invoiced immediately upon completion
of the service. The price of the service is a fixed call-out charge for the technician to come to the house
and an hourly charge based on the time it takes to find the leak. Revenue is recognized upon
completion of the service.
Business-to-Business. ALD has written national contracts with nationwide insurance companies.
The insurance company, as ALD’s customer, receives claims from homeowners or property
management for water-related damage. The insurance company contracts directly with ALD
headquarters. ALD headquarters, as the principal, takes liability risk for performance of the service
jobs and for providing to insurance companies certain management services. A national price book is
established as part of the national contract. After the leak detection service is performed, report from
ALD headquarters is delivered to the insurance company and the insurance company is also invoiced
for the job. Service is deemed complete upon delivery of the report and invoice. Revenue is recognized
upon delivery of the report and invoice.
Municipal. WII headquarters or ALD headquarters will contract with a municipality to provide leak
detection services. Such leak detection services largely consist of surveying kilometers of pipe. During
such surveys, a designated distance is covered each day with a daily rate per technician per kilometer
covered. A report is prepared for the municipality weekly. When the report is delivered, the service is
deemed complete with respect to the distance covered. The municipality will be billed for the week’s
work when the report is conveyed. Revenue is recognized upon the delivery of the report.
Water Intelligence plc
38
Notes to the Financial Statements
Franchise Sales, Equipment and On-going Royalty Payments. ALD is a franchisor and leak
detection services are delivered not only by corporate-operated locations but also by ALD’s franchise
System. Franchisees are independently owned and operated.
The franchise System has the following characteristics for revenue recognition. ALD sells franchises
to third parties. A franchise is an exclusive territory in which a franchisee is authorized to deliver ALD
services, mainly leak detection and repair. ALD headquarters provides training and advice to support
the delivery of services by franchisees.
The franchise sale is documented by means of a ten-year license agreement that is renewable for ten-
year increments based on certain conditions derived from franchisee performance. The agreement has
three main components. First, the agreement provides for the payment of an upfront fee in exchange
for the exclusive territory and training. The upfront fee is non-refundable. ALD revenue is recognized
with respect to most of the upfront fee at the Closing of the franchise sale. The remaining portion of
the upfront fee is recognized as revenue over time using a straight -line method to reflect the delivery
of franchisor services over the ten-year period. Second, the franchise agreement provides that the
franchisee may purchase proprietary equipment from ALD and more general equipment from ALD -
approved third parties. There is a price book. ALD revenue is recognized upon the delivery of
equipment to franchisees and an invoice for the equipment. Third, in accordance with the franchise
license agreement, each franchise pays a royalty fee to ALD each month based on a percentage of
the franchisee’s gross sales for that month. Each month, a franchise files a royalty report and pays
the royalty amount. ALD revenue is recognized upon the receipt of the royalty report.
In respect of the sale of franchise territories, the Group will monitor on an ongoing basis the correct
apportionment for each such sale between recognition of upfront fees and fees which are deferred over
the length of the franchise agreement. This year such sales were not a material part of the Group’s
revenue or income.
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, a djusted 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.
Water Intelligence plc
39
Notes to the Financial Statements
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 mea sures the loss
allowance for that financial instrument at an amount equal to 12 ‑month ECL.
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 state ment.
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 estimated definite useful lives of
the assets as follows:
Covenants not to compete
Customer lists
Trademarks
Patents
Product development
Water Intelligence plc
40
Years
1-3
5
20
10
3
Notes to the Financial Statements
Any amortisation is included within administrative expenses in the statement of comprehensive
income.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually,
either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed
annually to determine whether the indefinite life continues to be supportable. If not, the change in
useful life from indefinite to finite is made on a prospective basis.
The asset’s residual values and economic lives are reviewed, and adjusted if appropriate, at each
balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount
if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount
and are recognised within other (losses) or gains in the Statement of Comprehensive Income.
Research and development
Research expenditure is recognised as an expense when incurred. Costs incurred on development
projects (relating to the design and testing of new or improved products) are recognised as intangible
assets when the following criteria are fulfilled.
•
It is technically feasible to complete the intangible asset so that it will be available for use or
resale;
• Management intends to complete the intangible asset and use or sell it;
•
•
•
•
There is an ability to use or sell the intangible;
It can be demonstrated how the intangible asset will generate possible futur e 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.
Water Intelligence plc
41
Notes to the Financial Statements
Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with International Financial Reporting Standards
requires the use of judgements together with accounting estimates and assumptions that affect the
reported amounts of assets and liabilities and the reported amounts of income and expenses during the
reporting period. Although these judgements and estimates are based on management’s best
knowledge of current events and actions, the resulting accounting treatment estimates will, by definition,
seldom equal the related actual results.
The key judgements in respect of the preparation of the financial statements are in respect of the
accounting for acquisitions, determination of separately identifiable assets on acquisition, the
determination of cash generating units, the evaluation of segmental information, t he 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) US corporate operated locations, (iv) International
corporate operated locations and (v) head office costs. Information reported to the Group’s Chief
Operating Decision Maker (being the Executive Chairman), for the purpose of resource allocation and
assessment of division performance is now separated into the four income generating segments (items (i)
to (iv)), and items that do not fall into these segments have been categorized as unallocated head office
costs (v).
The Group mainly operates in the US, with operations in the UK and certain other countries 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
Year ended
Year ended
31 December
31 December
2019
$
6,499,045
8,049,570
14,446,286
3,369,034
32,363,935
2018
$
6,264,839
6,153,652
10,140,892
2,907,268
25,466,651
Water Intelligence plc
42
Notes to the Financial Statements
Profit/(Loss) before tax
Franchise royalty income
Franchise related activities
US corporate operated locations
International corporate operated locations
Unallocated head office costs
Non-core costs
Total
Assets
Franchise royalty income
Franchise related activities
US corporate operated locations
International corporate operated locations
Total
Amortization
US corporate operated locations
International corporate operated locations
Total
Depreciation
Note
Franchise royalty income
Franchise related activities
US corporate operated locations 2
International corporate operated locations
Total
Water Intelligence plc
43
Year ended
Year ended
31 December
31 December
2019
$
1,603,149
601,281
2,025,095
226,215
(1,605,252)
(493,000)
2,357,488
2018
$
1,447,989
484,036
1,213,304
31,219
(1,135,435)
(286,762)
1,754,350
Year ended
Year ended
31 December
31 December
2019
$
9,412,402
1,862,887
11,772,004
5,079,827
28,127,120
2018
$
8,946,370
1,764,171
7,648,032
2,350,344
20,708,917
Year ended
Year ended
31 December
31 December
2019
$
291,692
27,350
319,042
2018
$
298,357
28,844
327,201
Year ended
31 December
2019
Year ended
31 December
2018
$
-
-
1,092,312
176,151
1,268,463
$
-
-
278,884
77,013
355,897
Notes to the Financial Statements
Finance Expense
US corporate operated locations
International corporate activities
Unallocated head office costs
Total
Year ended
31 December
2019
$
Year ended
31 December
2018
$
81,608
995
317,638
400,241
-
40
235,916
235,957
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 US
franchise-operated and corporate-operated locations and international franchises in Australia and
Canada. Meanwhile, WII has corporate-operated activities outside the US. We may also regroup
the same information into US and Outside the US to capture the Group’s effort to b e multinational
company. As indicated herein, the Group has had strong balanced growth in the US and abroad
and across ALD and WII. Between 2019 and 2018, Outside the US sales have grown 13% to $3.5
million (2018:$3.1 million). Sales in the US have grown 29% to $28.9 million (2018: $22.4 million).
The percentage of International sales to Total sales has remained relatively constant at 1 1%
(2018: 12%).
Total Revenue
Franchise
royalty income
Franchise
related
activities
Corporate
owned Stores
International
corporate
activities
Total
Year ended 31 December 2019
Year ended 31 December 2018
US
$
International
$
Total
$
US
$
International
$
Total
$
6,355,811
143,234
6,499,045
6,087,083
177,756
6,264,839
8,049,570
-
8,049,570
6,153,652
-
6,153,652
14,446,286
- 14,446,286 10,140,892
- 10,140,892
-
3,369,034
3,369,034
-
2,907,268
2,907,268
28,851,667
3,512,268 32,363,935 22,381,627
3,085,024 25,466,651
Water Intelligence plc
44
Notes to the Financial Statements
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)
Note
6
2
2
Year ended
31 December
2019
$
820,885
12,965,317
Year ended
31 December
2018
$
661,264
9,579,521
70,038
1,268,463
319,042
224,297
10,152
(34,805)
707,490
355,897
327,201
243,799
4,285
5,131
Year ended
31 December
2019
$
Year ended
31 December
2018
$
51,000
41,545
-
-
The Group auditors are not the auditors of the US subsidiary companies. The fees paid to the auditor
of the US subsidiary companies were $121,009 (2018: $100,910) for the audit of these companies
and $24,260 (2018: $48,582) for other services.
6
Employees and Directors
The Directors of the Company are considered to be the key management of the business.
Year ended
31 December
2019
$
Year ended
31 December
2018
$
659,596
11,392,014
736,748
687,872
8,203,268
583,729
176,960
104,652
12,965,317
9,579,521
Short-Term employee benefits
Directors fees, salaries and benefits
Wages and Salaries
Social Security Costs
Long-Term employee benefits
Share based payments
Water Intelligence plc
45
Notes to the Financial Statements
Information regarding Directors emoluments are as follows:
Short-Term employee benefits
Directors’ fees, salaries and benefits
Social Security Costs
Year ended
31 December
2019
$
Year ended
31 December
2018
$
659,596
20,034
679,630
687,872
17,892
705,764
The highest paid Director received emoluments of $537,380 (2018: $501,872).
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
2019
$
Year ended
31 December
2018
$
5
23
132
22
34
216
5
22
106
20
20
173
The Company grants share options at its discretion to Directors, management and advisors. These are
accounted for as equity settled options. Should the options remain unexercised after a period of ten years
from the date of grant the options will expire unless an extension is agreed to by the Board. Options are
exercisable at a price equal to the Company’s quoted market price on the date of grant or an exercise
price to be determined by the Board.
Details for the share options and warrants granted, exercised, lapsed and outstanding at the year-end
are as follows:
Outstanding at beginning of year
Granted during the year
Forfeited/lapsed during the year
Exercised during the year
Outstanding at end of the year
Exercisable at end of the year
Number of
share
options
2019
1,535,000
525,000
(160,000)
(450,000)
1,450,000
765,000
Weighted
Number
average
of share
exercise
options
price ($)
2019
2018
1.43 1,685,000
6.08
160,000
1.40
-
1.21
(310,000)
3.01 1,535,000
Weighted
average
exercise
price (£)
2018
1.02
3.36
-
0.86
1.43
1.52 1,375,000
1.08
Fair value of share options
During the year, the Group granted 525,000 Share Options to certain Employees, with exercise
prices ranging from of £3.48 to £4.75 ($4.59 to $6.24).
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 78.21p to 109.69p. This is based on risk-free
rates of 0.84% and volatility of 59%.
Water Intelligence plc
46
Notes to the Financial Statements
The Black Scholes calculations for the options granted during the year resulted in a charge of $176,960
(2018: $104,652) 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 2019 was 6.95
years (2018: 6.68 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
ALDHC Plan (1)
142,500
100,000
2013 Directors (2)
177,500
2015 Options (3)
2016 Directors (4)
100,000
117,500
2016 Employee (5)
70,000
150,000
2016 Employee (5)
2018 Acquisition (6) 135,000
25,000
2018 Acquisition (7)
475,000
2019 Employee (8)
50,000
2019 Acquisition (9)
2019
142,500
100,000
177,500
100,000
95,000
150,000
135,000
25,000
475,000
50,000
2018
Date of
Grant
317,500 01/12/2013
250,000 01/08/2013
177,500 08/06/2015
200,000 13/06/2016
220,000 19/12/2016
210,000 19/12/2016
135,000 06/03/2018
25,000 08/10/2018
- 04/04/2019
- 04/04/2019
Total
1,425,000
1,450,000
1,535,000
From
Exercise period
To
Exercise
price
$1.14 01/12/2013
01/12/2023
$1.30 01/08/2013
01/08/2023
$0.67 08/06/2015
08/06/2025
$1.26 13/06/2016
13/06/2026
$1.24 19/12/2019
19/12/2026
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
All share options are equity settled on exercise. The amounts at the Report Date reflect all share
options that have been either exercised or forfeited.
(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 New Ordinary Shares with an
exercise price of $1.14 per share.
(2) Each member of the Board received an option to purchase 50,000 New Ordinary Shares . The Director options have
an exercise price of $1.30 per share or 67% above the highest share price for 2013.
(3) On 5 June 2015, the Group granted 417,500 Share Options to the Executive Chairman and David Silverstone, both
directors of the Company, and to certain Employees, all with an exercise price of $0.67. 100,000 of these Share Options
relate to the Executive Chairman’s compensation and an additional 50,000 of these Share Options relate to the Executive
Chairman’s personnel guarantee of the loan with Liberty Bank in 2014. 40,000 of these Share Options relate to
compensation payable to David Silverstone.
(4) On 13 June 2016, each member of the Board received an option to purchase 50,000 New Ordinary Shares. The Director
options have an exercise price of $1.26 per share which is 5% higher than the highest share price for 2015. These
Options have a three-year vesting requirement. 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 person al
guarantee of the loan with Liberty Bank in 2015.
(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. 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.
These options have a four-year vesting requirement.
Water Intelligence plc
47
Notes to the Financial Statements
(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 , (ii) 750,000 Partly Paid
Shares at an exercise price of $2.71 in March 2018 and (iii) 850,000 Partly Paid Shares at an exercise price of $4.82, in May
2019 in connection with capital raising and bank financings. These Partly Paid Shares carry voting rights but will no t be
admitted to trading or carry any economic rights until fully paid.
8
Finance income
Interest income
9
Finance expense
Interest expense
10
Taxation
Group
Current tax:
Year ended
31 December
2019
Year ended
31 December
2018
$
61,754
$
28,003
Year ended
31 December
2019
$
400,241
Year ended
31 December
2018
$
235,957
Year ended
31 December
2019
Year ended
31 December
2018
$
$
Current tax on profits in the year
535,692
267,636
Prior year over provision
Total current tax
Deferred tax current year
Deferred tax prior year
Deferred tax (credit)/expense (note 20)
Income tax expense
-
535,692
126,369
-
267,636
200,988
-
-
126,369
662,061
200,988
468,624
Water Intelligence plc
48
Notes to the Financial Statements
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
(2019: 31.6% versus 2018: 26.7%)
Tax effects of:
Non-deductible expenses
GILTI Inclusion
Other tax adjustments, reliefs and transfers
State taxes net of federal benefit
Adjustment in respect of prior year
Changes in rates
Taxation expense recognized in income statement
2,357,488
1,754,350
446,277
366,568
11,528
22,548
38,314
110,772
30,586
2,036
662,061
19,737
11,946
69,988
(6,925)
7,310
468,624
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 £3,635,579 (2018: £4,276,906) available for offset against future profits. £690,760 (2018:
£727,074) represents unrecognized deferred tax assets thereon at 19%. The deferred tax asset has not
been recognized due to uncertainty over timing of utilization.
The effective rate for tax for 2019 is 31.6% (2018: 26.7%). It is anticipated that the Group will use
this effective tax rate of 31.6% going forward.
11
Earnings per share
The profit per share has been calculated using the profit for the year and the weighted average
number of ordinary shares outstanding during the year, as follows:
Basic
Profit for the year attributable to equity holders of the Parent ($)
Weighted average number of ordinary shares
Diluted weighted average number of ordinary shares
Profit per share (cents)
Diluted profit per share (cents)
Year ended
31
December
2019
$
1,695,033
Year
ended 31
December
2018
$
1,294,701
14,426,694 13,401,624
15,244,422
11.7
11.1
14,304,790
11
9.7
9.1
Water Intelligence plc
49
Notes to the Financial Statements
12
Acquisitions
These can be summarised as follows:
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;
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.
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.
On 13 June 2019, the Company announced the reacquisition of its Tucson, Arizona franchise (“Tucson”)
within the Group’s American Leak Detection subsidiary (“ALD”). The demographics and economy of
Tucson are fast growing and a prime area for accelerated growth for both the Group’s American Leak
Detection and Water Intelligence International businesses. Water issues are proliferating throughout the
southwest of the United States.
On 8 July 2019, the Company acquired territory (Halton) from ALD’s Toronto franchise. The Toronto
franchise will continue to execute its franchise operation with its remaining territory. The acquisition of
territory provides ALD’s new corporate location in Ontario (reacquisition of Ontario franchise in February
2019) more scope to grow.
Ontario
Canada
Atlanta
Orlando
Tucson
Halton
Canada
Adjust-
ments
$
$
$
$
$
$
27,800
46,300
30,200
34,500
74,100
64,700
Totals
$
111,170
138,178
136,465
385,813
673,000 160,000 227,751
250,000
125,000
471,698 540,000
375,000 1,144,698 700,000 227,751
1,975,881
32,968
1,245,666
32,968 3,221,547
494,117
375,000 1,070,598 635,300 227,751
32,968 2,835,734
Fair value of assets and
liabilities acquired
Equipment
Vehicles
Other
Net assets acquired
Consideration
Cash
Note payable
Total consideration
Intangible assets arising on
acquisition (see note 13)
53,170
57,378
136,465
247,013
665,130
76,000
741,130
The intangible assets arising on the above acquisitions of $2,835,734 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.
Water Intelligence plc
50
Notes to the Financial Statements
The amount of deferred consideration for 2019 acquisitions as well as the remaining deferred
consideration for acquisitions made in 2015, 2016, 2017, 2018 and 2019 (after discounting
anticipated cash flows to evaluate the fair value), can be summarized as follows:
Current
T&M Tech LLC (South Michigan franchise)
Cincinnati
Sydney
Indianapolis
Kentucky
South Florida
Portland
Orlando
Tucson
Year ended
31 December
2019
$
75,473
56,604
557,816
23,480
471,698
92,434
Year
acquired
2015
2016
2016
2017
2018
2018
2018
2019
2019
Year ended
31 December
2018
$
74,282
55,712
55,631
102,073
523,745
22,116
615,476
Total current deferred consideration
1,277,505
1,449,035
Non-Current
T&M Tech LLC (South Michigan franchise)
Cincinnati
Kentucky
South Florida
Tucson
Total non-current deferred consideration
13
Intangible assets
Year
acquired
2015
2016
2018
2018
2019
Year ended
31 December
2019
$
168,834
387,364
556,198
Year ended
31 December
2018
$
72,389
54,292
560,313
192,313
879,307
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
51
Notes to the Financial Statements
Goodwill and other indefinite life intangible assets
Group
Cost
At 1 January 2018
Additions (see note 12)
At 31 December 2018
Additions (see note 12)
At 31 December 2019
Impairment
At 1 January 2018
Impairment in year
Goodwill
Acquisitions
$
Owned &
Operated stores
$
Goodwill on
franchisor
activities
$
Totals
$
2,325,109
220,025
2,545,134
494,117
3,039,251
1,911,415
636,711
4,873,235
2,742,936
-
2,962,961
4,654,351
2,341,617
6,995,968
636,711
-
7,836,196
2,835,734
636,711
10,671,930
1,493,729
75,000
-
1,568,729
12,500
- -
12,500
At 31 December 2018
1,506,229
75,000
-
1,581,229
Impairment in year
-
At 31 December 2019
1,506,229
75,000
Carrying amount
-
-
1,581,229
At 31 December 2018
1,038,905
4,579,351
636,711
6,254,967
At 31 December 2019
1,533,022
6,920,968
636,711
9,090,701
The increase in carrying value of Goodwill Acquisitions at 31 December 2019 relate to goodwill additions
arising on the acquisition outlined in Note 12 above during 2019.
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, 2018 and
2019. Details on additions in 2019 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 2019, 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.
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:
Water Intelligence plc
52
Notes to the Financial Statements
Goodwill on 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 c ash 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 2019 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 2019 (2018: $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
53
Notes to the Financial Statements
13
Intangible assets continued
Other Intangible assets table
Product
development
$
Covenants
not to compete
$
Customer
Lists
Trademarks
Patents
$
$
Website
$
$
Enterprise
Solution
Development
$
Total
$
164,880
-
164,880
-
-
164,880
290,000
-
290,000
200,000
-
490,000
350,357
-
350,357
-
-
350,357
5,293,817
-
5,293,817
-
-
5,293,817
23,692
-
23,692
-
-
23,692
90,000
90,000
-
-
90,000
107,000
350,471
457,471
-
(355,471)
102,000
164,880
283,334
270,472
3,156,676
23,692
22,500
Amortisation expense
-
6,666
Exchange differences
-
-
28,844
(2,103)
261,691
- 30,000
-
-
-
At 31 December 2018
164,880
290,000
297,213
3,418,367
23,692
52,500
-
-
27,350
(779)
261,691
-
-
-
-
30,000
-
164,880
290,000
323,784
3,680,058
23,692
82,500
-
-
200,000
53,144
26,573
1,875,450
1,613,759
-
-
37,500
7,500
457,471
102,000
2,423,565
1,949,832
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
54
Cost
At 1 January 2018
Additions
At 31 December 2018
Additions
Disposals
At 31 December 2019
Accumulated amortisation
At 1 January 2018
Amortisation expense
Exchange differences
At 31 December 2019
Carrying amount
At 31 December 2018
At 31 December 2019
6,319,746
350,471
6,670,217
200,000
(355,471)
6,514,746
3,921,554
327,201
(2,103)
4,246,652
319,041
(779)
4,564,914
-
-
-
-
-
-
-
Notice of Annual General Meeting
14
Property, plant and equipment
Equipment
& displays
$
Motor
Vehicles
$
Leasehold
Improvements
$
Buildings
$
Right of
Use
Vehicles
$
Right of
Use
Offices
$
Total
$
713,862
311,457
15,000
50,875
71,774
666,251
(1,881)
(703)
542,711
(8,382)
-
-
-
-
-
1,428,404
917,560
15,000
-
-
-
-
-
-
163,116
113,302
-
152,009
-
-
-
-
-
-
-
- 1,040,319
-
122,649
- 1,208,962
(10,263)
-
(703)
-
- 2,360,964
-
428,426
488,163
-
4,682
(107,805)
513,283
-
1,848
(107,415)
68,672
-
-
-
-
-
1,382
-
357,458
1,092,582
-
(55,786)
533,652 1,961,228
1,323,060 2,415,643
7,912
(644,768)
-
(373,762)
1,976,560
1,438,578
83,672
153,391
1,394,255
1,482,950 6,529,404
201,242
75,936
682
(703)
-
-
220,609
133,924
1,364
Exchange differences
(537)
(4,079)
-
-
-
-
-
-
27,116
-
-
-
-
-
-
-
-
-
-
-
-
277,860
(703)
355,897
(4,616)
628,437
192,985
-
(55,786)
(373,762)
(519,679)
-
10,947
9
396,350
284,712
-
663,257 1,059,457
371,621 1,268,463
1,458
-
38,072
625,276
661,116 2,631,272
420,611
205,781
2,046
109,945
55,924
(35,915)
(54,216)
-
325,759
955
-
269,482
495
821,355
477,466
-
-
-
5,942
-
7,988
1,007,793
711,779
12,954
-
-
- 1,732,527
1,155,204
961,112
75,684
115,319
768,978
821,835 3,898,132
The value of the assets charged as security for the bank debt is $1,426,896 (2018: $1,234,492).
Water Intelligence plc
55
Cost
At 1 January 2018
Acquired on
acquisition of
subsidiary
Additions
Exchange differences
Disposals
At 31 December
2018
Acquired on
acquisition of
subsidiary
Additions
IFRS 16 Adoption
Exchange differences
Disposals
At 31 December
2019
Accumulated
depreciation
At 1 January 2018
Eliminated on
disposals
Depreciation expense
At 31 December
2018
Acquired on
acquisition of
subsidiary
Eliminated on
disposals
IFRS 16 Adoption
Depreciation expense
Exchange differences
At 31 December
2019
Carrying amount
At 31 December 2018
At 31 December
2019
Notice of Annual General Meeting
15
Investment in subsidiary undertakings
Company
Cost
At 31 December 2018
Exchange difference
At 31 December 2019
Impairment
At 31 December 2018
Exchange difference
At 31 December 2019
Carrying amount
At 31 December 2018
At 31 December 2019
Subsidiary
Undertakings
$
13,372,288
235,012
13,607,300
6,400,906
-
6,400,906
6,971,382
7,206,394
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)
Canadian Leak Detection, Inc.
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 US
199 Whitney Avenue, New
Haven, Connecticut 06511 US
8-4696 Bartlette Rd.
Beamsville, Ontario L0R 1B1
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
Canada
England and
Wales
England and
Wales
Interest
held
%
100%
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 pre-set price at any time in the future.
Water Intelligence plc
56
Notice of Annual General Meeting
16
Inventories
Group Inventories
Group
Year ended
31 December
2019
$
334,011
Year ended
31 December
2018
$
451,465
During the year ended 31 December 2019, an expense of $7,448,287 (2018: $5,446,010) was
recognized in the Consolidated Statement of Comprehensive Income, including business to business
expenses of $6,747,495 (2018: $4,806,466). There has been no write down of inventories during
2019.
17
Trade and other receivables
Trade notes receivable
Group
Company
Year ended
31 December
2019
$
605,234
Year ended
31 December
2018
$
618,005
Year ended
31 December
2019
Year ended
31 December
2018
$
$
- - -
All non-current receivables are due within five years from the end of the reporting period.
Group
Company
Year ended
31 December
2019
$
2,796,536
659,539
-
584,876
223,706
389,701
370,284
Year ended
31 December
2018
Year ended
31 December
2019
Year ended
31 December
2018
$
-
16,393
4,906,216
-
-
$
2,209,382
697,123
-
520,478
191,988
357,487
235,523 71,956
$
-
4,735
4,660,040
-
-
123,540
29,917
Trade receivables
Prepayments
Due from Group undertakings
Accrued royalties receivable
Trade notes receivable
Other receivables
Due from related party
Current portion
5,024,642
4,211,982
4,994,565
4,818,232
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 (2018: 39 days).
Water Intelligence plc
57
Notice of Annual General Meeting
The carrying amounts of the Group’s trade and other receivables are denominated in the following
currencies:
US Dollar
UK Pound
Australian Dollar
Canadian Dollar
Year ended
31 December
2019
Year ended
31 December
2018
$
4,133,093
647,220
208,592
35,735
5,024,641
$
3,534,868
558,450
118,663
4,211,981
The maximum exposure to credit risk at the reporting date is the carrying value of each class of
receivable mentioned above. The Group does not hold any collateral as security.
18
Cash and cash equivalents
Cash at bank and in hand
19
Trade and other payables
Group
Company
Year ended
31 December
2019
Year ended
31 December
2018
Year ended
31 December
2019
Year ended
31 December
2018
$
5,280,808
$
5,016,406
$
195,750
$
48,164
Trade payables
Accruals and other payables (Note 2)
Due to Group undertakings
Group
Company
Year ended
31 December
2019
Year ended
31 December
2018
Year ended
31 December
2019
Year ended
31 December
2018
$
993,240
3,602,845
-
4,596,085
$
1,350,941
1,199,339
-
2,550,280
$
52,627
117,725
-
170,353
$
146,878
112,845
259,723
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 (2018:16 days).
20
Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group
2019
$
2018
$
Deferred tax (liability)/assets
(588,684)
(316,221)
Water Intelligence plc
58
Notice of Annual General Meeting
The movement in deferred tax liabilities is as follows:
2019
Temporary differences:
Net operating profit (loss) (non-
current)
Short term temporary differences
2018
Temporary differences:
Net operating profit (loss) (non-
current)
Short term temporary differences
Recognized in
the income
statement
$
Recognized in
Other
Comprehensive
Income
$
-
-
-
-
Opening
balance
$
-
-
Closing
balance
$
-
-
(316,221)
(316,221)
(126,369)
(126,369)
(146,094)
(146,094)
(588,684)
(588,684)
Opening
balance
$
Recognized in
the income
statement
$
-
-
-
-
(115,233)
(115,233)
(200,988)
(200,988)
Recognized in
Other
Comprehensive
Income
$
-
-
-
-
Closing
balance
$
-
-
-
(316,221)
At the balance sheet date, the Group’s UK trading subsidiaries had unused tax losses (as reported on the
Group’s tax returns) of £3,635,579 (2018: £4,276,906) available for offset against future profits. £690,760
(2018: £727,074) represents unrecognized deferred tax assets thereon at 19%. 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 2018
At 31 December 2019
.
Group & Company
At 31 December 2018
At 31 December 2019
Ordinary Shares
Number
13,883,969
14,702,371
Shares held in
treasury Number
145,000
Total Number
13,883,969
14,847,371
Share capital
$
101,915
114,440
Share premium
$
6,887,739
9,717,349
Shares in
Treasury
$
(539,833)
On 10 May 2019, the Company announced a capital raise, pursuant to which the Company sold
500,000 new Ordinary Shares to raise £1.85 million and a subscription of 363,402 Ordinary Shares to
raise a total of approximately £1.3 million. In addition, Patrick DeSouza, executive chairman of the
Company, and persons closely associated with him, to exercised 300,000 options over Ordinary
Shares and David Silverstone to exercised 50,000 options over Ordinary Shares and sold these to
incoming investors from the Subscription at the Issue Price. Michael Reisman and Laura Hills
Water Intelligence plc
59
Notice of Annual General Meeting
purchased 4,153 and 24,919 newly issued Ordinary Shares through the Subscription. All of these
shares were admitted to trading on AIM on 17 May 2019. In addition, Patrick DeSouza received
850,000 Partly Paid Shares (being ordinary shares with voting rights and no economic rights until
fully paid) in exchange for increasing the guarantee he is providing over the Company’s bank
facilities.
At various times during 2019 the Company bought 145,000 shares into treasury at a purchase price
range of 245p to 370p.
The Company bought another 25,000 shares into treasury on 5 January 2020 at a purchase price of
247p bringing the total number of shares in treasury to 170,000.
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 o f
the reverse acquisition on 29 July 2010.
22 Right of use liability
Year
ended
31
December
2019
$
587,674
1,116,132
1,703,806
88,189
723,812
Year ended
31
December
2018
$
-
-
-
-
Lease liabilities in statement of financial position
Amounts due within one year
Amount due after more than one year
Amount recognized in the statement of
comprehensive income
Interest on leasehold liabilities
Amount recognized in the statement of
cash flows
Repayment of lease liabilities
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.
Water Intelligence plc
60
Notice of Annual General Meeting
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 201 9 no
trading in financial instruments was undertaken (2018: none) and the Group did not have any
derivative or hedging instruments.
The Group uses financial instruments including cash, loans and finance leases, as well as trade
receivables and payables that arise directly from operations.
Due to the simple nature of these financial instruments, there is no material difference between book
and fair values. Discounting would not give a material difference to the results of the Group and the
Directors believe that there are no material sensitivities that require additional disclosur e.
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 2019, 70.72% was held with one counterparty with a credit rating of Aaa and a further
13.32% 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 2019, trade receivables of $460,716 (2018: $470,976) 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
2019
Year ended
31 December
2018
$
129,287
331,429
460,716
95
$
109,963
364,013
470,976
96
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 counterparty will default on its contractual obligations resulting in financial
loss to the Group. The Group seeks to limit credit risk on liquid funds throu gh trading only with
counterparties that are banks with high credit ratings assigned by international credit rating agencies.
Water Intelligence plc
61
Notice of Annual General Meeting
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The exposure to
credit risk at the year-end was in respect of the past due receivables that have not been impaired are
disclosed in note 17.
Categories of financial instruments
Group
Company
Loans and receivables
Cash and cash equivalents
Trade and other receivables – current
Trade and other receivables – non-current
Financial Liabilities measured at
amortised cost
Trade and other payables
Borrowings – current
Borrowings – non-current
Deferred consideration – current
Deferred consideration – non-current
23 Borrowings
Year ended
31 December
2019
$
-
5,280,808
5,024,641
605,234
4,596,085
1,163,055
2,321,400
1,277,505
556,198
Year ended
31 December
2018
$
-
5,106,406
Year ended
31 December
2019
Year ended
31 December
2018
$
-
195,750
$
-
48,164
4,818,232
4,211,982
--
4,994,565
618,605
-
-
2,550,283
170,353
-
989,736
-
1,448,303
-
1,449,035
-
-
259,724
-
-
-
879,307 -
-
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 201 9 was $603,366
(2018: $838,196). Annual interest on the loan is fixed for the term at 4.78% and requires instalments
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 maturity date was extended
to December 2020. 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 2019 was $228,133 (2018: $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 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
Water Intelligence plc
62
Notice of Annual General Meeting
of $13,585 and carries an interest rate of 5.40% (as of 31 December 2017). The balance outstanding as
of 31 December 2019 was $319,024 (2018: $460,974). The maturity date of ALOC 1T1 is 1 December
2021.
In December 2018, the second 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 2019 was $716,353 (2018: $926,472). The maturity date of ALOC 1T2 is 1
December 2022.
In May 2019, the draw period for ALOC 1 ended. $1,854,936 was converted into a third term loan bank
agreement (ALOC 1T3). ALOC 1T3 requires monthly amortization of $35,524 and carries an interest rate
of 5.57% (as of 31 December 2019). The balance outstanding as of 31 December 2019 was $1,662,660
(2018: $nil) The maturity date of ALOC 1T3 is 5 May 2024.
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 2019.
Current
Non-Current
Year ended
31 December
2019
Year ended
31 December
2018
Year ended
31 December
2019
$
137,702
Year ended
31 December
2018
$
429,207
$
408,989
Financial Instruments
2016 Term loan
Working Capital Line of Credit
Acquisition Line of Credit
- ALOC1T1, converted into term loan
- ALOC1T2, converted into term loan
- ALOC1T3, converted into term loan
Less: Loan Closing Costs
Total
$
465,664
713,685
149,220
223,585
340,880
(16,294)
228,133
352,614
141,910
210,704
228,133
1,984,351
1,034,832
169,804
492,768
1,321,780
319,064
715,768
-
(28,787)
(15,736)
1,163,055
989,736
2,321,400
1,448,303
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.
See KPI on page 11
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.
Water Intelligence plc
63
Notice of Annual General Meeting
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
2019 were $143,234 (2018: $177,756). No foreign exchange contracts were in place at 31 December 2019
(2018: Nil).
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary
liabilities were:
Group
Company
Year ended
31 December
2019
Year ended
31 December
2018
Year ended
31 December
2019
$
$
$
Year ended
31 December
2018
$
1,546,648
945,987
5,190,315
4,866,396
604,422
529,081
170,353
259,724
Assets
Sterling, Australian and
Canadian Dollars
Liabilities
Sterling, Australian and
Canadian Dollars
As shown above, at 31 December 2019 the Group had Sterling denominated monetary net assets of
$633,132 (2018: $416,006). If Sterling weakens by 10% against the US dollar, this would decrease net
assets by $63,313 (2018: $41,601) 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
$163,838 in 2018 (2018: loss of $439,573), 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 fixed rate borrowings at the year end are $3,301,402 (2018:$1,615,579).
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the year ended 31 December 2019 would not
materially change if market interest rates had been 1% higher/lower throughout 2019 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 2021. 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
2019
Payables
Lease liabilities
Borrowings
Deferred consideration
0-6 months
$
6-12 months
$
>12 months
$
Total
$
2,892,280
327,253
563,143
1,214,019
-
260,420
599,912
63,486
-
1,116,132
2,321,400
556,198
2,892,280
1,703,805
3,484,455
1,833,703
Water Intelligence plc
64
Notice of Annual General Meeting
Group
2018
Payables
Borrowings
Deferred consideration
0-6 months
$
6-12 months
$
>12 months
$
Total
$
2,550,283
272,182
764,396
-
717,554
684,639
-
1,448,303
879,307
2,550,283
2,438,039
2,328,342
Interest expected to be paid on liabilities are shown in the table below
Group
2019
Payables
Lease liabilities
Borrowings
Deferred consideration
0-6 months
$
6-12 months
$
>12 months
$
Total
$
-
39,262
92,289
83,521
-
32,344
76,521
12,581
-
76,603
204,952
56,451
-
148,209
373,763
152,553
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 2019
Cash flows
- Repayment
- Proceeds
Non-cash
- Acquisition
- Fair value
- Reclassification
As at 31 December 2019
At 1 January 2018
Cash flows
- Repayment
- Proceeds
Non-cash
- Acquisition
- Fair value
- Reclassification
As at 31 December 2018
Long-term
borrowings
$
1,448,303
(808,520)
1,854,936
-
-
(173,319)
2,321,400
Long-term
borrowings
$
1,635,311
(518,270)
926,472
-
-
(595,211)
1,448,303
Short-term
borrowings
$
989,736
Lease
Liabilities
$
-
Total
$
2,438,039
-
-
(635,623)
-
(1,444,141)
1,854,936
-
-
173,319
1,163,055
Short-term
borrowings
$
394,525
-
-
-
-
595,211
989,736
2,339,428
-
-
1,703,805
Lease
Liabilities
$
-
-
-
-
-
-
-
2,339,428
-
5,188,261
Total
$
2,029,836
(518,270)
926,472
-
-
-
2,438,039
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Notice of Annual General Meeting
24
Fair value measurement
The following table provides the fair value measurement hierarchy for assets measured at fair value
Fair value measurement using
Quoted
process in
active
markets
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$000
$000
$000
Total
$000
Assets measured at fair value Date of valuation
Listed equity investments
EAI investment
1,932
1,932
-
-
To estimate fair value, the lower end of the bid-offer spread as at 31 December 2019 was used to
calculate the value of the holding. There is an active market for the Group's liquid equity investment.
25
Contingent liabilities
The Directors are not aware of any material contingent liabilities.
26
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 t erms favourable 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.
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 $15,185 and $13,686 for the years December 31, 2019 and 2018,
respectively. The guarantee fee expense for the PSS guarantee amounted to $ 24,126 and $16,877
for the years ended December 31, 2019 and 2018, respectively. During 2019 the Company paid
expenses on behalf of PSS in the amount of $101,662. The related receivable/prepaid balance
remaining is $298,327 and $205,606 at December 31, 2019 and 2018, respectively.
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Notice of Annual General Meeting
During the year, the Company had the following transactions with its subsidiary companies:
Water Intelligence International Limited
Balance at 31 December 2018
Net loans to subsidiary
Other expenses recharged and exchange differences
Balance at 31 December 2019
ALDHC
Balance at 31 December 2018
Loans prepaid by WI capital raise
Balance at 31 December 2019
ALD Inc.
Balance at 31 December 2018
Loans repaid by WI capital raise
Loans to WI
Other expenses recharged and exchange differences
Balance at 31 December 2019
27
Subsequent events
$
2,522,800
-
248,282
2,771,082
$
-
-
-
$
2,137,240
(2,155,035)
850,000
1,302,929
2,135,134
On 15 June 2020, the Group announced that it has launched an implementation of Salesforce.com’s
customer relationship management software across its ALD corporate and franchise operations. The
implementation will enable ALD to automate its entire workflow from customer leads to service dispatch of
technicians anywhere in the US to customer reporting upon job completion to invoicing. The
implementation will produce much greater efficiencies and capability to execute on a faster rate of growth.
ALD’s franchise System will share in the licensing and implementation investment.
On 1 June 2020, the Group completed the reacquisition of its San Jose, California franchise territory. San
Jose is a strategic reacquisition because of its location in Silicon Valley. The Group plans to use this
corporate base to advance its innovation roadmap and R&D. The reacquisition also enables the Group to
add further scale to Water Intelligence financially and operationally. The purchase price was approximately
$1.05 million. 2019 sales for San Jose franchise location were approximately $0.7 million and pre-tax
profits were approximately $0.2 million. The reacquisition also reinforces growth in the Bay Area with its
multimillion dollar franchises in the San Francisco and Berkeley territories.
On 30 April 2020, the Group completed the reacquisition of its Minneapolis, Minnesota franchise.
Minneapolis is a significant reacquisition that enables the Group to add further scale to Water Intelligence.
Franchise reacquisitions in strategic locations facilitate the Group’s ability to grow regional geographies
faster through more centralized marketing and management. Operationally, the reacquisition of
Minneapolis creates a corporate base in the Upper Midwest region of the United States. During 2019, the
Group executed several significant municipal contracts in the Upper Midwest.
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Notice of Annual General Meeting
The provisional fair values of the acquisitions subsequent to year end are detailed below:
Minneapolis
$
San Jose
$
Total
$
Fair value of assets and liabilities acquired
Equipment
Vehicles
Other
Net assets acquired
Consideration
Cash
Deferred consideration – discounted to present
value
Total consideration
64,730
40,922
10,990
116,642
69,397
-
16,000
85,397
132,127
40,922
26,990
200,039
329,670
983,012
1,312,682
380,000
667,000
1,047,000
707,670
1,650,012
2,357,682
Intangible asset arising on acquisition
1,196,040
961,603
2,157,643
During 2019, a claim was brought against the Company by a former franchise owner which was settled
subsequent to the end of the year in February 2020. The parties agreed to an adjustment to the original
purchase price for the reacquisition for the franchise. In addition, among other items, the former franchise
owner agreed to a covenant not to compete and an extension of confidentiality over intangible assets of
the Company in perpetuity. As such, the Company accrued the settlement as of December 31, 2019
totalling a net amount of $200,000 and recorded a covenant not to compete asset in connection with the
accrual. The covenant not to compete commences in February 2020 for a period of one year from that
date.
PPP Program - The Paycheck Protection Program is bringing much needed relief to business owners
affected by the coronavirus. Not only does this loan program provide funding to help cover payroll
and other expenses, but if used for qualifying purposes, part or all of the loan can be forgiven. The
company applied for and received funding ($1,869,800) under this program in April 2020.
COVID-19 - The company has reviewed all applicable Shelter-in-Place Orders and have determined that
our operations qualify as essential/critical infrastructure and that we are able to continue to operate under
those Orders. Our service technicians are essential to the minimum basic operations of our business. All
non-essential personnel have been notified to work remotely until further notice. Employees who are critical
to the minimum basic operations of the business have been instructed to comply with social distancing
rules/requirements in their jurisdictions, as well as other safety and health precautions.
28
Control
The Company is under the control of its shareholders and not any one party. The shareholdings of the
directors and entities in which they are related are as outlined within the Director’s Report.
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