Water Intelligence plc
Group Annual Report and Financial Statements for
the Year Ended 31 December 2020
Company number 03923150
Group Annual Report and Financial Statements
for the year ended 31 December 2020
Contents
Page
2 Company Information
3 Chairman’s Statement
7 Strategic Report
13 Directors’ Report
19 Corporate Governance Statement
24 Statement of Directors’ Responsibilities
25
Independent Auditors’ report to the members of Water Intelligence plc
30 Consolidated Statement of Comprehensive Income
31 Consolidated Statement of Financial Position
32 Company Statement of Financial Position
33 Consolidated Statement of Changes in Equity
34 Company Statement of Changes in Equity
35 Consolidated Statement of Cash Flows
36 Company Statement of Cash Flows
37 Notes to the Financial Statements
Water Intelligence plc
1
Company Information
Directors & Advisers
Directors
Executive Chairman
Executive Director
Patrick DeSouza
Laura Hills
Bobby Knell Non-Executive Director
Michael Reisman Non-Executive Director
David Silverstone Non-Executive Director
C. Daniel Ewell
(Resigned 17, September 2020)
Non-Executive Director
(Appointed 8, April 2021)
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
55 Ludgate Hill
London EC4M 7JW
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.
Despite the marketplace disruptions produced by Covid-19, our strong financial and
operating performance for full year 2020 and further acceleration during 1H 2021, point to the
importance of water infrastructure services for consumers and our ability to execute, even during
challenging times, to meet inelastic market demand.
Our team showed resilience, navigating the pandemic using rigorous health and safety
protocols for the benefit of our customers and our technicians. Throughout the crisis, we delivered
our matrix of solutions covering the entire range of residential, commercial and municipal pipes
to address both clean water and wastewater problems. Moreover, not only did we manage
through the crisis successfully, we also reinvested in field service automation technology to make
our business even more scalable as we emerge from the pandemic. Undeterred by the
challenges, we are delivering rapidly on our vision of technology-enabled services and a “One
Stop Shop” for water infrastructure solutions. Given the strength of our Green Economy brand
across 150 locations in the U.S. and our sales footprint in the UK, Australia and Canada, we are
also creating a distribution platform for new product offerings from third parties seeking market
access to our 200,000+ annual customers.
Our message for this coming year is simple: Full steam ahead. Because of our strong
outcomes, even during Covid, we are updating our five-year growth plan for 2H 2021 and beyond.
We are lifting our sights in more ambitious fashion. Because of our range of technology-based
solutions, we seek to contribute private sector leadership to the shaping of the Green Economy.
Last summer, we were pleased to receive from the London Stock Exchange its Green Economy
Mark.
Core Commitments.
Two commitments will continue to drive our ambitious growth plan. The pandemic tested
each of these commitments and we surpassed expectations. First, we are building a multinational
growth company. Since 2016, we have delivered strong compounded annual growth in terms of
both revenue and profits. Despite public health lockdowns in all of our operating geographies, we
continue to deliver results because water infrastructure is considered by regulators to involve an
“essential service”. Given growing market demand, we plan to increase our pace of market
capture in our current operating geographies as public health restrictions ease. Moreover,
because the addressable market for failing water infrastructure is global, we plan to selectively
add new geographies adjacent to current operations. The Biden Administration’s American Jobs
Plan seeks over $100 billion for water infrastructure repair underscoring a global need to preserve
and distribute the world’s most precious resource.
Second, our brand is differentiable because of our use of technology (proprietary and third
party) to pinpoint water leaks and remediate such leaks in minimally-invasive fashion. Our
solutions-based approach has always been akin to that of precision medicine. Here as well, the
pandemic tested our resolve to reinvest in our technology leadership. Because of the continued
growth of profits from our core business and our confidence in our value as an “essential service”,
we reinvested during the pandemic to become a true “technology-enabled” service with greater
operating efficiencies.
We have implemented Salesforce.com’s field service automation software, together with
a range of other technology-based applications from web forms to video e-commerce. Now we
have not only more efficient delivery of our solutions to customers but also a leading-edge, cloud-
based system with the highest level of data security for personal data and payments. This latter
dimension is a very attractive attribute for our national business accounts, such as insurance
companies, and for consumers. Moreover, during the pandemic, we reinvested in new
technology-driven service offerings for our customers. During 2H, we will release in the US a
proprietary sewer diagnostic product for homeowners that was first pioneered in the UK in 2020
with utilities such as Thames Water. The Group has now adapted the device for the U.S.
residential market. During the pandemic, as consumers disposed of sanitary wipes, collateral
Water Intelligence plc
3
Chairman’s Statement
public health issues surrounding sewer backups became more visible. Further, in 1Q 2021, we
invested in new technology for the lining of open water channels. Open channel conveyance,
typically designed with concrete structures, is used around the world for irrigation and stormwater
run-off but highly susceptible to leakage. These investments during the pandemic will reinforce
our leadership role in transforming water infrastructure services through technology.
Financial Performance
We produced a set of results for 2020 that were ahead of market expectations. We
maintained strong revenue growth and also reinvested to drive future market capture. Much like
pre-pandemic 2018 and 2019, our statutory profits before tax grew even faster than revenue
growth displaying various efficiencies from scaling operations. For full year 2020, Group revenue
increased 17% to approximately $37.9 million while statutory profits before tax grew 78% to
approximately $4.2 million. Our compounded annual growth rate (CAGR) since 2016 is now 33%
in terms of revenue and 53% in terms of profits before tax. Especially given the disruptions of
Covid, our 2020 results underscore the Group’s consistent delivery and point to a sustainable
growth trajectory.
1Q 2021 reinforced and accelerated this already strong trajectory. Covid-19 marked the
first quarters of both 2020 and 2021 making comparisons straight forward. Group revenue grew
38% to $11.4 million (1Q 2020: $8.3 million). Statutory profit before tax grew an outstanding 152%
to $1.66 million (1Q 2020: $0.66 million) indicating continued scaling of operations.
Our overall market presence has passed $140 million in gross sales to customers which
includes indirect sales by our franchisees from which franchise royalty income is derived plus
direct sales from corporate operations. Such critical mass of gross sales to third parties alongside
our reinvestment in technology positions us well for the next level of brand development. And we
are now raising our profile in the market. Not only did we receive the Green Economy Mark from
the London Stock Exchange during 3Q 2020, we were also added to various MSCI indices during
4Q.
Operating KPIs.
Water Intelligence KPIs are explained more fully in the Strategic Report. Our 2020 KPI
results show the underlying components that are leading to the acceleration of our growth
trajectory. First, royalty growth from the American Leak Detection (“ALD”) franchise System
remains strong. During 2020, ALD royalty income grew by 3% in absolute terms to $6.7 million
(2019: $6.5 million). This absolute growth is noteworthy because the Group doubled 2019’s rate
of franchise reacquisitions thus removing royalty income faster from the pool of potential 2020
royalty income. Eight strategic reacquisitions were executed during 2020. Despite this pace of
corporate activity, the increase in royalty shows the health of the franchise System and demand
for our solutions. As discussed below, the franchise System offers the Group an opportunity for
additional leverage in selling and delivering solutions to national accounts, such as insurance
companies, across the US. Moreover, the recurring monthly income from franchise royalties
leads to efficient capital formation for equityholders by enabling a mix of non-dilutive bank debt.
Second, our franchise-related activities reinforce the continued growth of royalty income.
Franchise-related activities include: (i) national accounts such as insurance; (ii) franchisee
purchases of equipment; and (iii) sales of franchise territory. Our national account channel which
feeds jobs to both franchisees and corporate locations continues to grow rapidly. During 2020,
our insurance channel grew by 20% to $8.5 million (2019: $7.1 million). We added three more
national insurance accounts during 2020 which will fuel continued growth in 2021 and beyond. In
addition, franchisee purchases of equipment grew 11% in absolute terms to $0.95 million (2019:
$0.85 million), despite the reacquisitions. Such growth shows continued franchisee commitment
to reinvesting in the growth of the ALD brand. This positive KPI feature is remarkable given that
Covid generally had a negative impact on reinvestment in the broader marketplace.
Third, U.S. corporate-run operations complement our franchise system by adding to the
critical mass of sales presence and execution across our operating geographies. During 2020,
Water Intelligence plc
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Chairman’s Statement
corporate-run operations grew 21% to $17.4 million (2019: $14.5 million). These fast-growing
locations reinforce franchise operations with increased regional marketing presence. During
2020, the Group completed reacquisitions in each region of the United States: Southeast, South,
Upper Midwest and Northwest. In particular, the Northwest set of transactions - combining 2
locations in Silicon Valley and reacquiring Seattle in order to link existing Portland operations and
a greenfield target of Vancouver – is expected to yield collateral strategic benefits. A sales corridor
between Silicon Valley and Seattle will accelerate technology sourcing thus reinforcing our brand
differentiation. Further, the critical mass of existing municipal operations in Seattle will support
the establishment of a US headquarters for our UK-based Water Intelligence International (“WII”)
subsidiary to cross-sell its municipal solutions in the US.
The Group has efficiently executed the transition to corporate operations after franchise
reacquisitions thus unlocking profits for our shareholders. Profit before tax for corporate locations
grew by an outstanding 87% reaching $3.8 million (2019: 2.0 million). Moreover, corporate-run
operations have been continually increasing profit margins, while still reinvesting in growth. Profit
margins for corporate-run locations reached 22% as compared to 14% in 2019. Such margin
expansion contributed to the jump in Water Intelligence profits during 2020. As a result,
reacquisitions are unlocking significant shareholder value because the net profits that they
produce are significantly higher than foregone net royalty income for doing the same execution
activity in the same location under the same brand.
Fourth, our WII business continues to grow steadily. During 2020, WII grew revenue by
27% to $4.3 million (2019: $3.4 million). WII complements ALD’s residential and business-to-
business focus with larger scale municipal solutions; moreover, given the team’s professional
experience globally, WII leads the Group’s multinational growth efforts. For example, WII
productized and introduced a new sewer diagnostic product in the UK and conducted field trials
in the US with ALD franchisees. In addition, WII continues to expand in Australia. Franchise
reacquisitions during 2020 in Melbourne and Brisbane, combined with WII’s Sydney operations,
now give WII a critical mass of corporate operations in the 3 largest population centres in
Australia. Because of its climate and water scarcity issues, Australia is anticipated to be a strong
growth geography for integrating all of the Group’s offerings from municipal to residential given
its initial base of ALD franchisees and now WII expansion.
Strategic Direction.
Given the success of our business plan and our strong capital base, our next steps are
very straight forward. We plan to do more of the same in executing our core business offerings
only more aggressively given our traction. Two tactics – one organic-based and one acquisition-
based - would be the drivers for us to reach the next level of market capture.
First, we have plenty of customer demand for our minimally-invasive solutions whether
residential, commercial or municipal. We can feed organic growth simply by deploying more
trained execution staff and service vehicles. To be sure, our Salesforce implementation will make
our execution more efficient. Importantly, we recently recruited and hired a Chief People Officer
with significant experience in our industry. Such appointment will provide leadership and
additional organizational structure for hiring, training, deploying and retaining solutions
professionals.
Second, we will continue to execute selective franchise reacquisitions that integrate
regional operations and convert more franchisee royalty income into Group revenue and profits.
Currently, there is approximately $110 million of highly profitable sales to third parties by our
franchisees that is recorded as $6.7 million of royalty income. Reacquisitions are strongly
accretive financially for the Group and its shareholders. Yet is it important to reiterate that we still
seek to grow and maintain the vitality of the entire franchise System so that the brand continues
to grow and add to the $140 million “gross sales pie” from which reacquisitions may be
strategically selected.
Water Intelligence plc
5
Chairman’s Statement
Beyond these two tactics, we will continue to invest in technology solutions that distinguish
our brand with respect to water infrastructure problems. During 2020, we added a Chief
Innovation Officer to the management team who had significant Silicon Valley experience. Such
appointment produced immediate benefits: we adapted our new sewer diagnostic product for the
residential market and we acquired patents for irrigation and storm-water run-off products that we
are now manufacturing. Our ability to source and drive additional technology solutions for water
infrastructure problems continues to differentiate our brand from traditional water infrastructure
service providers.
We are confident about our ability to fuel a strong growth trajectory for 2021 and beyond.
Our investment in a Chief People Officer and Chief Innovation Officer during the pandemic
underscores that we will be relentless in building a management team and organization that can
drive and sustain a significant multinational growth company with a differentiated technology
brand – an aspiration a decade ago that has now fast becoming a reality.
Dr. Patrick DeSouza
Executive Chairman
7 June 2021
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 our 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 generate approximately $140 million
of sales to third-parties. The two subsidiaries are distinguished by the degree of franchise-operated and
corporate-operated locations and their respective priorities with respect to 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 generates approximately $135 million of sales to end-users.
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.
WII, our UK-based operation, focuses on municipal solutions given the world-wide problem of failing
water infrastructure. WII has approximately $5 million of sales to customers. WII’s solutions are also
technology-based. 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 locations in Australia. 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 $110 million in highly profitable franchisee sales
to end-users of our solutions, currently recorded as royalty income, to be converted to the Group’s direct
P&L. As a byproduct 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 recurring 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 from banks which are subject to financial covenants.
These six indicators are reported to the Board and used to assist the Board in the management of the
business.
2020 Conclusions Drawn From 6 KPIs:
i.
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.
Water Intelligence plc
7
Strategic Report
ii.
iii.
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.
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 with respect to banks 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 gross 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 2020 grew in absolute terms by 3% compared with 2019 despite a significant
number of reacquisitions during 2020 which had the effect of reducing the eligible pool of royalty income.
Such royalty growth is attributable in part to the benefits arising from the Group’s insurance channel which
expands the franchise System. Profits before tax from this business line grew by 10% as the franchise
System has continued to scale. The Group has 94 franchises at the end of 2020 which represents a
decrease of 9 franchises (2019: 103). The net decrease was the result of the reacquisition and
conversion of 9 franchises into corporate-run locations. Performance from royalty income is as follows:
Total USA
International
Total Group Royalty Income
Profit before tax (see note 4)
Year ended
31 December
2020
$'000
6,572
119
6,691
1,771
Year ended
31 December
2019
$'000
6,356
143
6,499
1,603
Change
%
3%
(17)%
3%
10%
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 2020 grew by 18% compared to 2019 largely because of the growth of the Group’s
business-to-business channel. Profits before tax grew 14% in 2020 compared with 2019. 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 Franchise Activities
Profit before tax (see note 4)
Year ended
31 December
2020
$'000
950
8,536
27
9,513
683
Year ended
31 December
2019
$'000
854
7,106
90
8,050
601
Change
%
11%
20%
(70)%
18%
14%
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 also 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 27 territories, an increase of 9 territories
(2019: 18).
As set forth below, ALD Corporate-operated revenue grew 21% to $17.4 million (2019: $14.4 million).
Meanwhile profits before tax grew strongly by 87% to a $3.8 million (2019: $2.0 million). 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. Not counting the 2019 and 2020 franchise reacquisitions,
revenue was flat but profits before tax grew 27% to $2.3 million (2019: $1.8 million).
Nonetheless, 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 $3.8 million. If the Group was a “franchise-only” business and the same $17.4 million
of sales to the same customers under the same ALD brand were executed by franchisees, the Group would
only receive approximately $0.27 million of the profit before taxes. ($17.4 million of sales multiplied by 6%
royalty fee equals approximately $1.04 million of royalty income; and $1.04 million is then multiplied by 26%
profit margin of royalty income - see KPI #1 – to yield $0.27 million of profits before tax to the Group).
Performance from corporate-operated locations is as follows:
Revenue
Locations owned prior to 1 January 2019
Year ended
31 December
2020
$'000
17,434
12,936
Year ended
31 December
2019
$'000
14,446
12,969
Change
%
21%
0%
Profit before tax (see note 4)
Locations owned prior to 1 January 2019
3,796
2,260
2,025
1,781
87%
27%
International Corporate Operated Locations (WII)
(iv)
The Group continues to strengthen its multinational presence through its UK-based WII subsidiary. WII
focuses largely on municipal solutions while maintaining core residential and commercial offerings. WII
has expanded its multinational operating scope by managing corporate locations established in Australia
and Ontario, Canada after ALD franchisee reacquisitions.
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Strategic Report
UK-based WII leads the Group’s international expansion. Sales have grown 27% during 2020 to $4.3
million. (2019: $3.4 million). Most importantly, profits grew strongly by 38%. (2020: $0.31 million; 2019:
$0.23 million). Performance from Water Intelligence International is as follows:
UK
Australia
Canada
Total Revenue from International
Corporate Activities
Profit before tax (see note 4)
Year ended
31 December
2020
$'000
1,591
1,889
814
4,295
312
Year ended
31 December
2019
$'000
1,386
1,421
562
3,369
226
Change
%
15%
33%
45%
27%
38%
Non-Core Costs.
(v)
During 2020, the Group incurred what are considered to be non-core costs relating to transactions
executed for the future growth of the business. 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 2020, there were $101,000 of
non-core costs. During 2019, there were $493,000 of non-core costs. Please see table below for details:
Technology product write-off
Plumbing unit write-off related to acquisition
Transaction-related employee costs
Transaction-related legal costs
Total
Year ended
31 December 2020
$’000
Year ended
31 December 2019
$’000
-
-
-
101
101
93
187
82
131
493
Net Bank 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 bank debt to complement equity sources
of capital. In the current macroeconomic environment, bank debt is a relatively cheaper cost of capital
than equity. The Group’s objective for risk management purposes is to be prudent with respect to
bank financial covenants. Net cash after Bank Borrowings is approximately neutral and amortization of
such debt extends through 2025.
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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 Bank Borrowings/(Cash)
Year ended
31 December
2020
$'000
227
6,555
6,782
5,662
652
250
255
6,819
(37)
Year ended
31 December
2019
$'000
1,264
2,047
3,311
4,127
633
121
400
5,281
(1,970)
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. During 2Q there was some slowing, as homeowners evaluated the risks of
residential delivery of solutions and the Group evaluated health and safety protocols for our
technicians. Continued consumer demand for water and wastewater solutions enabled the Group to
return to executing its operating plan as an “essential service provider.” The Group has sufficient cash
to execute its plan and balance 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.
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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 2020. Following is an
overview of how the Board performed its duties during 2020.
Shareholders and Banking Relationships
The Executive Chairman, Chief Financial Officer, members of the Board and senior executives on the
management team have regular contact with major shareholders and banking relationships. The Board
receives regular updates on the views of shareholders which are taken into account when the Board
makes its decisions. During October 2020, the Company raised capital from largely its current
shareholders and refinanced its credit facilities. The Group received feedback during that process.
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 and stakeholders.
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. Throughout
the year, the Group shared best practices with franchisees in responding to Covid-19 circumstances.
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
potable and non-potable water leaks. Through our advertising and marketing the Group seeks to
communicate to the public both the importance of sustainability, particularly with respect to water loss
through leakage, and the importance for public health of remediating sewer blockages as consumers
dispose of sanitary wipes in toilets during Covid-19. The Group took an active role not only in providing
leak detection services to local government in Flint, Michigan – a community known for its lead in the
water crisis – but also in 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. During 2020 the Group was pleased to receive the Green Economy Mark from the
London Stock Exchange.
By order of the Board
Patrick DeSouza
Executive Chairman
7 June 2021
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 2020.
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 30 to
36.
2020 was marked by sustained and balanced multinational growth for both ALD and WII. Total
revenue grew 17% to $37.9 million and profits before tax grew 78% to $4.2 million when compared
with 2019. Our ALD subsidiary grew revenue 16% to $33.6 million and profits before tax 118% to
$5.00 million when compared with 2019. Our WII subsidiary grew revenue 27% to $4.3 million and
grew profit before taxes by 38% to $0.31 million. More generally, Water Intelligence 2020 results
contributed to a compounded annual growth rate from 2016-2020 of 33% sales growth and 53%
profits before tax growth. The splits between ALD and WII revenue remained consistent during
2020 with approximately 90% of total revenue attributable to ALD and 10% of total sales attributable
to WII contributing to balanced growth.
Going Concern
The Directors have prepared a business plan and cash flow forecast for the period to April 2022. 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 Group
generates increasing levels of cash driven by its profitable and growing US-based business, ALD. The
Directors also note that the Group has diversified its operations further with growth in WII. Moreover, after
an oversubscribed capital raise and expansion of its credit facilities in October 2020, 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 & Development; Commercialization
The Group’s focus is currently on reinvestment for commercialization of products not pure R&D.
Expenditure on pure research, all of which was undertaken by third parties not related to the Group,
was $3,034 (2019: $10,152). 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 (2019: $nil).
Share Price
On 31 December 2020, the closing market price of Water Intelligence plc ordinary shares was 500.0
pence. The highest and lowest prices of these shares during the year to 31 December 2020 were 526.0
pence and 255.0 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 4 February 2021, the Group completed an extension of its credit facilities by $3.2 million, on the same
terms as the refinancing completed in October 2020 and referenced in note 23.
On 30 March 2021, the Group completed the reacquisition of its Central Florida (Clermont) franchise territory
within the Group’s ALD franchise business. Strategically, the Central Florida reacquisition will enable ALD
to link operations along the eastern part of Florida from its Central Florida location to fast-growing corporate
operations in Orlando, to the east, and sizeable Melbourne and Miami operations, to the south. As noted
above, demand is high for ALD water leak detection and repair offerings in this geography because of
various factors ranging from the number of swimming pools to level of disposable income to rainy weather.
In linking the above four eastern Florida operations, ALD expects to achieve even faster growth through
fulfilling pent-up demand and creating operating efficiencies from scale.
The provisional fair values of the acquisitions subsequent to year end are detailed below:
Fair value of assets and liabilities acquired
Equipment
Vehicles
Other
Net assets acquired
Consideration
Cash
Deferred consideration – discounted to present
value
Total consideration
Intangible asset arising on acquisition
Clermont
$
26,250
54,868
30,000
111,118
330,000
330,000
660,000
548,882
On 23 April 2021, the Group announced the acquisition of intellectual property assets (“IP”) from FastDitch,
Inc., a US corporation. The IP Assets will be used to launch a new subsidiary of the Group’s core American
Leak Detection business dedicated to providing water infrastructure solutions. The subsidiary will operate
under the tradename IntelliDitch. As set forth in a recent market communication, the Group is accelerating
its growth plan given the anticipated increase in market demand for water infrastructure solutions stimulated
by the Biden Administration’s American Jobs Plan. No provisional fair values are provided.
On 2 June 2021, the Group announced the reacquisition of its Reno, Nevada franchise territory within its
ALD franchise business. The acquisition strengthens corporate presence in the western part of the United
States and links its ALD innovation centers in Silicon Valley and Seattle. The purchase price of $0.25 million
is based on $0.25 million of sales during 2020. It is believed that strong growth will occur in this location
Water Intelligence plc
14
Directors’ Report
with the end of Covid restrictions. The purchase price allocation for the Reno acquisition will be completed
in due course.
On 2 June 2021, the Group announced the acquisition of PlumbRight Services, Inc. PlumbRight extends
the plumbing services capabilities of the Group’s fast-growing, multimillion dollar Louisville, Kentucky
location. The PlumbRight team will enable the Louisville office to take on larger scale repair jobs as follow-
through sales beyond current pinpoint leak detection solutions for its existing business and municipal
customers. The purchase price of $0.7 million is based on 2020 sales of approximately $1 million. The
purchase price allocation for the PlumbRight Services acquisition will be completed in due course.
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. The Group received notification from the
SBA on March 31, 2021 that the full advance of $1,869,800 was forgiven.
Work Protocols and PPE - The Group reviewed all applicable Shelter-in-Place Orders and determined
that our operations qualify as services related to essential/critical infrastructure with respect to water
and wastewater and that we can continue to operate under those Orders. The Group has taken health
and safety measures with respect to all personnel and significantly increased its inventory of Personal
Protective Equipment (PPE). The Group has issued work protocols with respect to our service
technicians who are essential to the delivery of our water and wastewater solutions to customers. All
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 handwashing 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
Laura Hills
Non-Executive Directors
Bobby Knell
Michael Reisman
David Silverstone (Resigned 17, September 2020)
C. Daniel Ewell (Appointed 8, April 2021)
On 7 June 2021, Laura Hills and Bobby Knell swapped roles as executive and non-executive directors
respectively, reflecting their ongoing roles within the Group. 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
2020
Executive Directors
P DeSouza
L Hills
Non-Executive Directors
D Silverstone
B Knell
M Reisman
2019
Executive Directors
P DeSouza
B Knell
J Weigold
Non-Executive Directors
D Silverstone
M Reisman
L Hills
Directors’ Report
Salary, Fees &
Bonus
Benefits Redundancy
$
$
$
581,203
92,458
20,500
60,000
20,304
774,465
25,312
-
-
-
-
25,312
-
-
-
-
-
-
Salary, Fees &
Bonus
Benefits Redundancy
$
$
517,346
40,000
41,250
21,000
20,000
20,000
659,596
20,034
-
-
-
20,034
$
-
-
-
-
-
Total
$
606,515
92,458
20,500
60,000
20,304
799,777
Total
$
537,380
40,000
41,250
21,000
20,000
20,000
679,630
Water Intelligence plc
16
Directors’ Report
Directors’ interests
The Directors who held office at 31 December 2020 and subsequent to year end had the following direct
interest in the voting rights of the Company at 31 December 2020 and at the date of this report,
excluding the shares held by Plain Sight Systems, Inc.
Number of shares at
31 December 2020
% held at 31
December 2020
Number of shares at
7 June 2021
% held at 7
June 2021
Patrick
DeSouza*/**
Michael Reisman*
Laura Hills
Bobby Knell
Dan Ewell
4,987,110
184,126
120,757
20,500
-
28.20
1.04
0.68
0.12
-
4,987,110
184,126
120,757
27,000
22,659
28.19
1.04
0.68
0.15
0.13
*Included in the total above, Patrick DeSouza received (i) 600,000 Partly Paid Shares during 2016, of which 300,000 have
been fully paid and converted into Ordinary Shares (ii) 750,000 in March 2018 (iii) 8 50,000 in May 2019 and (iv) 300,000
Partly Paid Shares in October 2020. These will not be admitted to trading or carry any econom ic rights until fully paid.
*Patrick DeSouza and Michael Reisman are directors and shareholders in Plain Sight Systems, Inc.
**Patrick DeSouza’s interests include 1,800,000 shares held by The Patrick J. DeSouza 2020 Irrevocable Trust U/A Dtd
11/23/2020 and 810,000 shares held in The Patrick J. DeSouza GRAT #1 U/T/A Dtd 11/23/2020
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.
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.
Canaccord Genuity Group Inc.
State Street Nominees Limited
George D. Yancopoulos
Amati AIM VCT
Herald Investment Trust
Number of shares % held
13.74
2,430,410
9.16
1,620,000
6.19
1,095,500
4.76
841,595
4.60
814,660
3.44
608,152
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.
Water Intelligence plc
17
Directors’ Report
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
7 June 2021
Water Intelligence plc
18
Corporate Governance Statement
As a Board, we believe that practicing 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 program. 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 Dan Ewell 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 2020 and 31 December 2020 and the attendance of
directors is summarized below:
Patrick DeSouza
Bobby Knell
Michael Reisman
David Silverstone
Laura Hills
Board meetings
Possible (attended)
6/6
6/6
6/6
4/4
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
Dan Ewell, 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
performance, position and prospects for the Company are properly monitored, controlled and reported on
and for meeting the auditors and reviewing their reports relating to accounts and internal controls.
Water Intelligence plc
19
Corporate Governance Statement
(b) Remuneration Committee
Michael Reisman, Non-Executive Director, is Chairman of the Remuneration Committee. The other member
of the Committee is Bobby Knell. 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.
Laura Hills, Executive Director
Term of office: Appointed 7 June 2021, having previously been a non-executive director since 6 February
2018.
Background and suitability for the role: Laura has more than 30 years’ experience as a legal professional,
having spent 10 years working for 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.
Bobby Knell, Non-Executive Director
Term of office: Appointed 7 June 2021, having previously been an executive director since 17 January
2019.
Water Intelligence plc
20
Corporate Governance Statement
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 core 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
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 international legal
experience and the growing multinational character of the Company, Professor Reisman leads matters of
governance, corporate responsibility and remuneration. He is a graduate of Yale Law School.
C. Daniel Ewell, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 8 April 2021
Background and suitability for the role: Dan Ewell is currently a Senior Advisor at Morgan Stanley, where
he has worked as an investment banker for over 33 years. Prior to assuming his current role, Mr. Ewell
served as Vice Chairman and Head of Western Region Investment Banking for Morgan Stanley. Dan has
extensive experience in advising companies and helping them grow through capital raising and strategic
transactions. His experience spans a range of sectors including consumer/retails, industrial, healthcare and
media/technology, and included companies with franchised business models. As the Group continues to
scale its operations internationally, it has a need to broaden its institutional and strategic activity in capital
markets. Mr. Ewell brings considerable expertise in this area. He is a graduate of University of California,
Berkeley, Yale Law School and Yale School of Management.
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.
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
Water Intelligence plc
21
Corporate Governance Statement
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. Laura Hills is responsible at the Board level. The Human
Resources Director reports directly to Ms. Hills. Laura Hills ensures that the Group’s policies are upheld
and providing the necessary resources. All members of the Board have significant experience in matters
of public policy.
Employees
The Board recognises that the Group’s employees are its most important asset.
The Group is committed to achieving equal opportunities and to complying with relevant anti-
discrimination legislation. It is established Group policy to offer employees and job applicants the
opportunity to benefit from fair employment, without regard to their sex, sexual orientation, marital status,
race, religion or belief, age or disability. Employees are encouraged to train and develop their careers.
The Group has an employee handbook that is provided to all employees upon starting their employment
within the Group.
Water Intelligence plc
22
Corporate Governance Statement
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 Dan Ewell (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 2019 annual accounts and the interim accounts to
30 June 2020. 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 Bobby Knell, 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
23
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
24
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 2020, which comprise:
•
•
•
•
•
the Group statement of comprehensive income for the year ended 31 December 2020;
the Group and parent company statements of financial position as at 31 December 2020;
the Group and parent company statements of changes in equity for the year then ended;
the Group and parent company statements of cash flows 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 and, as regards the parent company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
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 2020 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 and 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
In auditing the financial statements, we have concluded that the director’s use of the going concern basis
of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors
assessment of the group and the company’s ability to continue to adopt the going concern basis of
accounting included the following:
•
•
•
•
reviewed and challenged management’s going concern assessment and assumptions used covering a
minimum of 12 months from the date of approval of these financial statements;
tested mathematical accuracy of the models used by management in their assessment;
discussed with management and evaluated their assessment of the group and the company’s liquidity
requirement; and
assessed the reasonableness of management’s budget/forecasts, including comparison to actual results
achieved in the year and the evaluation of downside sensitivities.
Based on the work we have performed, we have not identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast significant doubt on the group and the parent
company’s ability to continue as a going concern for a period of at least twelve months from when the
financial statements ate authorised for issue.
Water Intelligence plc
25
Independent Auditors’ report to the members of
Water Intelligence plc
Our responsibilities and the responsibilities of the directors with respect to going concern are described on
the relevant sections of this report.
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 $321,000 (2019: $190,000) based on a measure of 8% of profit before
taxation using the financial information obtained during our planning procedures. 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 was initially set at $200,000 based on the overall audit materiality
and is 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 perform the audit work in the US.
We have planned, controlled and directed the group audit under our direction. Due to the current
pandemic restrictions, we have reviewed remotely the US work to carry out our review of component
auditor working papers and have meet with group and local management virtually.
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
judgements,
in
recognising when a purchase order
has been satisfied and have passed to
the buyer. This is determined with
reference to the underlying contract
particularly
Our audit procedures consisted of:
Validating that revenue is recognised in accordance with
the accounting policies for appropriateness in accordance
with
International Financial Reporting Standard 15
‘Revenue from Contract with Customers’ and performed
audit procedures to provide evidence that revenue was
accounted for in accordance with the policy.
Water Intelligence plc
26
Independent Auditors’ report to the members of
Water Intelligence plc
with the purchaser and the nature of
the service provided.
Impairment of intangible assets
to
The carrying value of intangible assets
relates
franchisor
trademarks,
activities, goodwill on acquisitions and
owned stores goodwill and indefinite
life intangible assets. There is a risk
that the carrying value could be
impaired as a result of reduced
activity.
future
Any significant
downturn in performance or activity
could also result in an impairment of
these assets.
Testing a sample of revenue transaction across the
operating companies of the Group to ensure through
testing an appropriate sample of income from each
revenue stream by agreeing amounts to contracted
amounts, cash receipt and/or when a purchase order
has been satisfied.
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.
• We have checked the arithmetic accuracy of the
forecast.
• Board minutes, budgets and other operational plans
• Discussion with management over plans and intentions
for the group.
Our audit procedures in relation to these matters were designed in the context of our audit opinion as a
whole. They were not designed to enable us to express an opinion on these matters individually and we
express no such opinion.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in this
regard.
We have nothing to report in this regard.
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 strategic report and the directors’ report have been prepared in accordance with applicable
legal requirements.
Water Intelligence plc
27
Independent Auditors’ report to the members of
Water Intelligence plc
Matters on which we are required to report by exception
In light of the knowledge and understanding of the group and the parent company and their environment
obtained in the course of the audit, we have not identified material misstatements in the strategic report or
the directors’ report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us
to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for
•
our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and
returns; or
•
certain disclosures of directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of the directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 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.
Extent to which the audit is capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below: We design our procedures so as to obtain sufficient appropriate audit
evidence that the financial statements are not materially misstated due to non-compliance with laws and
regulations or due to fraud or error.
We obtained an understanding of the legal and regulatory frameworks within which the company operates,
including the US tax legislations focusing on those laws and regulations that have a direct effect on the
determination of material amounts and disclosures in the financial statements. The laws and regulations we
considered in this context were the Companies Act 2006 and Taxation legislation.
We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance
with all laws and regulations – this responsibility lies with management with the oversight of the Directors.
Water Intelligence plc
28
Independent Auditors’ report to the members of
Water Intelligence plc
Based on our understanding of the Group and the Company and industry, discussions with management
and directors we identified financial reporting standards and Companies Act 2006 as having a direct effect
on the amounts and disclosures in the financial statements.
As part of the engagement team discussion about how and where the Company’s financial statements may
be materially misstated due to fraud, we did not identify any areas with an increased risk of fraud.
We identified the greatest risk of material impact on the financial statements from irregularities, including
fraud, to be the override of controls by management and revenue recognition.
Our audit procedures included:
•
completing a risk-assessment process during our planning for this audit that specifically considered
the risk of fraud;
• enquiry of management about the Company’s policies, procedures and related controls regarding
compliance with laws and regulations and if there are any known instances of non-compliance;
review, where applicable, of the Board of Directors’ minutes;
• examining supporting documents for all material balances, transactions and disclosures;
•
• enquiry of management, about litigations and claims and inspection of relevant correspondence
• analytical procedures to identify any unusual or unexpected relationships;
•
specific audit testing on and review of areas that could be subject to management override of
controls and potential bias, most notably around the key judgments and estimates, including the
carrying value of accruals, provisions, recoverability of trade debtors and revenue recognition;
considering management override of controls outside of the normal operating cycles including
testing the appropriateness of journal entries recorded in the general ledger and other adjustments
made in the preparation of the financial statements including evaluating the business rationale of
significant transactions, outside the normal course of business;
•
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected
some material misstatements in the financial statements, even though we have properly planned and
performed our audit in accordance with auditing standards. We are not responsible for preventing non-
compliance and cannot be expected to detect non-compliance with all laws and regulations.
These inherent limitations are particularly significant in the case of misstatement resulting from fraud as
this may involve sophisticated schemes designed to avoid detection, including deliberate failure to record
transactions, collusion or the provision of intentional misrepresentations.
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
55 Ludgate Hill
London
EC4M 7JW
7 June 2021
Water Intelligence plc
29
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
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
Notes
4
7
13
8
9
10
Year ended
31 December
2020
$
37,933,896
(8,830,250)
29,103,646
Year ended
31 December
2019
$
32,363,935
(7,448,289)
24,915,646
93,066
(233,584)
(524,017)
(23,879,139)
)
(24,543,674)
-
(176,960)
(319,041)
(21,723,670)
(22,219,671)
4,559,972
88,753
2,695,975
61,754
(445,351)
(400,241)
4,203,374
(1,273,319)
2,357,488
(662,062)
2,930,055
1,695,426
2,892,974
37,081
2,930,055
1,695,033
393
1,695,426
32,375
(164,145)
(236,900)
584,379
2,725,530
2,115,660
2,688,449
37,081
2,725,530
2,115,267
393
2,115,660
Profit per share attributable to equity holders of Parent
Basic
Diluted
11
11
Cents
19.5
18.8
Cents
11.7
11.1
The results reflected above relate to continuing activities.
The accompanying notes on pages 37 to 72 are an integral part of these financial statements.
Water Intelligence plc
30
Consolidated Statement of Financial Position
as at 31 December 2020
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
2020
$
2019
$
22,159,836
1,564,254
1,651,296
5,172,221
581,191
31,128,798
444,791
6,049,067
6,818,715
13,312,573
44,441,371
9,090,701
1,932,252
1,949,832
3,898,133
605,234
17,476,152
344,011
5,036,149
5,280,808
10,650,968
28,127,120
116,212
12,091,069
(340,327)
1,001,150
650,286
(874,212)
(27,758,090)
346,721
37,787,624
23,020,433
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
346,124
100,793
5,848,261
3,421,936
957,170
10,227,367
2,321,400
556,198
588,684
3,466,282
5,663,898
2,941,610
2,241,939
10,847,447
44,441,371
4,596,085
1,163,055
1,277,505
7,036,645
28,127,120
The financial statements of Water Intelligence plc, company number 03923150, were approved by the
Board of Directors and authorised for issue on 7 June 2021. They were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 37 to 72 are an integral part of these financial statements
Water Intelligence plc
31
Company Statement of Financial Position
as at 31 December 2020
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
2020
$
2019
$
15
24
7,459,645
1,564,254
9,023,899
7,206,394
1,932,252
9,138,646
17
18
21
21
21
7,072,544
366,737
7,439,281
16,463,180
5,006,074
195,750
5,201,824
14,340,470
116,212
12,091,069
(340,327)
1,001,150
650,286
(1,586,208)
346,721
3,963,789
16,242,692
114,440
9,717,349
(539,834)
1,001,150
416,700
(1,870,039)
584,378
4,599,878
14,024,022
20 77,943
77,943
146,094
146,094
19
142,545
170,354
142,545
16,463,180
170,354
14,340,470
The loss for the financial year in the financial statements of the parent Company was $636,089 (2019:
loss $759,209), 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 7 June 2021. They were signed on its behalf by:
Patrick De Souza
Executive Chairman
The accompanying notes on pages 37 to 72 are an integral part of these financial statements.
Water Intelligence plc
32
Consolidated Statement of Changes in Equity
for the year ended 31 December 2020
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
$
-
-
-
-
-
As at 1 January 2019
101,916
6,887,739
IFRS 16 Adjustment
-
-
Restated as at 1 January 2019
101,915
6,887,739
Issue of Ordinary Shares
11,237
2,714,604
Options exercised
515
115,006
1,001,150
239,740
(743,198)
(27,758,088)
-
-
-
-
1,001,150
239,740
(743,198)
(27,758,088)
-
-
-
-
-
-
-
-
-
-
-
-
-
--
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
-
-
-
2,725,841
115,521
176,960
(540,854)
Share-based payment expense
Share buyback
Profit for the year
Other comprehensive loss
-
176,960
-
-
-
-
176,960
772
-
(539,834)
-
-
-
-
-
(1,792)
(540,854)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,695,033
1,695,034
393
1,695,426
-
(164,146)
- 584,378
-
420,232
-
420,232
As at 31 December 2019
114,440
9,717,349
(539,834)
1,001,150
416,700
(907,344)
(27,758,088)
584,378
34,894,649
17,523,401
100,793
17,624,194
As at 1 January 2020
114,440
9,717,349
(539,834)
1,001,150
416,700
(907,344)
(27,758,088)
584,378
34,894,649
17,523,401
100,793
17,624,194
Issue of Ordinary Shares
Options exercised
Share-based payment expense
Share buyback
Sale of treasury share
Capital Contribution NCI
Profit for the year
Other comprehensive income
1,454
318
2,039,399
24,447
-
-
-
-
-
-
-
--
(715,911)
-
309,874
915,418
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
233,585
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,040,853
24,765
-
233,585
(715,911)
1,225,292
-
-
-
-
-
-
-
-
2,040,853
24,765
233,585
(715,911)
1,225,292
-
208,250
208,250
-
-
-
-
2,892,974
2,892,974
37,081
2,930,055
-
-
33,132
-
(237,657)
-
(204,525)
-
(204,525)
As at 31 December 2020
116,212
12,091,069
(340,327)
1,001,150
650,285
(874,211)
(27,758,088)
346,721
37,787,623
23,020,434
346,124
23,366,558
The accompanying notes on pages 37 to 72 are an integral part of these financial statements
Water Intelligence plc
33
-
-
-
-
-
-
-
-
-
-
-
-
Company Statement of Changes in Equity
for the year ended 31 December 2020
Share
Capital
$
Share
Premium
$
101,915
6,887,739
11,237
2,714,604
115,006
Cost of
Shares held
in Treasury
$
Merger
Reserve
$
Share
based
payment
reserve
$
Foreign
exchange
reserve
$
Equity
Investment
Reserve
$
Retained
(Losses)/
Earnings
$
Total Equity
$
1,001,150
239,740
(2,013,369)
-
-
-
-
-
-
-
(539,834)
-
-
-
-
-
-
-
-
-
-
-
-
176,960
-
-
-
-
-
-
-
-
-
-
-
-
-
5,360,880
11,578,055
-
-
2,725,841
115,521
(1,793)
(540,854)
-
176,960
(759,209)
(759,209)
143,330
584,378
-
727,708
114,440
9,717,349
(539,834)
1,001,150
416,700
(1,870,039)
584,378
4,599,878
14,024,022
114,440
9,717,349
(539,834)
1,001,150
416,700
(1,870,039)
584,378
4,599,878
14,024,022
1,454
2,039,399
318
24,447
-
-
-
(715,911)
-
-
309,874
915,418
-
-
-
-
-
-
-
-
-
-
-
-
-
233,585
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,040,853
24,765
233,585
(715,911)
1,225,292
(636,089)
(636,089)
283,832
(237,657)
-
46,175
116,212
12,091,069
(340,327)
1,001,150
650,285
(1,586,207)
346,721
3,963,790
16,242,692
515
772
-
-
-
-
-
-
-
-
As at 1 January 2019
Issue of Ordinary Shares
Options exercised
Share buyback
Share-based payment expense
Profit for the year
Other comprehensive loss
As at 31 December 2019
As at 1 January 2020
Issue of Ordinary Shares
Options exercised
Share-based payment expense
Share buyback
Sale of treasury shares
Profit for the year
Other comprehensive income
As at 31 December 201920
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 37 to 72 are an integral part of these financial statements
Water Intelligence plc
34
Consolidated Statement of Cash Flows
for the year ended 31 December 2020
Year ended
31 December
Year ended
31 December
2019
2020
$
$
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
Finance costs
Finance income
4,203,374
2,357,488
1,568,034
524,017
233,584
445,351
(88,753)
1,268,463
319,041
176,960
400,241
(61,754)
Operating cash flows before movements in working capital
6,885,607
4,460,439
(Increase) / Decrease in inventories
Increase in trade and other receivables
Increase in trade and other payables
Cash generated by operations
Income taxes paid
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
Finance income
Net cash used in investing activities
(110,780)
(988,875)
273,071
117,454
(811,396)
2,477,094
6,059,023
6,243,591
(982,776)
(535,693)
5,076,247
5,707,898
(717,519)
-
-
(300,000)
(9,229,647)
88,753
(3,104,796)
(200,000)
(1,201,780)
(741,130)
(2,480,417)
61,754
(10,158,413)
(7,666,369)
Cash flows from financing activities
8,128
Issue of ordinary share capital
2,031,084
Premium on issue of ordinary share capital
Share buyback
(715,911)
Sale of treasury shares 1,225,292
25,083
Options exercised
(445,351)
Finance costs
6,153,836
Proceeds from borrowings
(848,421)
Repayment of borrowings
(813,667)
Repayment of lease liabilities
11,237
2,714,604
(540,853)
-
115,521
(400,241)
1,854,936
(808,520)
(723,812)
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at end of year
6,620,073
2,222,873
1,537,907
5,280,808
6,818,715
264,402
5,016,406
5,280,808
The accompanying notes on pages 37 to 72 are an integral part of these financial statements
Water Intelligence plc
35
Company Statement of Cash Flows
for the year ended 31 December 2020
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)/Increase in trade and other payables
Cash used by operations
Income taxes paid
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
Sale of treasury shares
Options exercised
Year ended
31 December
2020
$
Year ended
31 December
2019
$
(636,089)
(759,209)
233,585
(402,504)
(2,066,470)
66,286
(2,402,688)
-
(2,402,688)
176,960
(582,249)
(187,842)
(181,053)
(951,144)
-
(951,144)
)
-
-
(1,201,780)
(1,201,780)
8,128
2,031,084
(715,911)
1,225,292
25,083
11,237
2,714,604
(540,853)
-
115,521
Net cash generated from financing activities
2,573,676
2,300,509
Increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at end of period
170,988
195,749
366,737
147,585
48,165
195,750
The accompanying notes on pages 37 to 72 are an integral part of these financial statements
Water Intelligence plc
36
Notes to the Financial Statements
1
General information
The Group is a leading provider of minimally invasive, leak detection and remediation services for potable
and non-potable water. 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 Statements were
authorised for issue by the Board of Directors on 7 June 2021.
2
Adoption of a new International Financial Reporting Standards
A number of new standards are effective for annual periods beginning after 1 January 2020 and earlier
application is permitted; however, the Group has not early adopted the new or amended
standards in preparing these consolidated financial statements.
A. Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
The amendments specify which costs an entity includes in determining the cost of fulfilling a
contract for the purpose of assessing whether the contract is onerous. The amendments apply
for annual reporting periods beginning on or after 1 January 2022 to contracts existing at the date
when the amendments are first applied. At the date of initial application, the cumulative effect of
applying the amendments is recognised as an opening balance adjustment to retaine d earnings
or other components of equity, as appropriate. The comparatives are not restated.
B. Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
The amendments address issues that might affect financial reporting as a result of the reform of
an interest rate benchmark, including the effects of changes to contractual cash flows or hedging
relationships arising from the replacement of an interest rate benchmark with an alternative
benchmark rate. The amendments provide practical relief from certain requirements in IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16 relating to:
–– changes in the basis for determining contractual cash flows of financial assets, financial
liabilities and lease liabilities; and
–– hedge accounting.
C. Other standards
The following new and amended standards are not expected to have a significant impact on the
Group’s consolidated financial statements.
–– COVID-19-Related Rent Concessions (Amendment to IFRS 16)
–– Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).
–– Reference to Conceptual Framework (Amendments to IFRS 3).
–– Classification of Liabilities as Current or Non-current (Amendments to IAS 1).
–– IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts.
Water Intelligence plc
37
Notes to the Financial Statements
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 and in accordance with International Financial Reporting Standards (IFRS)
and IFRIC interpretations issued by the International Accounting Standards Board (IASB) and adopted
by the European Union, in accordance with the Companies Act 2006. The Parent Company’s Financial
Statements have also been prepared in accordance with IFRS and the Companies Act 2006.
The preparation of Financial Statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The Financial Statements are presented in US Dollars ($), rounded to the nearest dollar.
Going concern
The Group’s business activities, together with factors likely to affect its future development, performance
and position are set out in the Directors’ Report, Strategic Report and the Chairman’s Statement. The
Directors have prepared a business plan and cash flow forecast for the period to June 2022. 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.
Moreover, because demand for the Group’s equity offerings has historically been strong, t he 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.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19)
as a pandemic which continues to spread throughout the United States and the world. The Company is
monitoring the social effects produced by COVID-19, the related business and travel restrictions and
changes to public policy intended to reduce its spread. The Company assesses on an on-going basis, the
impact of COVID-19 on its operations, financial positions, cash flows, customer payments, and the industry
in general and especially its impact on its employees, customers and stakeholders. Lockdown orders that
were in effect during parts of March, April and May 2020 impacted operations. Governmental entities, in
every jurisdiction that the Company operates in, recognize water solutions as part of “essential services”
that need to be provided even during the application of “shelter-in-place” regulations. Whilst to date there
has been no material impact on operations and liquidity of the Company, at the time of issuance, these
circumstances may change in the foreseeable future.
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 2020. 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
Water Intelligence plc
38
Notes to the Financial Statements
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
2020 is $636,089 (2019: $759,209).
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 income tax asset is realised or the related deferred
income tax liability is settled.
The principal temporary differences arise from depreciation or amortisation charged on assets and tax
losses carried forward. Deferred tax assets relating to the carry forward of unused tax losses and are
recognised to the extent that it is probable that future taxable profit will be available against w hich 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.
Functional and presentational currency
Foreign currencies
(i)
Items included in the Financial Statements are measured using the currency of the primary economic
environment in which each entity operates
Water Intelligence plc
39
Notes to the Financial Statements
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)
(c)
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
all resulting exchange differences are recognised in other comprehensive income.
LeasesThe 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
Water Intelligence plc
40
Notes to the Financial Statements
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.
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.
Water Intelligence plc
41
Notes to the Financial Statements
Impairment of financial assets
The Group recognises an allowance for expected credit losses (ECLs) f or all debt instruments not held
at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows
due in accordance with the contract and all the cash flows that the Group expects to receive, discounted
at an approximation of the original effective interest rate. The expected cash flows will include cash flows
from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
The Group always recognises lifetime expected credit losses ("ECL") for trade receivables and contract
assets. The expected credit losses on these financial assets are estimated using a provision matrix based
on the Group’s historical credit loss experience, adjusted for factors that are specific to the debt ors,
general economic conditions and an assessment of both the current as well as the forecast conditions at
the reporting date, including time value of money where appropriate.
For all other financial instruments, the Group recognises lifetime ECL when there has been a significant
increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has
not increased significantly since initial recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12‑month ECL.
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 a nd
are recognised within other (losses) or gains in the income statement.
Goodwill
Goodwill represents the excess of the fair value of the consideration over the fair values of the identifiable
net assets acquired.
Goodwill arising on acquisitions is not subject to amortisation but is subject to annual impairment testing.
Any impairment is recognised immediately in the Consolidated Statement of Comprehensive Income and
not subsequently reversed.
Water Intelligence plc
42
Notes to the Financial Statements
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
Years
1-3
5
20
10
4
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 resal e;
• Management intends to complete the intangible asset and use or sell it;
•
•
•
•
There is an ability to use or sell the intangible;
It can be demonstrated how the intangible asset will generate possible future economic benefits;
Adequate technical, financial and other resource to complete the development and to use or sell the
intangible asset are available; and
The expenditure attributable to the intangible asset during its development can be reliably measured.
Other development expenditures that do not meet these criteria are recognised as an expense in the
period incurred. Development costs previously recognised as an expense are not recognised as an asset
in a subsequent period. Capitalised development costs are recorded as intangible assets and are
amortised from the point at which they are ready for use on a straight-line basis over the asset’s estimated
useful life.
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that is
subject to risks and returns that are different from those of other business segments.
Impairment reviews
Assets that are subject to amortisation and depreciation are reviewed for impairment when events or
changes in circumstances indicate that the carrying amount may not be fully recoverable. Assets that are
not subject to amortisation and depreciation are reviewed on an annual basis at each year end and, if there
is any indication that an asset may be impaired, its recoverable amount is estimated. The recoverable
amount is the higher of its net selling price and its value in use. Any impairment loss arising from the review
Water Intelligence plc
43
Notes to the Financial Statements
is charged to the Statement of Comprehensive Income whenever the carrying amount of the asset exceeds
its recoverable amount.
Share based payments
The Group has made share-based payments to certain Directors and employees and to certain advisers by
way of issue of share options. The fair value of these payments is calculated either using the Black Scholes
option pricing model or by reference to the fair value of any fees or remuneration settled by way of granting of
options. The expense is recognised on a straight-line basis over the period from the date of award to the date
of vesting, based on the best estimate of the number of shares that will eventually vest.
Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with International Financial Reporting Standards
requires the use of judgements together with accounting estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of income and expenses during the reporting
period. Although these judgements and estimates are based on management’s best knowledge of current
events and actions, the resulting accounting treatment estimates will, by definition, seldom equal the related
actual results.
The key judgements in respect of the preparation of the financial statements are in respect of the accounting
for acquisitions, determination of separately identifiable assets on acquisition, the determination of cash
generating units, the evaluation of segmental information, the evaluation of whether there is any indication
of any impairment in investments, intangibles, goodwill or receivables and whether deferred tax assets
should be 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
31 December
2020
Year ended
31 December
2019
$
$
6,691,433
9,513,209
17,434,216
4,295,037
37,933,895
6,499,045
8,049,570
14,446,286
3,369,034
32,363,935
Water Intelligence plc
44
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
45
Year ended
31 December
Year ended
31 December
2020
$
1,771,302
682,958
3,795,753
311,783
(2,257,323)
(101,099)
4,203,374
2019
$
1,603,149
601,281
2,025,095
226,215
(1,605,252)
(493,000)
2,357,488
Year ended
31 December
2020
Year ended
31 December
2019
$
$
10,571,497
2,006,569
24,932,417
6,930,887
44,441,371
9,412,402
1,862,887
11,772,004
5,079,827
28,127,120
Year ended
31 December
Year ended
31 December
2020
$
496,315
27,702
542,017
2019
$
291,692
27,350
319,042
Year ended
31 December
2020
$
Year ended
31 December
2019
$
-
-
1,288,989
279,045
1,568,034
-
-
1,092,312
176,151
1,268,463
Notes to the Financial Statements
Finance Expense
US corporate operated locations
International corporate activities
Unallocated head office costs
Total
Year ended
31 December
20120
$
Year ended
31 December
2019
$
78,031
8,769
358,553
445,353
81,608
995
317,638
400,241
For the purpose of monitoring segmental performance, liabilities are not 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 be multinational
company. As indicated herein, the Group has had strong balanced growth in the US and abroad and
across ALD and WII. For 2020, outside the US sales have grown 26% to $4.4 million (2019: $3.5
million). Sales in the US have grown 16% to $33.5 million (2019: $28.9 million). The percentage of
International sales to total sales has remained constant at 11% (2019: 11%).
Total Revenue
Year ended 31 December 2020
Year ended 31 December 2019
US
$
International
$
Total
$
US
$
International
$
Total
$
6,572,162
119,271
6,691,433
6,355,811
143,234
6,499,045
9,513,209
-
9,513,209
8,049,570
-
8,049,570
17,434,216
- 17,434,216 14,446,285
- 14,446,285
-
4,295,037
4,295,038
-
3,369,034
3,369,034
33,519,587
4,414,308 37,933,895 28,851,666
3,512,268 32,363,934
Franchise royalty
income
Franchise related
activities
US Corporate
owned Stores
International
corporate activities
Total
Water Intelligence plc
46
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)
Year ended
31 December
2020
$
752,670
14,424,268
Year ended
31 December
2019
$
820,885
12,965,317
-
70,038
1,568,034
1,268,463
Note
6
2
524,017
290,049
(3,034)
(77,027)
319,042
224,297
10,152
(34,805)
Year ended
31 December
2020
$
Year ended
31 December
2019
$
52,000
51,000
-
-
The Group auditors are not the auditors of the US subsidiary companies. The fees paid to the auditor of
the US subsidiary companies were $142,336 (2019: $121,009) for the audit of these companies and
$28,204 (2019: $24,260) for other services.
6
Employees and Directors
The Employees and Directors of the Company contribute to the execution and management of the
business.
Short-Term employee benefits
Directors fees, salaries and benefits
Employee wages and salaries
Social Security Costs
Long-Term employee benefits
Share based payments
Year ended
31 December
2020
Year ended
31 December
2019
774,465
12,672,270
763,948
659,596
11,392,014
736,748
233,584
176,960
14,444,268
12,965,318
Water Intelligence plc
47
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
2020
$
Year ended
31 December
2019
$
774,465
20,331
794,796
659,596
20,034
679,630
The highest paid Director (Executive) received emoluments of $606,515 (2019: $537,380).
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
2020
$
Year ended
31 December
2019
$
5
26
150
20
46
247
5
23
132
22
34
216
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
2020
1,450,000
525,000
-
(67,500)
1,907,500
697,500
Weighted
Number
average
of share
exercise
options
price ($)
2020
2019
3.01 1,535,000
5.63
525,000
(160,000)
-
1.23
(450,000)
3.92 1,450,000
1.15
765,000
Weighted
average
exercise
price ($)
2019
1.43
6.08
1.40
1.21
3.01
1.52
Water Intelligence plc
48
Notes to the Financial Statements
Fair value of share options
During the year, the Group granted 525,000 Share Options to certain Employees, with exercise prices
ranging from of £4.28 to £4.80 ($5.60 to $6.20).
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 41.86p to 66.62p. This is based on risk-free rates
of 0.72% and volatility of 34%.
The Black Scholes calculations for the options granted during the year resulted in a charge of $233,584 (2019:
$176,960) which has been expensed in the year.
The weighted average remaining contractual life of the share options as at 31 December 2020 was 7.12
years (2019: 6.95 years).
Options arrangements that exist over the Company’s shares at year end and at the time of the report are
detailed below:
Grant
ALDHC Plan
2013 Directors
2015 Options
2016 Directors
2016 Employee
2016 Employee
2018 Acquisition
2018 Acquisition
2019 Employee (1)
2019 Acquisition (2)
2020 Employee (3)
2020 Acquisition (4)
2021 Acquisition (5)
2021 Directors (6)
Total
At report
date
122,500
100,000
177,500
100,000
45,000
132,500
135,000
25,000
475,000
50,000
500,000
25,000
45,500
300,000
2,233,000
2020
142,500
100,000
177,500
100,000
45,000
132,500
135,000
25,000
475,000
50,000
500,000
25,000
Exercise period
To
2019
From
Exercis
e price
Date of
Grant
01/12/2023
$1.14 01/12/2013
142,500 01/12/2013
01/08/2023
$1.30 01/08/2013
100,000 01/08/2013
08/06/2025
$0.67 08/06/2015
177,500 08/06/2015
13/06/2026
$1.26 13/06/2016
100,000 13/06/2016
19/12/2026
$1.24 19/12/2019
95,000 19/12/2016
$1.56 19/12/2019
19/12/2026
150,000 19/12/2016
$3.15 06/03/2021 06/03/2028
135,000 06/03/2018
$4.52 08/10/2021 08/10/2028
25,000 08/10/2018
04/04/2029
$6.24 04/04/2023
475,000 04/04/2019
04/04/2029
$4.59 04/04/2023
50,000 04/04/2019
31/07/2030
$5.60 31/07/2023
31/07/2020
30/09/2030
$6.20 30/09/2024
30/09/2020
01/01/2031
01/01/2021
$6.24 01/01/2025
15/03/2031
15/03/2021 $10.40 15/03/2024
1,907,500
1,450,000
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) 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.
(2) 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.
(3) On 31 July 2020, certain employees were granted options to purchase 500,000 New Ordinary Shares at a price of $5.60.
These options have a four-year vesting requirement.
(4) On 30 September 2020, certain vendors, retained as employees, were granted options to purchase 25,000 New Ordinary
Shares at a price of $6.20 pursuant to the acquisition of franchises acquired in 20 20. These options have a four-year vesting
requirement.
(5) On 01 January 2021, certain vendors, retained as employees, were granted options to purchase 45,500 New Ordinary Shares
at a price of $6.24 pursuant to the acquisition of franchises acquired in 20 20. These options have a four-year vesting
requirement.
(6) On 15 March 2021, Dan Ewell, a newly appointed Director, received an option to purchase 200,000 New Ordinary Shares. All
other members of the Board received an option to purchase 25,000 New Ordinary Shares. These options have an exercise
price of $10.40 per share, being a 18% premium to the prevailing share price. These Options have a four-year vesting
requirement.
Water Intelligence plc
49
Notes to the Financial Statements
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, (iii) 850,000 Partly Paid Shares at an exercise price of $4.82, in May 2019 and (iv)
300,000 Partly Paid Shares at an exercise price of $6.13 in October 2020 in connection with capital raising and bank financings.
He has paid up 300,000 Partly Paid Shares of the shares issued in 2016. These Partly Paid Shares carry voting rights but will not
be admitted to trading or carry any economic rights until fully paid.
8
Finance income
Interest income
9
Finance expense
Interest expense
10
Taxation
Group
Current tax:
Year ended
31 December
2020
Year ended
31 December
2019
$
88,753
$
61,754
Year ended
31 December
2020
$
445,351
Year ended
31 December
2019
$
400,241
Year ended
31 December
2020
Year ended
31 December
2019
$
$
Current tax on profits in the year
836,682
535,692
Prior year over provision
Total current tax
Deferred tax current year
Deferred tax prior year
Deferred tax (credit)/expense (note 20)
Income tax expense
-
836,681
436,637
-
535,692
126,369
-
-
436,637
1,273,319
126,369
662,061
Water Intelligence plc
50
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
(2020: 31.7% versus 2019: 31.6%)
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
4,203,374
2,357,488
882,709
446,277
65,445
15,202
95,620
190,419
17,262
6,662
11,528
22,548
38,314
110,772
30,586
2,036
662,061
Taxation expense recognized in income statement
1,273,319
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 £5,898,312 (2019: £4,276,906) available for offset against future profits. £1,002,713 (2019:
£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 2020 is 31.7% (2019: 31.6%). It is anticipated that the Group will use this
effective tax rate of 31.7% 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
2020
$
2,892,974
14,832,294
15,427,122
19.5
18.8
Year ended 31
December
2019
$
1,695,033
14,426,694
15,244,422
11
11.7
11.1
12
Acquisitions
These can be summarised as follows:
On 12 May 2020, the Company announced the reacquisition of Minneapolis, Minnesota franchise.
Operationally, the reacquisition enables the creation of regional corporate hub in the Upper Midwest of the
United States connecting various franchise locations. Financially, for full-year 2019, Minneapolis generated
Water Intelligence plc
51
Notes to the Financial Statements
approximately $985,000 of sales and $315,000 of pre-tax profits. The purchase price was $1.3 million spread
evenly over four years.
On 2 June 2020, the Company announced the reacquisition of its San Jose, California franchise. The
reacquisition of San Jose is strategic in that it enables the Group to create a regional corporate base in Silicon
Valley to not only execute its growth plan but also to source and test new technologies. Financially, for full-year
2019, San Jose franchise operations generated approximately $0.7 million of sales and $0.2 million of pre-tax
profits. The purchase price was approximately $1.05 million to be paid over three years.
On 16 July 2020, the Company announced the reacquisition of its Maryland franchise. Maryland is a significant
reacquisition. The franchise territory covers the entire state of Maryland which includes cities such as Baltimore,
Bethesda, and Annapolis. The Group plans to create a regional hub and link corporate operations in South New
Jersey and Washington D.C. and franchise operations in Philadelphia and Northern New Jersey. Financially,
for full-year 2019, Maryland generated approximately $1.07 million of sales and approximately $0.4 million of
pre-tax profits. The purchase price for the reacquisition was $1.35 million.
On 4 August 2020, the Company announced the reacquisition of its franchise operation in Melbourne, Australia.
Melbourne is a significant reacquisition because it complements the Group’s other corporate base in Sydney.
Between Melbourne and Sydney, the Group can better support growth of its existing franchise locations in the
eastern half of Australia. The Group intends to expand operations further west to Adelaide and Perth, both of
which remain untapped. Financially, for the trailing twelve months, which includes six months of Covid-impacted
results, the Melbourne operation generated AUD$1.29 million in sales and AUD$0.25 million in pre-tax profits.
The purchase price for the reacquisition was AUD$1.77 million.
On 30 September 20, the Company announced the reacquisition of its franchise operation in Brisbane,
Australia. The Group now will have corporate operations in the three most populous cities in Australia. Such
critical mass will enable the Group to better support the growth of current and new ALD franchises and corporate
operations throughout the eastern half of Australia. Brisbane operations generated approximately AUD$0.5
million in revenue and AUD$0.1 million in pre-tax profits for the trailing twelve months which includes a period
of slowdown due to Covid. The purchase price was AUD$550,000.
On 14 December 2020, the Company announced the reacquisition of its Baton Rouge, Louisiana franchise.
The franchise operation encompasses the cities of Baton Rouge and New Orleans. Strategically, the Louisiana
reacquisition will enable ALD to form a regional operational center in the southern part of the United States from
which to support the growth of franchise and corporate locations. Financially, for full-year 2019 the Louisiana
franchise generated approximately $1.1 million in sales and $0.3 million in pre-tax profits. The purchase price
for the reacquisition was $1.77 million to be paid over four years.
On 22 December 2020, the Company announced the reacquisition of its Melbourne, Florida franchise. The
Melbourne reacquisition will enable ALD to link its current and fast-growing corporate operations of Orlando, to
the north, and Miami, to the south, along the eastern part of Florida. The purchase price was $1.55 million
based on 2020 pro forma full-year results of approximately $1.2 million in sales and $0.3 million in profits. The
purchase price is to be paid over three years.
On 31 December 2020, the Company reacquired its Seattle, Washington franchise. The reacquisition is the
largest franchise reacquisition to date and strategic in tying together different growing business segments and
creating efficiencies. In terms of business segments, Seattle will work together with Water Intelligence
International (“WII”) to set up a US base of operations for WII’s municipal solutions. In terms of efficiencies, the
Seattle location enables the Group to link its corporate operations in Portland to the south and to open up a
new Canadian location in Vancouver to the north. For 2020, Seattle reached approximately $2.7 million in
revenue and $0.8 million in profits before tax adjusted. The purchase price was $5.5 million of which $500,000
is contingent on performance targets through year-end 2022.
Water Intelligence plc
52
Notes to the Financial Statements
Sub. Aqu.
Denver Minneapolis San Jose Maryland
Seattle
Melbourne
Florida
Baton
Rouge
Melbourne
Australia
Brisbane
Australia
Adjust-
ments
$
$
$
$
$
$
$
$
$
32,430
-
-
73,720
40,922
-
69,397
-
-
50,410
75,000
60,000
32,430
114,642
69,397
185,410
182,950
187,906
60,000
430,856
52,750
108,750
60,000
221,500
40,500
115,800
30,000
186,300
48,644
80,086
7,164
69,364
92,875
7,036
135,894
169,276
Totals
$
620,164
701,340
224,200
1,545,704
$
-
-
-
-
300,000
327,670
380,000
1,350,000
4,000,000
800,000
700,000
1,270,177
351,800
50,000
9,529,647
-
983,012
667,000
-
1,500,000
750,000
1,150,000
-
35,180
-
5,085,192
300,000
1,310,682
1,047,000
1,350,000
5,500,000
1,550,000
1,850,000
1,270,177
386,980
50,000
14,614,839
267,570
1,196,040
977,603
1,164,590
5,069,144
1,328,500
1,663,700
1,134,283
217,704
50,000
13,069,135
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)
The intangible assets arising on the above acquisitions of $13,069,135 is included in additions to goodwill and indefinite li fe 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
53
Notes to the Financial Statements
The amount of deferred consideration for 2020 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
Kentucky
South Florida
Orlando
Tucson
Minneapolis
San Jose
Seattle
Baton Rouge
Brisbane, Australia
Total current deferred consideration
Non-Current
South Florida
Tucson
Minneapolis
San Jose
Seattle
Melbourne, Florida
Baton Rouge
Year ended
31 December
2019
$
75,473
56,604
557,816
23,480
471,698
92,434
1,277,505
Year ended
31 December
2019
$
168,834
387,364
Year
acquired
2015
2016
2018
2018
2019
2019
2020
2020
2020
2020
2020
Year ended
31 December
2020
$
24,928
105,884
327,670
295,137
750,000
700,000
38,320
2,241,939
Year ended
31 December
2020
$
143,905
271,667
668,449
353,040
750,000
462,375
772,500
Year
acquired
2018
2019
2020
2020
2020
2020
2020
Total non-current deferred consideration
3,421,936
556,198
Water Intelligence plc
54
Notes to the Financial Statements
13
Intangible assets
The calculation of amortization of intangible assets requires the use of estimates and judgement, related
to the expected useful lives of the assets.
An impairment review is undertaken annually or whenever changes in circumstances or events indicate
that the carrying amount may not be recovered.
Goodwill and other indefinite life intangible assets
Group
Cost
At 1 January 2019
Additions
At 31 December 2019
Additions (see note 12)
At 31 December 2020
Impairment
At 1 January 2019
Impairment in year
Goodwill
Acquisitions
$
Goodwill relating
to Owned &
Operated stores
$
Goodwill on
franchisor
activities
$
2,545,134
494,117
3,039,251
267,570
3,306,821
4,654,351
2,341,617
6,995,968
12,801,565
19,797,533
636,711
-
636,711
-
636,711
Totals
$
7,836,196
2,835,734
10,671,930
13,069,135
23,741,065
1,506,229
75,000
-
1,581,229
-
- -
-
At 31 December 2019
1,506,229
75,000
-
1,581,229
Impairment in year
-
-
At 31 December 2020
1,506,229
75,000
Carrying amount
-
-
-
1,581,229
At 31 December 2019
1,533,022
6,920,968
636,711
9,090,701
At 31 December 2020
1,800,592
19,722,533
636,711
22,159,836
The increase in carrying value of Goodwill Acquisitions at 31 December 2020 relate to goodwill additions
arising on the acquisition outlined in Note 12 above during 2020.
Goodwill and indefinite life intangible assets on owned & operated stores comprises legacy owned stores
together with additions arising from reacquisitions of franchise operations from 2015 through 2020. Details on
additions in 2020 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 2015 - 2020 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 a wider
business strategy for revenue and earnings growth and the ability to expand new service offerings. Where
appropriate, consideration of separate intangibles, such as covenants not to compete, are evaluated.
Water Intelligence plc
55
Notes to the Financial Statements
There is no separately identified intangible considered to arise from the customer list of a franchise
reacquired given the terms of the franchise agreement and on that these customers continue to be
customers of the Group’s products and services before and after the reacquisition.
An impairment review is undertaken annually or whenever changes in circumstances or events indicate
that the carrying amount may not be recovered. For the purpose of impairment testing, goodwill or
indefinite life intangible assets are allocated to appropriate cash generating units which can be
summarised as follows:
Goodwill 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 cash generating unit is less than its
carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount
of each asset in the unit. An impairment loss recognised for goodwill is not recovered in a subsequent
period.
The key assumptions/inputs used for the impairment assessment based on the forecast cash flow and
revenues for 2020 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 2020 (2019: $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
56
Notes to the Financial Statements
13
Intangible assets continued
Other Intangible assets table
Cost
At 1 January 2019
Additions
At 31 December 2019
Additions
Disposals
At 31 December 2020
Accumulated amortisation
At 1 January 2019
Amortisation expense
Exchange differences
At 31 December 2019
Amortisation expense
Disposals
Exchange differences
At 31 December 2020
Carrying amount
At 31 December 2019
At 31 December 2020
Product
development
$
Covenants
not to compete
$
Customer
Lists
Trademarks
Patents
$
$
Website
$
$
Enterprise
Solution
Development
$
Total
$
164,880
-
164,880
-
-
164,880
164,880
-
-
164,880
-
-
164,880
290,000
200,000
490,000
224,200
(290,000)
424,200
290,000
-
-
290,000
193,124
(290,000)
(151)
192,973
350,357
-
350,357
-
(217,500)
132,857
297,213
27,350
(779)
323,784
27,702
(217,500)
(1,130)
132,857
-
200,000
26,573
-
231,227
-
5,293,817
-
5,293,817
-
(62,050)
5,231,767
23,692
-
23,692
-
-
23,692
90,000
90,000
-
(90,000)
-
457,471
(355,471)
102,000
-
102,000
6,670,217
(155,471)
6,514,746
224,200
(659,550)
6,079,397
3,418,367
261,691
-
3,680,058
261,691
(62,050)
-
3,879,699
1,613,759
1,352,068
23,692
52,500
- 30,000
-
23,692
-
82,500
-
-
-
-
-
-
-
23,692
7,500
(90,000)
-
-
34,000
-
-
34,000
4,246,652
319,041
(779)
4,564,914
524,017
(659,550)
(1,281)
4,428,101
-
-
7,500
102,000
1,949,832
-
68,001
1,651,296
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
57
Notes to the Financial Statements
14
Property, plant and equipment
Equipment
& displays
$
Motor
Vehicles
$
Leasehold
Improvements
$
Buildings
$
Right of
Use
Vehicles
$
Right of
Use
Offices
$
Total
$
1,428,404
917,560
15,000
-
163,116
113,302
-
152,009
-
-
- 2,360,964
-
428,427
488,163
-
4,682
(107,805)
513,283
-
1,848
(107,415)
68,672
-
-
-
357,458
-
- 1,092,582
-
(55,786)
1,382
-
533,652 1,961,228
1,323,060 2,415,642
7,912
(644,768)
-
(373,762)
1,976,560
1,438,578
83,672
153,391 1,394,254
1,482,950 6,529,405
32,430
-
1,053,569
74,947
(85,324)
953,024
(47,310)
(17,787)
-
-
-
-
-
-
-
32,430
-
2,851
-
253,583
723
(199,594)
719,831 2,980,006
48,272
(844,970)
17,061
(542,266)
3,052,181
2,326,504
83,672
156,242 1,448,967
1,677,576 8,745,143
420,611
205,781
2,046
-
-
-
628,438
109,945
55,924
-
27,116
192,985
(35,915)
(54,216)
-
-
(55,786)
(373,762)
(519,679)
-
325,759
955
-
269,482
495
-
5,942
-
10,947
9
396,350
284,712
-
663,257 1,059,607
371,621 1,268,463
1,459
-
-
821,355
477,466
7,988
38,072
625,276
661,116 2,631,273
(33,752)
(10,429)
-
-
(174,892)
(421,793)
(640,866)
450,167
3,426
306,723
8,003
15,098
-
11,859
832
311,973
77
472,214 1,568,034
14,481
2,143
1,241,197
781,762
23,085
50,764
762,433
713,681 3,572,921
1,155,205
961,112
75,684
115,319
768,978
821,834 3,898,132
1,810,985
1,544,742
60,587
105,479
686,533
963,896 5,172,221
Cost
At 1 January 2019
Acquired on
acquisition of
subsidiary
Additions
IFRS 16 Adoption
Exchange differences
Disposals
At 31 December
2019
Acquired on
acquisition of
subsidiary
Additions
Exchange differences
Disposals
At 31 December
2020
Accumulated
depreciation
At 1 January 2019
Acquired on
acquisition of
subsidiary
Eliminated on
disposals
IFRS 16 Adoption
Depreciation expense
Exchange differences
At 31 December
2019
Eliminated on
disposals
Depreciation expense
Exchange differences
At 31 December
2020
Carrying amount
At 31 December 2019
At 31 December
2020
The value of the assets charged as security for the bank debt is $2,056,692 (2019: $1,426,896).
Water Intelligence plc
58
Notes to the Financial Statements
15
Investment in subsidiary undertakings
Company
Cost
At 31 December 2019
Exchange difference
At 31 December 2020
Impairment
At 31 December 2019
Exchange difference
At 31 December 2020
Carrying amount
At 31 December 2019
At 31 December 2020
Subsidiary
Undertakings
$
13,607,300
253,251
13,860,551
6,400,906
-
6,400,906
7,206,394
7,459,645
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. American Leak Detection has a 51%
stake in a former franchise located in Denver, Colorado.
Water Intelligence plc
59
Notes to the Financial Statements
16
Inventories
Group Inventories
Group
Year ended
31 December
2020
$
444,791
Year ended
31 December
2019
$
334,011
During the year ended 31 December 2020, an expense of $8,830,250 (2019: $7,448,287) was
recognized in the Consolidated Statement of Comprehensive Income, including business to business
expenses of $8,024,178 (2019: $6,747,495). There has been no write down of inventories during
2020.
17
Trade and other receivables
Trade notes receivable
Group
Company
Year ended
31 December
2020
$
581,191
Year ended
31 December
2019
$
605,234
Year ended
31 December
2020
$
Year ended
31 December
2019
$
- - -
All non-current receivables are due within five years from the end of the reporting period.
Group
Company
Year ended
31 December
2020
$
2,843,462
899,903
-
673,832
212,681
1,093,994
325,195
Year ended
31 December
2019
Year ended
31 December
2020
Year ended
31 December
2019
$
2,796,536
671,047
-
584,876
223,706
389,701
370,284
$
-
3,973
7,068,570
-
-
-
-
$
-
27,901
4,906,216
-
-
-
71,956
Trade receivables
Prepayments
Due from Group undertakings
Accrued royalties receivable
Trade notes receivable
Other receivables
Due from related party
Current portion
6,049,067
5,036,149
7,072,544
5,006,073
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 (2019: 39 days).
Water Intelligence plc
60
Notes to the Financial Statements
The carrying amounts of the Group’s trade and other receivables are denominated in the following
currencies:
US Dollar
UK Pound
Australian Dollar
Canadian Dollar
Year ended
31 December
2020
Year ended
31 December
2019
$
5,229,898
504,926
293,179
21,063
6,049,067
$
4,133,093
658,728
208,592
35,735
5,036,149
The maximum exposure to credit risk at the reporting date is the carrying value of each class of
receivable mentioned above. The Group does not hold any collateral as security.
18
Cash and cash equivalents
Cash at bank and in hand
19
Trade and other payables
Trade payables
Accruals and other payables (Note 2)
Due to Group undertakings
Group
Company
Year ended
31 December
2020
Year ended
31 December
2019
Year ended
31 December
2020
Year ended
31 December
2019
$
6,818,715
$
5,280,808
$
366,737
$
195,749
Group
Company
Year ended
31 December
2020
Year ended
31 December
2019
Year ended
31 December
2020
Year ended
31 December
2019
$
1,531,740
4,132,158
-
5,663,898
$
993,241
3,602,845
-
4,596,086
$
21,094
121,452
-
142,546
$
52,627
117,725
170,352
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 (2019:16 days).
20
Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group
2020
$
2019
$
Deferred tax (liability)/assets
(957,170)
(588,684)
Water Intelligence plc
61
Notes to the Financial Statements
The movement in deferred tax liabilities is as follows:
2020
Temporary differences:
Net operating profit (loss) (non-
current)
Short term temporary differences
2019
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
$
-
-
(588,684)
(588,684)
(436,637)
(436,637)
68,151
68,151
(957,170)
(957,170)
Opening
balance
$
Recognized in
the income
statement
$
-
-
-
-
Recognized in
Other
Comprehensive
Income
$
-
-
Closing
balance
$
-
-
(316,221)
(316,221)
(126,369)
(126,369)
(146,094)
(146,094)
(588,684)
(588,684)
At the balance sheet date, the Group’s UK trading subsidiaries had unused tax losses (as reported on the
Group’s tax returns) of £5,898,312 (2019: £4,276,906) available for offset against future profits.
£1,002,713 (2019: £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 2019
At 31 December 2020
.
Group & Company
At 31 December 2019
At 31 December 2020
Ordinary Shares
Number
14,702,371
15,434,784
Shares held in
treasury Number
145,000
65,538
Total Number
14,847,371
15,500,322
Share capital
$
114,440
116,212
Share premium
$
9,717,349
12,091,069
Shares in
Treasury
$
(539,833)
(340,327)
At various times during 2020, the Company bought 80,483 shares into treasury at a purchase price
range of 247p to 420p.
On 5 January 2020, the Company issued 25,000 shares pursuant to an exercise of options.
Water Intelligence plc
62
Notes to the Financial Statements
On 16 October 2020, the Company announced a capital raise, pursuant to which the Company sold
285,451 new ordinary shares to raise £1.4 million and the Company sold 159,945 shares out of
treasury to raise £0.8 million. At the same time, Patrick DeSouza, Executive Chairman of the
Company, fully paid 300,000 of his partly paid shares and, in addition, options over 42,500 ordinary
shares were exercised and sold to incoming investors. All of these shares were admitted to trading
on AIM on 26 October 2020. In addition, Patrick DeSouza received 300,000 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.
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 o n completion of
the reverse acquisition on 29 July 2010.
22 Right of use liability
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
Year ended
31 December
2020
$
Year ended
31 December
2019
$
771,713
991,720
587,674
1,116,132
1,763,433
1,703,806
93,912
88,189
813,667
723,812
Market risk (including foreign currency risk management)
Interest rate risk
The Group has exposure to the following key risks related to financial instruments:
i.
ii.
iii. Credit risk
iv.
Liquidity risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s
objectives, policies and processes for measuring and managing risk, and the Group’s management
of capital. Further quantitative disclosures are included throughout these consolidated Financial
Statements.
The Directors determine, as required, the degree to which it is appropriate to use financial instruments
or other hedging contracts or techniques to mitigate risk. The main risk affecting such instruments is
foreign currency risk which is discussed below. Throughout the year ending 31 December 20 20 no
Water Intelligence plc
63
Notes to the Financial Statements
trading in financial instruments was undertaken (2019: 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 disc losure.
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 2020, 66.9% was held with one counterparty with a credit rating of Aaa and a further
15.05% was held with another counterparty with a credit rating of A-.
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 losse s,
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 2020, trade receivables of $281,805 (2019: $460,716) 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
2020
Year ended
31 December
2019
$
87,621
194,184
281,805
95
$
129,287
331,429
460,716
95
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 through trading only with
counterparties that are banks with high credit ratings assigned by international credit rating agencies.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The exposure to
credit risk at the year-end was in respect of the past due receivables that have not been impaired are
disclosed in note 17.
Water Intelligence plc
64
Notes to the Financial Statements
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
Year ended
31 December
2020
$
-
6,818,715
6,049,067
581,191
Year ended
31
December
2019
$
Year ended
31
December
2020
Year ended
31
December
2019
-
5,280,808
5,036,149
--
$
-
366,737
7,072,544
-
605,234
$
-
195,749
5,006,074
-
5,663,898
2,941,610
5,848,261
2,241,939
3,421,936
4,596,086
1,163,055
-
2,321,401
-
1,277,504
142,545
-
-
-
556,197 -
170,353
-
-
-
-
Borrowings
For 2020, the Group has two basic types of Borrowings: Bank Debt of $6,782,000 (see below) and PPP Loans
of $1,869,800 (see Subsequent Events). The remainder amount of $138,061 represents non-bank borrowing
with respect to service vehicles.
Bank Debt
The Group has a commercial banking relationship with People’s United Bank (People’s) with various
facilities: a working capital line of credit (“WCL”); acquisition lines of credit (“ALOCs”), and a term loan
(“Term Loan”).
A $2,000,000 WCL is secured by substantially all of the assets of the Group. On May 9, 2019, the WCL
was extended to a maturity date from December 2019 to December 2020 and bore interest at a rate equal
to LIBOR plus 3.00%. On October 13, 2020, the WCL was extended to a maturity date of December 5,
2021 and bears an annual variable interest rate equal to equal to LIBOR plus 3.00%. At December 31,
2020 and 2019, the interest rate was 4.00% and 4.70%, respectively. Monthly interest only payments on
any unpaid balance were made during 2020. The balance outstanding at December 31, 2020 and 2019
was $226,737 and $228,133, respectively and included within line of credit on the balance sheets.
In addition to the $2,000,000 line of credit, People’s has provided the Group a $1,500,000 acquisition line
of credit (ALOC1). ALOC1 had a two year draw period but was paid off in October 2020 as part of the
Group’s refinancing of their debt. ALOC1 bore interest at a rate equal to LIBOR plus 3.00%. As of December
31, 2019, the interest rate was 5.40%, and required installments of principal and interest amounting to
$35,469 to be paid per month. As part of the agreement, such payments would be converted into a term
loan if any ALOC advance exceeded $250,000 or automatically at the end of a two year draw period. Upon
conversion, the term loan would bear interest at a rate per annum equal to three (3) percentage points in
excess of People’s four year cost of funds interest rate. The ALOC1 was secured by substantially all of the
assets of the Group. The balance outstanding of $0 and $1,035,468 as of December 31, 2020 and 2019 is
included within notes payable on the balance sheets. See note 8 for a summary of notes payable which
includes the ALOC1.
On May 9, 2019, People’s provided the Group with a second ALOC (ALOC2) in the amount of $4,000,000.
ALOC2 had a two year draw period but was paid off in October 2020 as part of the Company’s refinancing
of their debt. ALOC2 bore interest at a rate equal to LIBOR plus 3.00%. As of December 31, 2019, the
Water Intelligence plc
65
Notes to the Financial Statements
interest rate was 5.57% and required installments of principal and interest amounting to $35,524 to be paid
per month beginning in June 2019. As part of the agreement, the ALOC2 would be converted into a term
loan if any ALOC2 advance exceeded $250,000 or automatically at the end of the two year draw period.
Upon conversion, the term loan would bear interest at a rate per annum equal to three (3) percentage points
in excess of People’s five year cost of funds interest rate. The line of credit was secured by substantially all
of the assets of the Group. The balance outstanding as of December 31, 2020 and 2019 was $0 and
$1,662,661 and is included within notes payable on the balance sheets. See note 8 for a summary of notes
payable which includes the ALOC2.
Both ALOC 1 and ALOC 2 were refinanced on October 13, 2020. People’s provided the Group with a term
loan in the amount of $4,607,000 (“Term Loan”). The Term Loan bears interest at a rate equal to 3.58%
and requires installments consisting of principal of $85,315 plus accrued interest to be paid monthly
beginning in November 2020 until maturity in May 2025. The loan is secured by substantially all of the
assets of the Group. The balance outstanding as of December 31, 2020 was $4,521,685 and is included
within notes payable on the balance sheets.
As part of the refinancing, People’s provided the Group with a new ALOC (“New ALOC”) in the amount of
$6,000,000. The New ALOC has a two year draw period. The balance outstanding as of December 31,
2020 was $2,309,341 and is included within notes payable on the balance sheets. See note 8 for a summary
of notes payable which includes the New ALOC. The line bears interest at a rate equal to LIBOR plus
3.00%. As of December 31, 2020, the interest rate was 3.59% and requires installments of principal and
interest amounting to $39,816 to be paid per month beginning in November 2020 until maturity in October
2025. As part of the agreement, New ALOC advances would be converted into a term loan if any ALOC
advance exceeded $500,000 or automatically at the end of each draw period. Upon conversion, the term
loan would bear interest at a rate per annum equal to three (3) percentage points in excess of People’s five
year cost of funds interest rate; with a floor of 3.25%. New ALOC is secured by substantially all of the assets
of the Group.
In connection with the People’s line of credit, ALOC, and term note, the Group is required to comply with
certain financial and non-financial covenants to be performed on a consolidated basis with its parent
company. The most restrictive of these covenants includes a debt service coverage ratio to be tested
quarterly and a maximum total funded debt to EBITDA ratio minimal to be tested quarterly. The Group was
in compliance with those requirements at December 31, 2020.
Current
Non-Current
Year ended
31 December
2020
Year ended
31 December
2019
Financial Instruments
Term loans
PPP Loan
Working Capital Line of Credit
Acquisition Line of Credit
Less: Loan Closing Costs
$
1,074,507
1,449,769
-
477,795
(60,461)
$
-
-
713,685
(16,294)
Total
2,941,610
1,163,055
465,664
Year ended
31 December
2020
$
3,585,440
420,031
226,737
1,831,546
(215,495)
5,848,260
Year ended
31 December
2019
$
137,702
-
228,133
1,984,351
(28,787)
2,321,400
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.
Water Intelligence plc
66
Notes to the Financial Statements
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 earnin gs. 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.
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
2020 were $119,271 (2019: $143,234). No foreign exchange contracts were in place at 31 December 2020
(2019: Nil).
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary
liabilities were:
Group
Company
Year ended
31 December
2020
Year ended
31 December
2019
Year ended
31 December
2020
$
$
$
Year ended
31 December
2019
$
1,685,233
1,558,156
7,439,281
5,201,823
1,053,196
604,422
142,545
170,353
Assets
Sterling, Australian and
Canadian Dollars
Liabilities
Sterling, Australian and
Canadian Dollars
As shown above, at 31 December 2020 the Group had Sterling, Australian and Canadian denominated
monetary net assets of $632,037 (2019: $953,734). If the foreign currency weakens by 10% against the
US dollar, this would decrease net assets by $63,203 (2018: $95,373) with a corresponding impact on
reported losses. Changes in exchange rate movements resulted in a gain from exchange differences on
a translation of foreign exchange of $33,375 in 2020 (2019: loss of $164,145), 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 $8,789,871 (2019:$3,484,456).
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the year ended 31 December 2020 would not
materially change if market interest rates had been 1% higher/lower throughout 2020 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 forecast for the period to 31 December 2022. 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
Water Intelligence plc
67
Notes to the Financial Statements
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
2020
Payables
Lease liabilities
Borrowings
Deferred consideration
Group
2019
Payables
Lease liabilities
Borrowings
Deferred consideration
0-6 months
$
6-12 months
$
>12 months
$
Total
$
3,900,465
365,363
2,619,786
1,364,771
-
406,350
321,824
877,168
-
991,720
5,848,261
3,421,936
0-6 months
$
6-12 months
$
>12 months
$
2,892,280
327,253
563,143
1,214,019
-
260,420
599,912
63,486
-
1,116,132
2,321,400
556,198
3,900,465
1,763,433
8,789,871
5,663,875
Total
$
2,892,280
1,703,805
3,484,455
1,833,703
Interest expected to be paid on liabilities are shown in the table below
Group
2020
Payables
Lease liabilities
Borrowings
Deferred consideration
0-6 months
$
6-12 months
$
>12 months
$
Total
$
-
33,122
118,084
88,746
-
24,463
105,064
81,707
-
45,677
350,668
122,015
-
103,262
573,816
292,467
The Company has no non-derivative financial liabilities.
Derivatives
The Group and Company have no derivative financial instruments.
Fair values
The Directors consider that the carrying amounts of financial assets and financial liabilities
approximate their fair values.
Water Intelligence plc
68
Notes to the Financial Statements
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 2020
Cash flows
- Repayment
- Proceeds
Non-cash
- New Leases
- Fair value
- Reclassification
As at 31 December 2019
At 1 January 2019
Cash flows
- Repayment
- Proceeds
Non-cash
- New Leases
- Fair value
- Reclassification
As at 31 December 2018
Long-term
borrowings
$
2,321,401
(848,421)
6,153,836
-
-
(1,778,555)
5,848,261
Long-term
borrowings
$
1,448,303
(808,520)
1,854,936
-
-
(173,319)
2,321,401
Short-term
borrowings
$
1,163,055
Lease
Liabilities
$
1,703,805
Total
$
5,188,261
-
-
(813,667)
-
(1,662,088)
6,153,836
-
-
1,778,555
2,941,610
873,295
-
-
1,763,433
873,295
-
-
10,553,304
Short-term
borrowings
$
989,736
Lease
Liabilities
$
-
Total
$
2,438,039
-
-
(635,623)
-
(1,444,143)
1,854,936
-
-
173,319
1,163,055
2,339,428
-
-
1,703,805
2,339,428
-
-
5,188,261
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
SEEEN investment 31 December 2020
1,564
1,564
SEEEN investment 31 December 2019
1,932
1,932
-
-
-
-
To estimate fair value, the lower end of the bid-offer spread as at 31 December 2020 was used to
calculate the value of the holding. There is an active market for the Group's liquid equity investment.
Water Intelligence plc
69
Notes to the Financial Statements
25
Contingent liabilities
The Directors are not aware of any material contingent liabilities.
26
Related party transactions
PSS was one former owner of ALDHC and ALD until the reverse merger in 2010 that created Water
Intelligence. PSS is now a significant shareholder of Water Intelligence and hence is a related party
to the Company. PSS provides a technology license to Water Intelligence and ALD on terms
favourable to Water Intelligence and ALD. The license is royalty-free for the first $5 million of sales
for products developed with PSS technology. 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, ALDHC 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 $18,062 and $15,185 for the years December 31, 2020 and 2019,
respectively. The guarantee fee expense for the PSS guarantee amounted to $38,219 and $24,126
for the years ended December 31, 2020 and 2019, respectively. During 2020 the Company paid
expenses on behalf of PSS in the amount of $46,883. The related receivable/prepaid balance
remaining is $325,195 and $298,327 at December 31, 2020 and 2019, respectively.
Water Intelligence plc
70
Notes to the Financial Statements
During the year, the Company had the following transactions with its subsidiary companies:
Water Intelligence International Limited
Balance at 31 December 2019
Net loans to subsidiary
Other expenses recharged and exchange differences
Balance at 31 December 2020
ALDHC
Balance at 31 December 2019
Loans prepaid by WI capital raise
Balance at 31 December 2020
ALD Inc.
Balance at 31 December 2019
Loans incurred due to WI capital raise
Loans paid to WI
Other expenses recharged and exchange differences
Balance at 31 December 2020
$
2,771,082
-
278,488
3,049,570
$
-
-
-
$
2,135,134
1,586,205
(188,610)
486,272
4,019,000
Subsequent events
27
On 4 February 2021, the Group completed an extension of its credit facilities by $3.2 million, on the same
terms as the refinancing completed in October 2020 and referenced in note 23.
On 30 March 2021, the Group completed the reacquisition of its Central Florida (Clermont) franchise
territory within the Group’s ALD franchise business. Strategically, the Central Florida reacquisition will
enable ALD to link operations along the eastern part of Florida from its Central Florida location to fast-
growing corporate operations in Orlando, to the east, and sizeable Melbourne and Miami operations, to the
south. As noted above, demand is high for ALD water leak detection and repair offerings in this geography
because of various factors ranging from the number of swimming pools to level of disposable income to
rainy weather. In linking the above four eastern Florida operations, ALD expects to achieve even faster
growth through fulfilling pent-up demand and creating operating efficiencies from scale.
The provisional fair values of the acquisitions subsequent to year end are detailed below:
Fair value of assets and liabilities acquired
Equipment
Vehicles
Other
Net assets acquired
Consideration
Cash
Deferred consideration – discounted to present
value
Total consideration
Intangible asset arising on acquisition
Clermont
$
26,250
54,868
30,000
111,118
330,000
330,000
660,000
548,882
Water Intelligence plc
71
Notes to the Financial Statements
On 23 April 2021, the Group announced the acquisition of intellectual property assets (“IP”) from FastDitch,
Inc., a US corporation (“FastDitch”). The IP Assets will be used to launch a new subsidiary of the Group’s
core American Leak Detection business (“ALD”) dedicated to providing water infrastructure solutions. The
subsidiary will operate under the tradename Intelliditch. As set forth in a recent market communication, the
Group is accelerating its growth plan given the anticipated increase in market demand for water
infrastructure solutions stimulated by the Biden Administration’s American Jobs Plan
On 2 June 2021, the Group announced the reacquisition of its Reno, Nevada franchise territory within its
ALD franchise business. The acquisition strengthens corporate presence in the western part of the United
States and links its ALD innovation centers in Silicon Valley and Seattle. The purchase price of $0.25 million
is based on $0.25 million of sales during 2020. It is believed that strong growth will occur in this location
with the end of Covid restrictions. The purchase price allocation for the Reno acquisition will be completed
in due course.
On 2 June 2021, the Group announced the acquisition of PlumbRight Services, Inc. PlumbRight extends
the plumbing services capabilities of the Group’s fast-growing, multimillion dollar Louisville, Kentucky
location. The PlumbRight team will enable the Louisville office to take on larger scale repair jobs as follow-
through sales beyond current pinpoint leak detection solutions for its existing business and municipal
customers. The purchase price of $0.7 million is based on 2020 sales of approximately $1 million. The
purchase price allocation for the PlumbRight Services acquisition will be completed in due course.
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. The group received notification from the
SBA on March 31, 2021 that the full advance of $1,869,800 was forgiven.
Work Protocols and PPE - The Group reviewed all applicable Shelter-in-Place Orders and determined
that our operations qualify as services related to essential/critical infrastructure with respect to water
and wastewater and that we 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.
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.
Water Intelligence plc
72