TIDMWATR
RNS Number : 2906O
Water Intelligence PLC
09 June 2022
Water Intelligence plc
Audited Results For Year Ended 31 December 2021
Water Intelligence plc (AIM: WATR.L) ("Water Intelligence", the
"Company" or "Group"), a leading multinational provider of
precision, minimally-invasive leak detection and remediation
solutions for both potable and non-potable water, is pleased to
present its full, audited results for the year ended 31 December
2021.
-- Statutory results higher than previously announced due to $1.9m one-off gain
-- Adjusted FY results (not including one-time gain) in line
with February trading update with revenues +44%, Adjusted EBITDA
+48% and EPS +29%
-- Confident in further corporate development through 2022; well
placed to navigate inflationary challenges in order to be in line
with market expectations for 2022 with a strong Q1 already
reported
Overview
During 2021 and the first quarter of 2022, the Group deployed
capital that it raised to accelerate delivery of its plan to build
a leading multinational growth company for water and wastewater
infrastructure solutions. The Group has achieved strong results
across various dimensions of the plan: (i) sales growth; (ii)
profits; (iii) acquisitions that add scale, organizational control
and new product offerings; (iv) significantly increased execution
capabilities through hirings ranging from more technicians to
senior-level management and board; and (v) multiple equity and debt
financings to establish a balance sheet that can sustain our growth
trajectory for the long-run.
A strong 2021 reinforced our confidence in our growth plan.
Water Intelligence's compounded annual growth rate ("CAGR") from
2016 to 2021 has reached 35% in terms of revenue and 49% in terms
of statutory profit before tax ("PBT"). Such statutory PBT growth
does not take into account a one-time $1.9 million profit gain
recorded in 2021 which would have driven the trailing CAGR
significantly higher. Moreover, our critical mass of "network"
sales to third-party customers (gross sales by corporate-run
locations and indirect gross sales by our franchisees under the
same brand from which Group royalty is derived) grew 14% to
approximately $147 million (2020: $129 million). This is further
reinforced by like for like sales growth of 18% from corporate
owned stores. Importantly, Water Intelligence has been able to
achieve such results despite the continued impact of Covid-19 on
society.
For 2022, the Group is mindful of inflationary pressures that
are now layered upon lingering Covid-related challenges. However,
we are navigating such marketplace challenges with our greater
operating scale and investments made over the last three years to
improve efficiency such as Salesforce field force automation
software and our proprietary Pulse and LS1 diagnostic tools.
Copies of the Annual Report will be made available to view on
the Company's website at www.waterintelligence.co.uk
Highlights from the Group's 2021 Audited Results :
Financial
-- Revenue growth strong at 44% reaching $54.5 million (2020: $37.9 million)
-- Adjusted EBITDA(1) grew 48% to $10.3 million (2020: $7.0 million)
-- Statutory EBITDA(2) grew 72% to $11.4 million (2020: $6.7 million)
-- Adjusted PBT(3) grew 36% reaching $6.9 million (2020: $5.1 million)
-- Statutory PBT(2) grew 80% reaching $7.6 million (2020: $4.2 million)
-- Adjusted EPS(4) grew 29% reaching 30.2 cents (2020: 23.5 cents)
-- Statutory EPS grew 85% reaching 36.1 cents (2020: 19.5 cents)
-- Balance Sheet strong with sufficient resources to execute the Company's growth plan:
o Cash: $23.8 million (2020: $6.8 million)
o Net of Bank Debt: $15.5 million cash (repayment of Bank Debt
spread through 2026) (2020: break-even)
o Net of Bank Debt plus Deferred Payments to Franchisees: $1.8
million cash (repayment of deferred payments spread through
2026)
(1) Does not include one-time gain of $1.9 million but as
historically done for comparison purposes adds back "Non-core
costs" (one-time costs or non-recurring costs such as legal costs
related to transactions)
(2) Includes one-time gain of $1.9 million but does not add back
Non-core costs
(3) Does not include one-time gain of $1.9 million but as
historically done for comparison purposes adds back non-cash
expenses (amortization, share-based payments) and Non-core
costs
(4) Does not include one-time gain of $1.9 million but as
historically done for comparison purposes adds back non-cash
expenses (amortization, share-based payments) and Non-core costs
and assumes tax rate on adjustments consistent with statutory tax
rate
Corporate Development
-- 8 Acquisitions
o 5 franchise
o 2 bolt-on (1 UK; 1 US)
o 1 technology (open channel liner)
-- Subsequent Event: (2 franchises acquired; 1 sale of franchise
territory YTD 2022)
-- 3 Financings
o 2 Equity ($23.8 million added)
o 1 Bank Debt ($3.2 million added)
-- Subsequent Event: ($17 million in bank availability added in
April 2022)
-- 3 Technology Testings and Implementations
o Salesforce and related applications
o Pulse (sewer diagnostic)
o LS1 (rapid water surveys)
-- Corporate Execution: Added 132 headcount (73 technicians)
Dr. Patrick DeSouza, Executive Chairman of Water Intelligence,
commented:
"Despite Covid-19 disruptions, we delivered across the board in
both 2020 and 2021 to deliver on our mission of building a
world-class multinational growth company in an important space -
water infrastructure.
The marketplace now faces new challenges with inflation and
labour retention layered on top of Covid-related issues. We will
step forward to meet these latest challenges as well. Our
management team has only gotten stronger during 2021 as we added
senior leaders and have continued to add technicians to meet strong
market demand for our services and products. We deliver important
value to our customers - residential, commercial and municipal -
with our minimally-invasive technology approach to remediation of
failing water infrastructure. It is a worldwide problem that will
be with us for a long time. With the support of our investors, we
have a strong balance sheet enabling us to navigate confidently in
the short, medium and long run."
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR"). Upon the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
Enquiries:
Water Intelligence plc
Patrick DeSouza, Executive Chairman Tel: +1 203 654 5426
WH Ireland Limited - NOMAD & Joint Tel: +44 (0)20 7220 1666
Broker
Chris Hardie
Ben Good
RBC Capital Markets - Joint Broker Tel: +44 (0)20 7653 4000
Jill Li
Daniel Saveski
Dowgate Capital Ltd - Joint Broker Tel: +44 (0)20 3903 7715
Stephen Norcross
Chairman's Statement
Overview
Despite the challenges of navigating the global marketplace over
the last few years, we continue to reaffirm our primary objective,
one that has been set forth in the Chairman's Statement for the
last decade: to create a leading multinational growth company for
water and wastewater infrastructure solutions whose growth is not
only strong but sustainable. Global market demand for services and
products to preserve our most precious natural resource and to
address the reality of aging water infrastructure underpins our
mission. We are proud that we were awarded the Green Economy Mark
from the London Stock Exchange.
In our 2020 Chairman's Statement, we provided a simple message:
full steam ahead for 2021 despite the disruptions caused by Covid.
Demonstrated in this year's report and consistent with that
message, we produced strong growth in 2021 and reinforced our
enviable compounded annual growth rate ("CAGR") from 2016 when we
launched our current growth plan. Revenue increased 44% to $54.5
million (2020: $37.9 million). Statutory profit before tax (PBT)
increased 80% to $7.6 million (2020: $4.2 million). However, $1.9
million of statutory PBT represented a one-time gain. Not including
the one-time gain, statutory PBT grew 35% to $5.7 million (2020:
$4.2 million). Meanwhile PBT Adjusted for non-cash costs
(amortisation and share-based payments) and non-core costs
increased by 36% to $6.9 million (2020: $5.1 million). Not counting
our one-time statutory PBT gain, for the span of 2016 -2021 our
CAGRs still show revenue growth of 35% and statutory PBT growth of
49%.
For 2022, we have a new set of challenges layered upon the
lingering effects of Covid. We are all aware of the inflationary
challenges ranging from the conflict in Ukraine to supply chain and
inflationary concerns that create market uncertainty. For our
business, we face fuel and material prices that have doubled over
the course of 1H 2022 as we service our customers to solve their
leakage problems. Moreover, we face rising labour costs and
retention issues as our technicians and managers themselves need to
cope with economy-wide inflation. Tactically, as outlined below, we
are responding to these new challenges. Overall, our Chairman's
Statement strategic message remains similar to last year's: Full
steam ahead but with prudence as we balance rising costs.
We have several operational attributes that enable us to
navigate these market-wide challenges better than most.
Importantly, global market demand for water infrastructure
solutions remains strong as we rise to meet new execution
challenges. Second, our core American Leak Detection (ALD) business
operates in the United States, and we benefit from earning money in
dollars as interest rates rise to cope with inflation and produce a
stronger dollar. Third, we have made timely technology investments
in making our business more efficient. These investments will help
combat inflationary pressures on our costs. Most importantly, this
year we are completing our Salesforce (and related applications)
implementation to automate many of our business processes and help
drive greater productivity by our workforce. Further, we are
introducing during Q3 a proprietary new tool for water surveys that
should lower labour costs for delivering that municipal offering.
We have executed successful field trials in the UK and are now
planning similar trials in Australia. In navigating 1Q 2022, our
growth trajectory remained firm with revenue increasing by 44% (Q1
2022: $16.5 million vs. Q1 2021: $11.4 million). Our PBT Adjusted
still grew by 16% to $2.1 million (Q1 2021: $1.7 million).
As we navigate 2022, we are helped by the fact that we have a
critical mass of customers and a matrix of business lines -
residential, commercial, municipal, clean water, sewer - that help
offset volatility in any one segment. Our overall market presence
in 2022 will surpass $150 million in annual network-wide gross
sales to customers. Network-wide gross sales is a non-statutory
concept that illuminates the actual sales to customers executed
under the same brand whether by franchisees or by corporate
technicians. Network-wide gross sales includes both indirect sales
to our customers by our franchisees from which royalty income to
the Group is derived (which is recorded in statutory terms) plus
direct sales from corporate operations. To reiterate, both
franchisees and corporate locations operate under the same ALD
brand and to the customers there is no difference in franchise or
corporate execution. This critical mass of sales, across our more
than 150 locations spread across the United States and in the UK,
Australia and Canada, establishes a solid foundation of customers
from which to launch our next stage of growth.
In building from this foundation, despite market-wide
challenges, we are well-positioned for the short-run, medium-run
and long-run to execute our growth plan. With our strong balance
sheet and our ability to generate cash each year, we have the
working capital to reinvest in the business for short to medium
term projects that reinforce sustainable growth. Over the last six
months, we have accelerated investment in human capital; expanding
our execution team both in terms of senior management and
on-the-ground trained technicians. More broadly, as noted above,
over the last five years, we have also made investments in
technology products (sewer diagnostic tools, open channel liners,
video e-commerce, Salesforce) that will over the next several years
expand our business lines and make our business more scalable.
Finally, we have also positioned ourselves for the longer-run
horizon with two sets of financings during 2021 and Q1 2022. We
expanded our institutional equity base during July and November
2021. In parallel, during February 2021 and April 2022, we lowered
our cost of capital by blending in low-cost bank debt. Such
short-run, medium-run and long-run tactics enable us to meet the
marketplace challenges ahead.
Operating KPIs
Water Intelligence Key Performance Indicators (KPIs) are
explained more fully in the Strategic Report. These KPIs serve to
underscore two key dimensions of our overall strategic growth plan.
First, we prioritize Network-wide growth in order to establish a
strong foundation of market presence. With over 40 years of
operations, American Leak Detection (ALD) is a well-developed and
highly regarded brand that sells to customers - residential,
commercial and municipal - across the United States and in
Australia and Canada. ALD represents approximately 90% of the
Group's revenue. In 2021 through franchise operated and corporate
operated locations, ALD customers purchased services and products
amounting to approximately $141 million of gross sales. Our Water
Intelligence International (WII) brand added another $6 million in
gross sales operating primarily in the UK. In implementing
Salesforce, we are creating efficiencies to further grow
Network-wide sales.
For 2021, KPIs illuminate the growth of both ALD and WII brands.
KPI #1 or ALD royalty income grew 2% to $6.8 million (2020: $6.7
million). This royalty income represents approximately $99 million
of Network gross sales (2022: $97 million). ALD and WII corporate
sales or KPIs #2, #3 and #4 (respectively franchise related
activities such as the Corporate insurance channel; US Corporate
direct sales; and International Corporate direct sales) grew 53% to
$47.7 million (2020: $31.2 million). Captured by these 4 KPIs,
total Network gross sales (ALD and WII) grew 14% to approximately
$147 million (2020: $129 million). With 44% WI revenue growth
during 1Q, Network sales is on pace to significantly pass $150
million for 2022.
Second, beyond expanding Network sales, we also seek to unlock
shareholder value and add profits to the Group's consolidated
accounts by selectively reacquiring franchises and then delivering
solutions through corporate-run locations more efficiently. Our
Salesforce implementation enables us to create corporate regional
hubs that will help scale dispatch and scheduling. In executing for
the same customers under the ALD brand but as a corporate-run
operation, we are bringing a portion of the approximately $99
million of franchise operated sales and associated profits directly
onto the Water Intelligence Group (WI) accounts.
As explained more fully in KPI #3, we have unlocked significant
value by growing former franchise locations faster both in terms of
sales and profits. For comparison purposes, corporate-run locations
acquired from franchisees before 1 January 2020 grew 18% to $18.3
million (2020: $15.5 million); profits from those reacquired
locations increased 8% to $3.3 million (2020: $3.1 million) even as
we reinvested in these new corporate locations after acquisition
for future growth. The profit yield of $3.3 million under corporate
execution at these locations is significantly higher than the
profit yield from the same $18.3 million of sales if executed by a
franchisee. Profit to the Group from franchise royalty would be
approximately $0.3 million. The difference in yield is even more
pronounced when one considers the $31.9 million of sales at all
corporate-run locations not just the ones owned prior to 1 January
2020. It should be underscored that despite such selective
reacquisitions, our strategic plan is still committed to
reinforcing our core franchise business. Not only is the franchise
System integral to our firm culture, it also provides monthly
recurring income from franchise royalties that enables the Group to
optimize its capital base with a prudent amount of bank debt. As
noted above, during Q1 2021 and Q1 2022 we have been able to
complement institutional equity investment rounds with rounds of
low-cost bank debt.
Strategic Direction
Our strategic plan continues to deliver results but we are
mindful that we need to be vigilant with respect to market-wide
inflationary pressures. We are making the necessary investments
both to capture more of market demand for our solutions and to
reinforce profitability. We have invested in human capital to
retain our highly trained technicians and also to provide
incentives to execute more jobs. We have invested in advancing our
technology leadership not only in terms of new, more efficient
tools but also in automating our business. Our sales footprint in
the US, UK, Canada and Australia provide us with a stable base and
we will prudently look for opportunities to expand our
multinational footprint because aging infrastructure is a
world-wide problem. We appreciate our institutional investors and
their long-term commitment towards building a world-class
multinational growth company despite all of the market
challenges.
Patrick DeSouza
Executive Chairman
Director's 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
2021.
Principal Activities
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" 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.
2021 was marked by sustained and balanced multinational growth
for both ALD and WII. Total revenue grew 44% to $54.5 million and
statutory profits before tax grew 80% to $7.6 million when compared
with 2020. Profit before tax included a one-time gain of $1.9
million. Holding the one-time gain aside, statutory profit before
tax grew 35% to $5.3 million. Again, holding aside the one-time
gain, our ALD subsidiary grew revenue 44% to $48.4 million and
profit before tax 38% to $5.40 million when compared with 2020. Our
WII subsidiary grew revenue 42% to $6.1 million and grew profit
before taxes by 1% to $0.32 million. The splits between ALD and WII
revenue remained consistent during 2021 when compared with 2020
with approximately 90% of total revenue attributable to ALD and 10%
of total sales attributable to WII.
Going Concern
The Directors have prepared a business plan and cash flow
forecast for the period to December 2023. 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 oversubscribed capital raises in July and November
2021 and expansion of its credit facilities in February 2021 and
April 2022, the Directors believe that funding will be available on
a case-by-case basis for additional initiatives.
Cash at 31 December 2021 increased to $23.8 million (2020: $6.8
million). At 31 December 2021, total debt (borrowings and deferred
consideration from franchise acquisitions) was $22 million with
amortisation of such amount spread through 2026. Meanwhile,
operating cash flows (EBITDA) in 2021 increased by 45% to $10.0
million (2020: $6.9 million). For 2022, the Directors are
monitoring inflationary pressures and investments, such as
Salesforce.com and related software applications, geared to offset
inflation through efficiencies.
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 is undertaken by third parties not related
to the Group, was $0 (2020: $3,034). 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 (2020:
$nil).
Share Price
On 31 December 2021, the closing market price of Water
Intelligence plc ordinary shares was 1095.0 pence. The highest and
lowest prices of these shares during the year to 31 December 2021
were 1340.0 pence and 490.0 pence respectively.
Capital Structure
Details of the authorised and issued share capital are shown in
Note 21. No person has any special rights of control over the
Company's share capital and all issued shares are fully paid.
Future Developments
Future developments are outlined throughout the Chairman's.
Financial Risk Management
Financial risk management is outlined in the principal risks and
uncertainties section of the Strategic Report.
Subsequent Events
On 19 January 2022, the Group announced the reacquisition of its
Fort Worth, Texas franchise territory within the Group's ALD
franchise business. The Fort Worth operation is fast-growing and
expected to accelerate further by adding new service locations in
north and west Texas during 2022. Moreover, this reacquisition
reinforces the Group's strategy of establishing regional corporate
hubs in the US that have scale to fuel growth in nearby corporate
and franchise locations. The purchase price of $7.7 million in cash
is to be paid over three years. The purchase price is based on 2021
pro forma of $3.6 million in revenue and $1.2 million in profit
before tax.
On 3 February 2022, the Group announced the sale of certain
territory in rural North Carolina to an existing, fast-growing
franchisee of American Leak Detection (ALD). The purchase price for
the territory is $90,000, all of which is recognised as revenue at
100% profit margin. It is also expected that the franchise owner
will be purchasing additional equipment from ALD to launch service
vehicles to develop the territory. Finally, the commercialization
of such "greenfield" territory will also add royalty income to the
Group's ALD business unit during 2022.
On 7 April 2022, the Group announced the expansion of its
acquisition line of credit to include an additional $15 million for
further acquisitions of its franchises. As part of the facility,
the Group entered into swap arrangements that maintain a fixed
interest rate of approximately 5.5% on amounts drawn under the
facility and are amortised over a term of five years. The covenants
and guarantee requirements for the new facility remain the same all
other credit facilities with People's Bank, now operating
post-acquisition as part of M&T Bank.
On 12 May 2022, the Group announced the reacquisition of its
American Leak Detection Central Texas franchise. The franchise
includes the cities of Abilene, Lubbock and Midland which are west
of recently launched corporate-operated locations of Fort Worth
(via franchise acquisition) and Wichita Falls (greenfield). The
purchase price of $0.75 million in cash is based on the franchise's
2021 Statement of Income of $0.65 million in revenue and $0.21
million in profit before tax.
Directors
The Directors who served the Company during the year and up to
the date of this document were as follows:
Executive Directors
Patrick DeSouza - Executive Chairman
Laura Hills
Non-Executive Directors
Bobby Knell
Michael Reisman
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
Directors' emoluments
2021 Salary,
Fees & Bonus Benefits Redundancy Total
-------------------------
$ $ $ $
------------------------- -------------- --------- ----------- --------
Executive Directors
P DeSouza 639,381 15,004 - 654,385
L Hills 125,000 - - 125,000
------------------------- -------------- --------- ----------- --------
Non-Executive Directors
D Ewell 30,000 - - 30,000
B Knell 40,000 - - 40,000
M Reisman 40,000 - - 40,000
874,381 15,004 - 889,385
------------------------- -------------- --------- ----------- --------
2020 Salary,
Fees & Bonus Benefits Redundancy Total
-------------------------
$ $ $ $
------------------------- -------------- --------- ----------- --------
Executive Directors
P DeSouza 581,203 25,312 - 606,515
L Hills 92,458 - - 92,458
Non-Executive Directors
------------------------- -------------- --------- ----------- --------
D Silverstone 20,500 - - 20,500
B Knell 60,000 - - 60,000
M Reisman 20,304 - - 20,304
774,465 25,312 - 799,777
------------------------- -------------- --------- ----------- --------
Directors' interests
The Directors who held office at 31 December 2021 and subsequent
to year end had the following direct interest in the voting rights
of the Company at 31 December 2021 and at the date of this
document, excluding the shares held by Plain Sight Systems,
Inc.
Number of shares % held at
at 31 December 31 December Number of shares % held at
2021 2021 at 8 June 2022 8 June 2022
Patrick DeSouza*/** 4,867,110 25.03 4,867,110 25.04
Michael Reisman* 184,126 0.95 184,126 0.95
Laura Hills 116,196 0.60 116,196 0.60
Bobby Knell 27,000 0.14 27,000 0.14
Dan Ewell 30,524 0.16 30,524 0.16
------------------------- --------------- ------------- ----------------- -------------
*Included in the total above, Patrick DeSouza has (i) 180,000
Partly Paid Shares (2016), (ii) 750,000 (March 2018) (iii) 850,000
(May 2019) and (iv) 300,000 Partly Paid Shares (October 2020).
These will not be admitted to trading or carry any economic rights
until fully paid.
*Patrick DeSouza and Michael Reisman are directors and
shareholders in Plain Sight Systems, Inc.
**Patrick DeSouza's interests include 1,965,000 shares held by
The Patrick J. DeSouza 2020 Irrevocable Trust U/A Dtd 11/23/2020
and 605,936 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
document were as follows:
Number of shares % held
------------------------------ ---------------- ------
Plain Sight Systems, Inc. 2,430,410 12.50
Canaccord Genuity Group Inc. 2,300,580 11.84
State Street Nominees Limited 1,291,339 6.64
George D. Yancopoulos 880,920 4.53
Amati AIM VCT 814,660 4.19
Herald Investment Trust 642,526 3.31
------------------------------ ---------------- ------
Corporate Responsibility
The Board recognises its employment, environmental and health
and safety responsibilities. It devotes appropriate resources
towards monitoring and improving compliance with existing
standards. An Executive Director has responsibility for these areas
at Board level, ensuring that the Group's policies are upheld and
providing the necessary resources.
Employees
The Board recognises that the Group's employees are its most
important asset.
The Group is committed to achieving equal opportunities and to
complying with relevant anti-discrimination legislation. It is
established Group policy to offer employees and job applicants the
opportunity to benefit from fair employment, without regard to
their sex, sexual orientation, marital status, race, religion or
belief, age or disability. Employees are encouraged to train and
develop their careers.
The Group has continued its policy of informing all employees of
matters of concern to them as employees, both in their immediate
work situation and in the wider context of the Group's well-being.
Communication with employees is effected through the Board, the
Group's management briefings structure, formal and informal
meetings and through the Group's information systems.
Independent Auditors
Crowe UK LLP has expressed their willingness to continue in
office. In accordance with section 489 of the Companies Act 2006,
resolutions for their re-appointment and to authorise the Directors
to determine the Independent Auditors' remuneration will be
proposed at the forthcoming Annual General Meeting.
Statement of disclosure to the Independent Auditor
Each of the persons who are directors at the time when this
Directors' report is approved has confirmed that:
-- so far as that Director is aware, there is no relevant audit
information of which the Company and the Group's auditor is
unaware; and
-- that Director has taken all the steps that ought to have been
taken as a director in order to be aware of any relevant audit
information and to establish that the Company and the Group's
auditor is aware of that information.
By order of the Board
Patrick DeSouza
Executive Chairman
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.
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 sections 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 2021 and 31
December 2021 and the attendance of directors is summarized
below:
Board meetings Audit committee Remuneration committee
Possible (attended) Possible (attended) Possible (attended)
----------------- -------------------- -------------------- -----------------------
Patrick DeSouza 6/6
Bobby Knell 6/6 2/2
Michael Reisman 6/6 2/2 2/2
Dan Ewell 6/6 2/2
Laura Hills 6/6
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.
(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)l. 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. 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.
Background and suitability for the role: The ALD franchise
business is central to the operations and value proposition of
Water Intelligence. Bobby has served 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 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.
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 2020
annual accounts and the interim accounts to 30 June 2021. 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 .
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 UK adopted
International Accounting Standards.
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 judgments 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 Directors'
responsibility also extends to the ongoing integrity of the
Financial Statements contained there.
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 2021, which comprise:
-- the Group statement of comprehensive income for the year ended 31 December 2021;
-- the Group and parent company statements of financial position as at 31 December 2021;
-- 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 2021 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 are authorised for issue.
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
$398,000 (2020: $321, 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 restrictions earlier in the year around travel,
we have remotely reviewed the US work to carry out our review of
component auditor working papers and have met 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 Our audit procedures consisted of:
Revenue is recognised Validating that revenue is recognised
in accordance with the in accordance with the accounting
accounting policy set policies for appropriateness in accordance
out in the financial statements. with International Financial Reporting
The group has a number Standard 15 'Revenue from Contract
of different revenue streams, with Customers' and performed audit
some of which contain procedures to provide evidence that
judgements, particularly revenue was accounted for in accordance
in recognising when a with the policy.
purchase order has been Testing a sample of revenue transaction
satisfied and have passed across the operating companies of
to the buyer. This is the Group to ensure through testing
determined with reference an appropriate sample of income from
to the underlying contract each revenue stream by agreeing amounts
with the purchaser and to contracted amounts, cash receipt
the nature of the service and/or when a purchase order has
provided. been satisfied.
Assessing the appropriateness of
the related disclosures in the financial
statements.
================================== ============================================================
Impairment of intangible We reviewed management's assessment
assets of the carrying value of the group's
The carrying value of intangible assets. In considering
intangible assets relates this assessment, we evaluated:
to trademarks, franchisor * The discounted cash-flow forecasts for the group and
activities, goodwill on the relevant cash generating units. This assessment
acquisitions and owned included consideration of the key assumptions, which
stores goodwill and indefinite principally included discount rate and growth rates.
life intangible assets.
There is a risk that the
carrying value could be * We have checked the arithmetic accuracy of the
impaired as a result of forecast.
reduced activity. Any
significant future downturn
in performance or activity * Board minutes, budgets and other operational plans
could also result in an
impairment of these assets.
* 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.
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, 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.
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;
-- examining supporting documents for all material balances, transactions and disclosures;
-- review, where applicable, of the Board of Directors' minutes;
-- 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
Consolidated Statement of Comprehensive Income for the year
ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes $ $
-------------------------------------------- ------ --------------- ---------------
Revenue 4 54,543,408 37,933,896
-------------------------------------------- ------ --------------- ---------------
Cost of sales (8,964,486) (8,830,250)
-------------------------------------------- ------ --------------- ---------------
Gross profit 45,578,922 29,103,646
-------------------------------------------- ------ --------------- ---------------
Administrative expenses
- Other Income 69,484 93,066
- Share-based payments 7 (442,708) (233,584)
- Amortisation of intangibles 13 (470,226) (524,017)
- Other administrative costs (38,131,195) (23,879,139)
) )
-------------------------------------------- ------ --------------- ---------------
Total administrative expenses (38,974,645) (24,543,674)
-------------------------------------------- ------ --------------- ---------------
Operating profit 6,604,277 4,559,972
PPP loan forgiveness 23 1,869,800 -
Finance income 8 51,092 88,753
Finance expense 9 (969,130) (445,351)
-------------------------------------------- ------ --------------- ---------------
Profit before tax 7,556,039 4,203,374
Taxation expense 10 (1,641,350) (1,273,319)
-------------------------------------------- ------ --------------- ---------------
Profit for the year 5,914,689 2,930,055
Attributable to:
Equity holders of the parent 5,764,952 2,892,974
Non-controlling interests 149,737 37,081
-------------------------------------------- ------ --------------- ---------------
5,914,689 2,930,055
Other Comprehensive Income
Exchange differences arising on translation
of foreign operations (221,281) 32,375
Fair value adjustment on listed equity
investment (net of deferred tax) (300,049) (236,900)
Total comprehensive profit for the year 5,393,359 2,725,530
-------------------------------------------- ------ --------------- ---------------
Consolidated Statement of Financial Position as at 31 December
2021
Notes 2021 2020
$ $
ASSETS
Non-current assets
Goodwill and indefinite life
intangible assets 13 37,268,469 22,159,836
Listed equity investment 24 1,185,039 1,564,254
Other intangible assets 13 3,818,037 1,651,296
Property, plant and equipment 14 7,807,227 5,172,221
Trade and other receivables 17 429,219 581,191
50,507,991 31,128,798
---------------------------------------- ------ ------------- -------------
Current assets
Inventories 16 677,218 444,791
Trade and other receivables 17 8,379,894 6,049,067
Cash and cash equivalents 18 23,802,352 6,818,715
32,859,464 13,312,573
---------------------------------------- ------ ------------- -------------
TOTAL ASSETS 83,367,455 44,441,371
---------------------------------------- ------ ------------- -------------
EQUITY AND LIABILITIES
Equity attributable to holders
of the parent
Share capital 21 142,260 116,212
Share premium 21 35,252,633 12,091,069
Shares held in treasury 21 (468,427) (340,327)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 1,092,993 650,286
Accumulated OCI (1.095.492) (874,212)
Reverse acquisition reserve 21 (27,758,088) (27,758,090)
Equity investment reserve 46,672 346,721
Retained earnings 43,552,575 37,787,624
---------------------------------------- ------ ------------- -------------
51,766,276 23,020,433
---------------------------------------- ------ ------------- -------------
Equity attributable to Non-Controlling
interest
---------------------------------------- ------ ------------- -------------
Non-controlling Interest 612,528 346,124
---------------------------------------- ------ ------------- -------------
Non-current liabilities
Borrowings 23 8,176,893 6,839,981
Deferred consideration 12 8,220,613 3,421,936
Deferred tax liability 20 1,576,872 957,170
17,974,378 11,219,087
---------------------------------------- ------ ------------- -------------
Current liabilities
Trade and other payables 19 4,194,031 3,900,465
Borrowings 23 3,325,579 3,713,323
Deferred consideration 12 5,494,663 2,241,939
13,014,273 9,855,727
---------------------------------------- ------ ------------- -------------
TOTAL EQUITY AND LIABILITIES 83,367,455 44,441,371
---------------------------------------- ------ ------------- -------------
Company Statement of Financial Position as at 31 December
2021
2021 2020
Notes $ $
ASSETS
Non-current assets
Investment in subsidiaries 15 7,411,852 7,459,645
Trade and other receivables 17 23,270,653 4,019,000
Listed equity investment 24 1,185,039 1,564,254
---------------------------------- ------------------------ ------------------ ---------------
31,867,544 13,042,900
---------------------------------- ------------------------ ------------------ ---------------
Current assets
Trade and other receivables 17 4,781,282 3,053,543
Cash and cash equivalents 18 1,865,798 366,737
---------------------------------- ------------------------ ------------------ ---------------
6,647,080 3,420,280
---------------------------------- ------------------------ ------------------ ---------------
TOTAL ASSETS 38,514,624 16,463,180
---------------------------------- ------------------------ ------------------ ---------------
EQUITY AND LIABILITIES
Equity attributable to holders of
the parent
Share capital 21 142,260 116,212
Share premium 21 35,252,633 12,091,069
Shares held in treasury 21 (468,427) (340,327)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 1,092,993 650,286
Accumulated OCI (1,834,431) (1,586,208)
Equity investment reserve 46,672 346,721
Retained earnings 3,154,925 3,963,789
---------------------------------- ------------------------ ------------------ ---------------
38,387,775 16,242,692
---------------------------------- ------------------------ ------------------ ---------------
Non-current liabilities
Deferred tax liability 20 (5,777) 77,943
---------------------------------- ------------------------ ------------------ ---------------
(5,777) 77,943
Current liabilities
Trade and other payables 19 132,626 142,545
---------------------------------- ------------------------ ------------------ ---------------
132,626 142,545
---------------------------------- ------------------------ ------------------ ---------------
TOTAL EQUITY AND LIABILITIES 38,514,624 16,463,180
---------------------------------- ------------------------ ------------------ ---------------
Consolidated Statement of Cash Flows for the Year Ended 31
December 2021
Year ended
31 December
2020
Year ended
31 December
2021 $ $
-------------------------------------------------- --------------- --------------------
Cash flows from operating activities
Profit before tax 7,556,039 4,203,374
Adjustments for non-cash/non-operating items:
Depreciation of plant and equipment 2,475,069 1,568,034
Amortisation of intangible assets 470,225 524,017
Share based payments 442,708 233,584
PPP loan forgiveness (1,869,800) -
Finance costs 969,130 445,351
Finance income (51,092) (88,753)
-------------------------------------------------- --------------- ------------------
Operating cash flows before movements in working
capital 9,992,279 6,885,607
-------------------------------------------------- --------------- ------------------
Increase in inventories (232,427) (110,780)
Increase in trade and other receivables (1,924,070) (988,875)
(Decrease) / Increase in trade and other payables (684,618) 1,683,009
-------------------------------------------------- --------------- ------------------
Cash generated by operations 7,151,164 7,468,962
-------------------------------------------------- --------------- ------------------
Income taxes paid (1,021,648) (982,776)
Net cash generated from operating activities 6,129,516 6,486,186
Cash flows from investing activities
Purchase of plant and equipment (517,707) (717,519)
Purchase of intangible assets (2,078,559) -
Acquisition of subsidiaries (979,782) (300,000)
Reacquisition of franchises (5,239,558) (9,229,647)
Finance income 51,092 88,753
-------------------------------------------------- --------------- ------------------
Net cash used in investing activities (8,764,514) (10,158,413)
-------------------------------------------------- --------------- ------------------
Cash flows from financing activities
Issue of ordinary share capital 21,291 8,128
Premium on issue of ordinary share capital 22,185,641 2,031,084
Share buyback (466,551) (715,911)
Sale of treasury shares 559,469 1,225,292
Options exercised 714,950 25,083
Finance costs (969,130) (445,351)
Proceeds from borrowings 3,200,000 6,153,836
Repayment of borrowings (1,827,765) (848,421)
Repayment of notes (2,350,676) (1,409,939)
Repayment of lease liabilities (1,448,594) (813,667)
Net cash generated from financing activities 19,618,635 5,210,134
-------------------------------------------------- --------------- ------------------
Net increase in cash and cash equivalents 16,983,637 1,537,907
-------------------------------------------------- --------------- ------------------
Cash and cash equivalents at the beginning
of year 6,818,715 5,280,808
-------------------------------------------------- --------------- ------------------
Cash and cash equivalents at end of year 23,802,352 6,818,715
-------------------------------------------------- --------------- ------------------
Company Statement of Cash Flows for the Year Ended 31 December
2021
Year ended Year ended
31 December 31 December
2021 2020
$ $
---------------------------------------------- -------------- --------------
Cash flows from operating activities
Loss before tax (808,865) (636,089)
Adjustments for non-cash/non-operating
items:
Share based payment expense 442,708 233,585
---------------------------------------------- -------------- --------------
Operating cash flows before movements
in working capital (366,157) (402,504)
---------------------------------------------- -------------- --------------
Increase in trade and other receivables (20,934,141) (2,066,470)
(Decrease)/Increase in trade and other
payables (215,442) 66,286
---------------------------------------------- -------------- --------------
Cash used by operations (21,515,740) (2,402,688)
---------------------------------------------- -------------- --------------
Income taxes paid - -
---------------------------------------------- -------------- --------------
Net cash used by operating activities (21,515,740) (2,402,688)
---------------------------------------------- -------------- --------------
Cash flows from investing activities
---------------------------------------------- -------------- --------------
- -
Net cash used in investing activities - -
---------------------------------------------- -------------- --------------
Cash flows from financing activities
Issue of ordinary share capital 21,291 8,128
Premium on issue of ordinary share capital 22,185,641 2,031,084
Share buyback (466,551) (715,911)
Sale of treasury shares 559,469 1,225,292
Options exercised 714,950 25,083
---------------------------------------------- -------------- --------------
Net cash generated from financing activities 23,014,800 2,573,676
---------------------------------------------- -------------- --------------
Increase in cash and cash equivalents 1,499,061 170,988
---------------------------------------------- -------------- --------------
Cash and cash equivalents at the beginning
of period 366,737 195,749
---------------------------------------------- -------------- --------------
Cash and cash equivalents at end of period 1,865,798 366,737
---------------------------------------------- -------------- --------------
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 8 June 2022.
2 Adoption of a new International Financial Reporting Standards
The following new standards were mandatory for adoption for
periods ending 31 December 2021; however, these standards do not
affect the Group:
- Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS 39, IFRS 4 and IFRS 16
- Covid-19 Related Rent Concessions (Amendment to IFRS 16)
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective and they are not expected to have a material impact on
the Group 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 UK adopted International Accounting Standards
(IFRS). The Parent Company's Financial Statements have also been
prepared in accordance with UK adopted International Accounting
Standards as applied by 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.
Trade and other payables in 2020 have been restated to include
the appropriate current and non-current splits of lease liabilities
.
The Financial Statements are presented in US Dollars ($),
rounded to the nearest dollar.
Going concern
The Directors have prepared a business plan and cash flow
forecast for the period to December 2023. 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 oversubscribed capital raises in July and November
2021 and expansion of its credit facilities in February 2021 and
April 2022, The Directors believe that funding will be available on
a case-by-case basis for additional initiatives.
Cash at 31 December 2021 increased to $23.8 million (2020: $6.8
million). At 31 December 2021, total debt (borrowings and deferred
consideration from franchise acquisitions) was $22 million with
amortisation of such amount spread through 2026. Meanwhile,
operating cash flows (EBITDA) in 2021 increased by 45% to $10.0
million (2020: $6.9 million). For 2022, the Directors are
monitoring inflationary pressures and investments, such as
Salesforce.com and related software applications, geared to offset
inflation through efficiencies.
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
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
through variants. 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. 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 2021. The Consolidated Statement of Comprehensive
Income includes the results of all subsidiary undertakings for the
period from the date on which control passes. Control is achieved
where the Group (or one of its subsidiary undertakings) obtains the
power to govern the financial and operating policies of an investee
entity so as to derive benefits from its activities.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of
the cost of acquisition over the fair value of the Group's share of
the identifiable net assets acquired is recorded as goodwill. If
the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognised
directly in the income statement.
The acquisition of ALDHC in 2010 was accounted for as a reverse
acquisition. The assets and liabilities revalued at their fair
value on acquisition therefore related to the Company. Both a
merger reserve and a reverse acquisition reserve were created to
enable the presentation of a consolidated statement of financial
position which combines the equity structure of the legal parent
with the reserves of the legal subsidiary.
Inter-company transactions and balances and unrealised gains or
losses on transactions between Group companies are eliminated in
full.
Parent Company income statement - UK head office only
The Company has taken advantage of Section 408 of the Companies
Act 2006 in not presenting its own Statement of Comprehensive
Income. The Company's loss after tax for the year ended 31 December
2021 is $808,865 (2020: $636,089).
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 which the unused
tax losses can be utilised. The carrying amount of deferred tax
assets is reviewed at each balance sheet date and reduced to the
extent that it is probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Foreign currencies
(i) Functional and presentational currency
Items included in the Financial Statements are measured using
the currency of the primary economic environment in which each
entity operates
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) assets and liabilities for each statement of financial
position presented are translated at closing rate at the date of
the statement;
(b) the income and expenses are translated at average exchange
rates for period where there is no significant fluctuation in
rates, otherwise a more precise rate at a transaction date is used;
and
(c) all resulting exchange differences are recognised in other comprehensive income.
Leases The Group recognizes a right-of-use asset and a lease
liability at the lease commencement date. The right of use lease is
initially measured at cost, which comprises the initial amount of
the lease liability adjusted for any lease payments made at or
before commencement date plus any initial direct costs incurred and
an estimate of costs to dismantle and remove the underlying asset.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of
the useful life of the right-of-use asset or the end of the lease
term. The lease liability is initially measured at the present
value of the lease payments that are not paid at the commencement
date discounted using the Group incremental borrowing rate.
Revenue recognition
IFRS 15 (Revenue from Contracts with Customers) came into effect
on 1 January 2018 replacing IAS 18 Revenue and related
interpretations. Under IFRS 15, revenue is recognized when a
customer obtains control of a good or service and thus has the
ability to direct the use and obtain the benefits from the good or
service.
Nature of the Business
Water Intelligence plc operates through two wholly-owned
subsidiaries: American Leak Detection (ALD) and Water Intelligence
International (WII). Both subsidiaries provide precision water leak
detection and repair services. The services that are performed for
various customers are discrete activities - locating a water leak
or fixing a leak. The services are not bundled. Each service has a
price established in a rate book. Depending on customer preference,
a service technician may stop after locating the leak. The customer
would pay a fee for that service. Or following the leak detection
service, the technician may also provide repair services for
separate fee depending on what is contracted for by the customer.
Service jobs are typically short in duration, usually 1-2 hours for
a leak detection service. ALD delivers these services through
corporate locations and franchise locations across the United
States and in Canada and Australia. WII operates outside the United
States, mainly in the UK, and delivers services only through
corporate locations.
Customers and Sources of Revenue
Residential . Both ALD and WII provide services to residential
customers. Service technicians, whether from franchise-operated
locations or corporate-operated locations, provide services to
homeowners. When the service is delivered, the homeowner is
invoiced immediately upon completion of the service. The price of
the service is a fixed call-out charge for the technician to come
to the house and an hourly charge based on the time it takes to
find the leak. Revenue is recognized upon completion of the
service.
Business-to-Business . ALD has written national contracts with
nationwide insurance companies. The insurance company, as ALD's
customer, receives claims from homeowners or property management
for water-related damage. The insurance company contracts directly
with ALD headquarters. ALD headquarters, as the principal, takes
liability risk for performance of the service jobs and for
providing to insurance companies certain management services. A
national price book is established as part of the national
contract. After the leak detection service is performed, report
from ALD headquarters is delivered to the insurance company and the
insurance company is also invoiced for the job. Service is deemed
complete upon delivery of the report and invoice. Revenue is
recognized upon delivery of the report and invoice.
Municipal . WII headquarters or ALD headquarters will contract
with a municipality to provide leak detection services. Such leak
detection services largely consist of surveying kilometers of pipe.
During such surveys, a designated distance is covered each day with
a daily rate per technician per kilometer covered. A report is
prepared for the municipality weekly. When the report is delivered,
the service is deemed complete with respect to the distance
covered. The municipality will be billed for the week's work when
the report is conveyed. Revenue is recognized upon the delivery of
the report.
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.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held
at call with banks, and other short term highly liquid investments
with original maturities of three months or less.
Impairment of financial assets
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The expected
cash flows will include cash flows from the sale of collateral held
or other credit enhancements that are integral to the contractual
terms.
The Group always recognises lifetime ECLs for trade receivables
and contract assets. ECLs on these financial assets are estimated
using a provision matrix based on the Group's historical credit
loss experience, adjusted for factors that are specific to the
debtors, general economic conditions and an assessment of both the
current as well as the forecast conditions at the reporting date,
including time value of money where appropriate.
For all other financial instruments, the Group recognises
lifetime ECL when there has been a significant increase in credit
risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial
recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12 -- month ECL.
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: 5 to 7 years
Motor vehicles: 5 years
Leasehold improvements: 7 years or lease term, whichever is shorter
The asset's residual values and economic lives are reviewed, and
adjusted if appropriate, at each reporting date. An asset's
carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated
recoverable amount. Assets that are no longer of economic use to
the business are retired.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised within other
(losses) or gains in the income statement.
Goodwill
Goodwill represents the excess of the fair value of the
consideration over the fair values of the identifiable net assets
acquired.
Goodwill arising on acquisitions is not subject to amortisation
but is subject to annual impairment testing. Any impairment is
recognised immediately in the Consolidated Statement of
Comprehensive Income and not subsequently reversed.
Other intangible assets
Intangible assets are recorded as separately identifiable assets
and recognised at historical cost less any accumulated
amortisation. These assets are amortised over their definite useful
economic lives on the straight-line method.
Amortisation is computed using the straight-line method over the
estimated definite useful lives of the assets as follows:
Years
Covenants not to compete 1-6
Customer lists 5
Salesforce 5
Trademarks 20
Patents 10
Product development 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 resale;
-- Management intends to complete the intangible asset and use or sell it;
-- There is an ability to use or sell the intangible;
-- It can be demonstrated how the intangible asset will generate
possible future economic benefits;
-- Adequate technical, financial and other resource to complete
the development and to use or sell the intangible asset are
available; and
-- The expenditure attributable to the intangible asset during
its development can be reliably measured.
Other development expenditures that do not meet these criteria
are recognised as an expense in the period incurred. Development
costs previously recognised as an expense are not recognised as an
asset in a subsequent period. Capitalised development costs are
recorded as intangible assets and are amortised from the point at
which they are ready for use on a straight-line basis over the
asset's estimated useful life.
Segment reporting
A business segment is a group of assets and operations engaged
in providing products or services that is subject to risks and
returns that are different from those of other business
segments.
Impairment reviews
Assets that are subject to amortisation and depreciation are
reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be fully recoverable.
Assets that are not subject to amortisation and depreciation are
reviewed on an annual basis at each year end and, if there is any
indication that an asset may be impaired, its recoverable amount is
estimated. The recoverable amount is the higher of its net selling
price and its value in use. Any impairment loss arising from the
review is charged to the Statement of Comprehensive Income whenever
the carrying amount of the asset exceeds its recoverable
amount.
Share based payments
The Group has made share-based payments to certain Directors and
employees and to certain advisers by way of issue of share options.
The fair value of these payments is calculated either using the
Black Scholes option pricing model or by reference to the fair
value of any fees or remuneration settled by way of granting of
options. The expense is recognised on a straight-line basis over
the period from the date of award to the date of vesting, based on
the best estimate of the number of shares that will eventually
vest.
Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with UK
adopted International Accounting 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 Year ended Year ended
31 December 31 December
2021 2020
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 6,803,489 6,691,433
Franchise related activities 9,769,657 9,513,209
US corporate operated locations 31,861,087 17,434,216
International corporate operated locations 6,109,175 4,295,037
-------------------------------------------- ------------ ------------
Total 54,543,408 37,933,895
-------------------------------------------- ------------ ------------
Profit/(Loss) before tax Year ended Year ended
31 December 31 December
2021 2020
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 1,808,730 1,771,302
Franchise related activities 805,171 682,958
US corporate operated locations 6,007,153 3,795,753
International corporate operated locations 315,740 311,783
Unallocated head office costs (2,927,132) (2,257,323)
PPP loan forgiveness 1,869,800 -
Non-core costs (323,423) (101,099)
-------------------------------------------- ------------ ------------
Total 7,556,039 4,203,374
-------------------------------------------- ------------ ------------
Assets Year ended Year ended
31 December 31 December
2021 2020
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 27,869,663 10,571,497
Franchise related activities 2,452,933 2,006,569
US corporate operated locations 43,050,953 24,932,417
International corporate operated locations 9,993,906 6,930,887
-------------------------------------------- ------------ ------------
Total 83,367,455 44,441,371
-------------------------------------------- ------------ ------------
Amortisation Year ended Year ended
31 December 31 December
2021 2020
$ $
-------------------------------------------- ------------ ------------
US corporate operated locations 466,216 496,315
International corporate operated locations 4,009 27,702
-------------------------------------------- ------------ ------------
Total 470,225 524,017
-------------------------------------------- ------------ ------------
Depreciation Year ended Year ended
31 December 31 December
2021 2020
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income - -
Franchise related activities - -
US corporate operated locations 2,009,350 1,288,989
International corporate operated locations 465,719 279,045
-------------------------------------------- ------------ ------------
Total 2,475,069 1,568,034
-------------------------------------------- ------------ ------------
Finance Expense Year ended Year ended
31 December 31 December
2021 2020
$ $
------------------------------------ ------------ ------------
US corporate operated locations 484,047 78,031
International corporate activities 13,719 8,769
Unallocated head office costs 471,363 358,553
Total 969,129 445,353
------------------------------------ ------------ ------------
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 2021, outside the US
sales have grown 41% to $6.2 million (2020: $4.4 million). Sales in
the US have grown 44% to $48.3 million (2020: $33.5 million). The
percentage of International sales to total sales has remained
constant at 11% (2020: 11%).
Total Revenue
Year ended 31 December Year ended 31 December
2021 2020
US International Total US International Total
$ $ $ $ $ $
---------------------------------- ----------- -------------- ----------- ----------- -------------- -----------
Franchise royalty income 6,698,729 104,760 6,803,489 6,572,162 119,271 6,691,433
Franchise related activities 9,769,657 - 9,769,657 9,513,209 - 9,513,209
US Corporate owned Stores 31,861,087 - 31,861,087 17,434,216 - 17,434,216
International corporate
activities - 6,109,175 6,109,175 - 4,295,037 4,295,038
---------------------------------- ----------- -------------- ----------- ----------- -------------- -----------
Total 48,329,473 6,213,935 54,543,408 33,519,587 4,414,308 37,933,895
5 Expenses by nature
The Group's operating profit has been arrived at after
charging:
Year ended Year ended
31 December 31 December
2021 2020
Note $ $
---------------------------------------- ----- ------------ ------------
Raw materials and consumables
used 1,954,849 752,670
Employee costs 6 24,226,020 14,444,268
Depreciation charge 2,475,069 1,568,034
Amortisation charge 470,225 524,017
Marketing costs 293,036 290,049
R&D - (3,034)
Foreign exchange (gain)/loss 1,624 (77,027)
---------------------------------------- ----- ------------ ------------
Year ended Year ended
31 December 31 December
2021 2020
$ $
---------------------------------------- ----- ------------ ------------
Auditors remuneration
Fees payable to the Company's
auditor for audit of Parent Company
and Consolidated Financial Statements 54,000 52,000
---------------------------------------- ----- ------------ ------------
Fees payables to the Company's - -
auditor for other services (assurance
related services)
---------------------------------------- ----- ------------ ------------
The Group auditors are not the auditors of the US subsidiary
companies. The fees paid to the auditor of the US subsidiary
companies were $158,614 (2020: $142,336) for the audit of these
companies and $38,899 (2020: $28,204) for other services.
6 Employees and Directors
The Employees and Directors of the Company contribute to the
execution and management of the business.
Year ended Year ended
31 December 31 December
2021 2020
Short-Term employee benefits
Directors fees, salaries and benefits 874,381 774,465
Employee wages and salaries 21,313,711 12,672,270
Employer payroll taxes 1,595,220 763,948
Long-Term employee benefits
Share based payments 442,708 233,584
-------------------------------------- ----------- -----------
24,226,020 14,444,268
-------------------------------------- ----------- -----------
Information regarding Directors' emoluments are as follows:
Year ended Year ended
31 December 31 December
2021 2020
$ $
---------------------------------------- ----------- -----------
Short-Term employee benefits
Directors' fees, salaries and benefits 874,381 774,465
Employer payroll taxes 22,079 20,331
896,460 794,796
---------------------------------------- ----------- -----------
The highest paid Director (Executive) received emoluments of
$654,385 (2020: $606,515).
The average number of employees (including Directors) in the
Group during the year was:
Year ended Year ended
31 December 31 December
2021 2020
Directors (executive and non-executive) 5 5
Management 48 26
Field Services 223 150
Franchise Support 20 20
Administration 83 46
---------------------------------------- ----------- -----------
379 247
---------------------------------------- ----------- -----------
7 Share options
The Company grants share options at its discretion to Directors,
management and advisors. These are accounted for as equity settled
options. Should the options remain unexercised after a period of
ten years from the date of grant the options will expire unless an
extension is agreed to by the Board. Options are exercisable at a
price equal to the Company's quoted market price on the date of
grant or an exercise price to be determined by the Board.
Details for the share options and warrants granted, exercised,
lapsed and outstanding at the year-end are as follows:
Number
of share
Weighted Weighted
average exercise average exercise
price ($) options price ($)
Number of share
options 2021 2021 2020 2020
---------------------- -------------------------------- ----------------------- ---------- -----------------------
Outstanding at
beginning
of year 1,907,500 3.92 1,450,000 3.01
Granted during the
year 555,500 10.66 525,000 5.63
Forfeited/lapsed - - - -
during
the year
Exercised during the
year (225,000) 2.54 (67,500) 1.23
---------------------- -------------------------------- ----------------------- ---------- -----------------------
Outstanding at end of
the year 2,238,000 5.74 1,907,500 3.92
---------------------- -------------------------------- ----------------------- ---------- -----------------------
Exercisable at end of
the year 682,500 1.58 697,500 1.15
---------------------- -------------------------------- ----------------------- ---------- -----------------------
Fair value of share options
During the year, the Group granted 555,500 Share Options to
certain Employees, with exercise prices ranging from of GBP4.56 to
GBP8.35 ($6.24 to $12.56).
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 $1.93 to $4.11. This is based on
risk-free rates of 0.35% to 0.78% and volatility of 34.8% to
40.7%.
The Black Scholes calculations for the options granted during
the year resulted in a charge of $442,708 (2020: $233,584) which
has been expensed in the year.
The weighted average remaining contractual life of the share
options as at 31 December 2021 was 7.10 years (2020: 7.12
years).
Options arrangements that exist over the Company's shares at
year end and at the time of the report are detailed below:
At report Date of Exercise Exercise period
Grant date 2021 2020 Grant price From To
----------------- ----------- --------- --------- ---------- -------- -----------------------------
ALDHC Plan 67,500 67,500 142,500 01/12/2013 $1.14 01/12/2013 01/12/2023
2013 Directors 100,000 100,000 100,000 01/08/2013 $1.30 01/08/2013 01/08/2023
2015 Options 122,500 122,500 177,500 08/06/2015 $0.67 08/06/2015 08/06/2025
2016 Directors 100,000 100,000 100,000 13/06/2016 $1.26 13/06/2016 13/06/2026
2016 Employee 25,000 25,000 45,000 19/12/2016 $1.24 19/12/2019 19/12/2026
2016 Employee 132,500 132,500 132,500 19/12/2016 $1.56 19/12/2019 19/12/2026
2018 Acquisition 135,000 135,000 135,000 06/03/2018 $3.15 06/03/2021 06/03/2028
2018 Acquisition - - 25,000 08/10/2018 $4.52 08/10/2021 08/10/2028
2019 Employee 425,000 425,000 475,000 04/04/2019 $6.24 04/04/2023 04/04/2029
2019 Acquisition 50,000 50,000 50,000 04/04/2019 $4.59 04/04/2023 04/04/2029
2020 Employee
(1) 500,000 500,000 500,000 31/07/2020 $5.60 31/07/2023 31/07/2030
2020 Acquisition
(2) 25,000 25,000 25,000 30/09/2020 $6.20 30/09/2024 30/09/2030
2021 Acquisition
(3) 45,500 45,500 01/01/2021 $6.80 01/01/2025 01/01/2031
2021 Directors
(4) 300,000 300,000 15/03/2021 $10.40 15/03/2024 15/03/2031
2021 Acquisition
(5) 100,000 100,000 20/04/2021 $11.38 20/04/2025 20/04/2031
2021 Acquisition
(6) 75,000 110,000 01/07/2021 $12.56 01/07/2025 01/07/2031
Total 2,203,000 2,238,000 1,907,500
----------------- ----------- --------- --------- ---------- -------- ------------- --------------
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 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.
(2) 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 2020. These options have a four-year vesting
requirement.
(3) On 01 January 2021, certain vendors, retained as employees,
were granted options to purchase 45,500 New Ordinary Shares at a
price of $6.80 pursuant to the acquisition of franchises acquired
in 2020. These options have a four-year vesting requirement.
(4) 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.
(5) On 20 April 2021, certain vendors, retained as employees,
were granted options to purchase 100,000 New Ordinary Shares at a
price of $11.38 pursuant to the acquisition of certain IP Assets.
These options have a four-year vesting requirement.
(6) On 1 July 2021, certain vendors, retained as employees, were
granted options to purchase 110,000 New Ordinary Shares at a price
of $12.56 pursuant to the acquisition of franchises acquired in
2021. These options have a four-year vesting requirement.
Patrick DeSouza received (i) 180,000 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. 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
Year ended Year ended
31 December 31 December
2021 2020
$ $
Interest income 51,092 88,753
---------------------- -------------- --------------
9 Finance expense
Year ended Year ended
31 December 31 December
2021 2020
$ $
Interest expense 969,130 445,351
----------------------- -------------- --------------
10 Taxation
Year ended Year ended
31 December 31 December
2021 2020
Group $ $
------------------------------------- -------------- --------------
Current tax:
Current tax on profits in the year 1,084,022 836,682
Prior year over provision - -
------------------------------------- -------------- --------------
Total current tax 1,084,022 836,681
------------------------------------- -------------- --------------
Deferred tax current year 557,329 436,637
Deferred tax prior year - -
------------------------------------- -------------- --------------
Deferred tax (credit)/expense (note
20) 557,329 436,637
------------------------------------- -------------- --------------
Income tax expense 1,641,350 1,273,319
------------------------------------- -------------- --------------
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 7,556,039 4,203,374
---------------------------------------------- ---------- ----------
Tax calculated at domestic rate applicable
profits in respective countries
(2021: 23.6% versus 2020: 31.7%) 1,457,165 882,709
Tax effects of:
Non-deductible expenses 136,081 65,445
GILTI Inclusion 47,262 15,202
PPP loan forgiveness (392,688) -
Other tax adjustments, reliefs and transfers 136,062 95,620
State taxes net of federal benefit 263,377 190,419
Adjustment in respect of prior year 2,794 17,262
Changes in rates (8,703) 6,662
---------------------------------------------- ---------- ----------
Taxation expense recognized in income
statement 1,641,350 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 GBP3,739,716
(2020: GBP5,898,312) available for offset against future profits.
GBP934,929 (2020: GBP1,002,713) represents unrecognized deferred
tax assets thereon at 25%. The deferred tax asset has not been
recognized due to uncertainty over timing of utilization.
The effective rate for tax for 2021 is 23.6% (2020: 31.7%). It
is anticipated that the Group will use the effective tax rate of
29.3% (no PPP tax benefit in the future) 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
Year ended Year ended
31 December
2020
31 December 2021 $
$
-------------------------------------------- ------------------------------- ---------------
Profit for the year attributable to equity
holders of the Parent ($) 5,764,952 2,892,974
Weighted average number of ordinary shares 15,972,588 14,832,294
-------------------------------------------- ------------------------------- ---------------
Diluted weighted average number of ordinary
shares 17,286,616 15,427,122
-------------------------------------------- ------------------------------- ---------------
Profit per share (cents) 36.1 19.5
-------------------------------------------- ------------------------------- ---------------
Diluted profit per share (cents) 33.3 18.8
-------------------------------------------- ------------------------------- ---------------
Adjusting for the PPP loan forgiveness has
the following effect:
--------------------------------------------- ------ ----
Profit per share (cents) (11.7) -
Adjusted Profit per share (cents) 24.4 19.5
--------------------------------------------- ------ ----
Diluted profit per share (cents) (10.8) -
--------------------------------------------- ------ ----
Adjusted Diluted profit per share (cents) 22.5 18.8
--------------------------------------------- ------ ----
12 Acquisitions
These can be summarised as follows:
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. 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. The purchase
price of $0.66 million is based on 2020 full-year results of
approximately $0.66 million in sales and $0.15 million in adjusted
profits.
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. The
purchase price for the IP reflects a 75% equity stake for the Group
in the new Intelliditch subsidiary in exchange for options for
100,000 shares in Water Intelligence at an exercise price of 822.5
pence and a 25% equity stake in IntelliDitch for the former owners
of FastDitch.
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.
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.
On 5 July 2021, the Group announced the reacquisition of its
Northeast Florida (Jacksonville/Daytona) franchise territory within
its ALD franchise business. Strategically, this reacquisition
follows the Central Florida location reacquisition. The two
reacquisitions enable ALD to link corporate operations along the
eastern part of Florida from Jacksonville in the northeast to
fast-growing corporate operations in Orlando and sizeable Melbourne
and Miami operations, to the south. This operational scale should
contribute to both growth and efficiencies. The purchase price of
$2.75 million is based on 2020 full-year results of approximately
$2 million in sales and $0.5 million in adjusted profits.
On 8 July 2021, the Group announced the reacquisition of its Las
Vegas and Phoenix franchise territories within its ALD franchise
business. Demand in Las Vegas and Phoenix is especially strong for
ALD water leak detection and repair services, due to a variety of
factors such as heat, drought, the number of swimming pools and
higher income levels. Strategically, these reacquisitions follow
the May reacquisition of its Reno, Nevada franchise and the Group's
prior reacquisition of its franchise in Tucson, Arizona. It enables
ALD to link existing corporate operations - Las Vegas with Reno and
Phoenix with Tucson. The combined purchase price of $10.3 million
will be paid over four years and is based on combined 2020
full-year results of approximately $5.75 million in sales and $1.6
million in adjusted profits.
On 1 November 2021, the Group announced the acquisition of
Wat-er-save Services Limited ("WS"), a UK provider of leak
detection, repair and water infrastructure services to UK
commercial customers including universities and leisure resorts.
The acquisition was led by the Group's UK-based Water Intelligence
International ("WII"). Strategically, this acquisition provides the
Group with a more substantial sales footprint in the UK.
Financially, despite Covid-related restrictions, WS executed
approximately GBP0.95 million of sales and GBP0.25 million of
profit before tax for the year-ended 30 June 2021.The purchase
price is GBP0.7 million.
On 1 December 2021, the Group announced the reacquisition of its
South Oregon franchise territory within its ALD franchise business.
Today's acquisition accelerates the Group's strong growth
trajectory by adding scale to its regional hub of corporate
operations in the northwest United States; a territory where green
economy solutions are in high demand. The purchase price of $1.38
million in cash will be paid over the next twelve months and is
based on a pro forma revenue of $1.15 million and $0.25 million in
profit before tax for full year 2021.
2021 Acquisitions
Sub. Sub. Las Vegas
Aqu. Aqu. and
Intelliditch Wat-er-save Clermont Reno Phoenix Daytona Medford PlumbRight Adjust-ments Totals
-----------------
$ $ $ $ $ $ $ $ $ $
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Fair value of
assets and
liabilities
acquired
Equipment - 11,199 26,250 133,100 447,000 40,595 163,455 74,305 - 895,904
Vehicles - 34,077 54,868 108,734 490,628 104,434 84,957 90,231 - 967,929
Non-compete - 41,553 30,000 60,000 120,000 90,000 30,000 70,000 - 441,553
Liabilities /
Other 116,667 539,854 - (13,001) (560,250) - (35,000) - - 48,269
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Net assets
acquired 116,667 626,684 111,118 288,833 497,378 235,029 243,412 234,536 - 2,353,655
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Consideration
Cash - 1,502,277 330,000 21,000 3,000,000 900,000 688,559 300,000 - 6,741,835
Note payable - 41,553 330,000 267,833 7,150,842 1,850,000 688,559 375,000 (100,000) 10,603,787
Non-controlling
interest 116,667 - - - - - - - - 116,667
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Total
consideration 116,667 1,543,830 660,000 288,833 10,150,842 2,750,000 1,377,117 675,000 (100,000) 17,462,288
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Intangible
assets
arising on
acquisition
(see note 13) - 917,146 548,882 - 9,653,464 2,514,971 1,133,705 440,464 (100,000) 15,108,633
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
The intangible assets arising on the above acquisitions of
$15,108,633 is included in additions to goodwill and indefinite
life intangible assets for owned & operated stores (see note
13).
Following acquisitions all Franchises are classed as one cash
generating unit therefore cannot separately disclose revenue and
profit for each individual franchise.
2020 Acquisitions
Sub.
Aqu. San Melbourne Baton Melbourne Brisbane
Denver Minneapolis Jose Maryland Seattle Florida Rouge Australia Australia Adjust-ments Totals
---------------
$ $ $ $ $ $ $ $ $ $ $
--------------- -------- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- -----------
Fair value of
assets and
liabilities
acquired
Equipment 32,430 73,720 69,397 50,410 182,950 52,750 40,500 48,644 69,364 - 620,164
Vehicles - 40,922 - 75,000 187,906 108,750 115,800 80,086 92,875 - 701,340
Other - - - 60,000 60,000 60,000 30,000 7,164 7,036 - 224,200
--------------- -------- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- -----------
Net assets
acquired 32,430 114,642 69,397 185,410 430,856 221,500 186,300 135,894 169,276 - 1,545,704
--------------- -------- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- -----------
Consideration
Cash 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
Note payable - 983,012 667,000 - 1,500,000 750,000 1,150,000 - 35,180 - 5,085,192
--------------- -------- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- -----------
Total
consideration 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
--------------- -------- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- -----------
Intangible
assets
arising on
acquisition
(see note 13) 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
--------------- -------- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------- -----------
The amount of deferred consideration for 2021 acquisitions as
well as the remaining deferred consideration for acquisitions made
in 2018, 2019 and 2020 (after discounting anticipated cash flows to
evaluate the fair value), can be summarized as follows:
Current Year ended Year ended
31 December 31 December
Year
acquired 2021 2020
-------------------------------------------------
$ $
-------------------------------------- ---------- ----------- -----------
South Florida 2018 26,466 24,928
Tucson 2019 109,650 105,884
Minneapolis 2020 327,670 327,670
San Jose 2020 223,976 295,137
Seattle 2020 450,000 750,000
Melbourne, Florida 2020 400,000
Baton Rouge 2020 175,000 700,000
Brisbane, Australia 2020 38,320
Clermont 2021 330,000
Las Vegas and Phoenix 2021 1,713,343
Daytona 2021 850,000
Medford 2021 688,559
PlumbRight 2021 200,000
Total current deferred consideration 5,494,663 2,241,939
-------------------------------------------------- ----------- -----------
Non-Current Year ended Year ended
31 December 31 December
Year 2021 2020
acquired $ $
------------------------------------------ --------- ----------- -----------
South Florida 2018 117,439 143,905
Tucson 2019 162,018 271,667
Minneapolis 2020 327,672 668,449
San Jose 2020 125,985 353,040
Seattle 2020 300,000 750,000
Melbourne, Florida 2020 350,000 462,375
Baton Rouge 2020 175,000 772,500
Reno 2021 50,000
Las Vegas and Phoenix 2021 5,437,499
Daytona 2021 1,000,000
PlumbRight 2021 175,000
Total non-current deferred consideration 8,220,613 3,421,936
----------------------------------------------------- ----------- -----------
13 Intangible assets
The calculation of amortisation 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 Goodwill relating Goodwill
Goodwill to Owned & on franchisor
Acquisitions Operated stores activities Totals
--------------------
$ $ $ $
-------------------- -------------- --------------------- --------------------- -----------
Cost
At 1 January 2020 3,039,251 6,995,968 636,711 10,671,930
Additions 267,570 12,801,565 - 13,069,135
-------------------- -------------- --------------------- --------------------- -----------
At 31 December
2020 3,306,821 19,797,533 636,711 23,741,065
-------------------- -------------- --------------------- --------------------- -----------
Additions (see
note 12) 917,146 14,191,487 - 15,108,633
-------------------- -------------- --------------------- --------------------- -----------
At 31 December
2021 4,223,967 33,989,020 636,711 38,849,698
-------------------- -------------- --------------------- --------------------- -----------
Impairment
-------------------- -------------- --------------------- --------------------- -----------
At 1 January 2020 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
-------------------- -------------- --------------------- --------------------- -----------
At 31 December
2020 1,506,229 75,000 - 1,581,229
-------------------- -------------- --------------------- --------------------- -----------
Impairment in year - - - -
-------------------- -------------- --------------------- --------------------- -----------
At 31 December
2021 1,506,229 75,000 - 1,581,229
-------------------- -------------- --------------------- --------------------- -----------
Carrying amount
-------------------- -------------- --------------------- --------------------- -----------
At 31 December
2020 1,800,592 19,722,533 636,711 22,159,836
-------------------- -------------- --------------------- --------------------- -----------
At 31 December
2021 2,717,738 33,914,020 636,711 37,268,469
-------------------- -------------- --------------------- --------------------- -----------
The increase in carrying value of Goodwill Acquisitions at 31
December 2021 relate to goodwill additions arising on the
acquisitions outlined in Note 12 above during 2021.
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 2021. Details on additions in 2021 can be found in
note 12 above.
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 - 2021 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.
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 is allocated to separate cash
generating units.
Goodwill or indefinite life intangible assets on owned &
operated stores is allocated to cash generating units that are
expected to benefit from the synergies of the combination.
Goodwill on Franchisor Activities is considered to be related to
a single 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 2021 were as
follows:
%
Discount rate 15
Short term revenue growth 5
Long term revenue growth 3.5
Tax rate 25
Discount rate sensitivity step 2
Perpetual growth rate sensitivity step 1
This has resulted in no material impairment charge being
required in 2021 (2020: $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.
13 Intangible assets continued
Other Intangible assets table
Covenants Enterprise
Product not to Customer Solution
development compete Lists Trademarks Patents Website Salesforce Development Total
$ $ $ $ $ $ $ $ $
-------------- ------------ ------------ ---------- ----------- --------- --------- ----------- ------------ ----------
Cost
At 1 January
2020 164,880 490,128 350,357 5,295,867 23,692 90,000 - 102,000 6,516,924
Additions - 224,200 - - - - - - 224,200
Disposals - (290,000) (217,500) (62,050) (23,692) (90,000) - - (683,242)
At 31
December
2020 164,880 424,328 132,857 5,233,817 - - - 102,000 6,057,883
-------------- ------------ ------------ ---------- ----------- --------- --------- ----------- ------------ ----------
Additions 515,351 446,553 - - 116,667 - 1,558,208 - 2,636,779
Disposals (164,880) (200,000) - - - - - (364,880)
-------------- ------------ ------------ ---------- ----------- --------- --------- ----------- ------------ ----------
At 31
December
2021 515,351 670,881 132,857 5,233,817 116,667 - 1,558,208 102,000 8,329,782
-------------- ------------ ------------ ---------- ----------- --------- --------- ----------- ------------ ----------
Accumulated
amortisation
At 1 January
2020 164,880 290,128 323,784 3,682,108 23,692 82,500 - - 4,567,092
Amortisation
expense - 193,124 27,702 261,691 - 7,500 - 34,000 524,017
Disposals (290,000) (217,500) (62,050) (23,692) (90,000) - - (683,242)
Exchange
differences - (151) (1,130) - - - - - (1,281)
At 31
December
2020 164,880 193,101 132,857 3,881,749 - - - 34,000 4,406,587
-------------- ------------ ------------ ---------- ----------- --------- --------- ----------- ------------ ----------
Amortisation
expense - 91,976 - 261,691 5,833 - 129,851 (19,125) 470,226
Disposals (164,880) (200,000) - - - - - - (364,880)
Exchange
differences - (188) - - - - - - (188)
At 31 December
2021 - 84,889 132,857 4,143,440 5,833 - 129,851 14,875 4,511,745
Carrying
amount
At 31 December
2020 - 231,227 - 1,352,068 - - - 68,001 1,651,296
At 31 December
2021 515,351 585,992 - 1,090,377 110,833 - 1,428,357 87,125 3,818,037
All intangible assets have been acquired by the Group.
The calculation of amortisation 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.
14 Property, plant and equipment
Right Right
Equipment Motor Leasehold Buildings of of
& displays Vehicles Improvements $ Use Vehicles Use Offices Total
$ $ $ $ $ $
Cost
At 1 January 2020 1,976,560 1,438,578 83,672 153,391 1,394,254 1,482,950 6,529,405
Acquired on acquisition
of subsidiary 32,430 - - - - - 32,430
Additions 1,053,569 953,024 - - 253,583 719,831 2,980,006
Exchange differences 74,947 (47,310) - 2,851 723 17,061 48,272
Disposals (85,324) (17,787) - - (199,594) (542,266) (844,970)
At 31 December
2020 3,052,181 2,326,504 83,672 156,242 1,448,967 1,677,576 8,745,143
Acquired on acquisition
of subsidiary 77,684 115,371 - - - - 193,055
Additions 1,587,515 789,876 4,148 - 1,947,086 899,061 5,227,687
Purchase ROU Vehicles - 280,124 - - (280,124) - -
Exchange differences (23,687) (39,043) - 17 (1,517) (7,754) (71,984)
Disposals - (122,810) - - - (538,979) (661,789)
At 31 December
2021 4,693,694 3,350,021 87,820 156,259 3,114,413 2,029,904 13,432,111
Accumulated depreciation
At 1 January 2020 821,355 477,466 7,988 38,072 625,276 661,116 2,631,273
Eliminated on
disposals (33,752) (10,429) - - (174,892) (421,793) (640,866)
Depreciation expense 450,167 306,723 15,098 11,859 311,973 472,214 1,568,034
Exchange differences 3,426 8,003 - 832 77 2,143 14,481
At 31 December
2020 1,241,197 781,762 23,085 50,764 762,433 713,681 3,572,921
Acquired on acquisition
of subsidiary 66,485 81,294 - - - - 147,778
Eliminated on
disposals - (91,014) - - - (449,014) (540,027)
Purchase ROU Vehicles - 256,007 - - (256,007) - -
Depreciation expense 705,334 560,828 15,789 12,086 428,548 752,483 2,475,069
Exchange differences (10,728) (16,485) - (63) (270) (3,312) (30,858)
At 31 December
2021 2,002,288 1,572,391 38,875 62,787 934,704 1,013,838 5,624,883
Carrying amount
At 31 December
2020 1,810,985 1,544,742 60,587 105,479 686,533 963,896 5,172,221
At 31 December
2021 2,691,406 1,777,630 48,945 93,472 2,179,709 1,016,067 7,807,228
The value of the assets charged as security for the bank debt is
$3,341,176 (2020: $2,056,692).
15 Investment in subsidiary undertakings
Subsidiary
Undertakings
Company $
Cost
At 31 December 2020 13,860,551
Exchange difference (47,794)
At 31 December 2021 13,812,758
Impairment
At 31 December 2020 6,400,906
Exchange difference -
At 31 December 2021 6,400,906
Carrying amount
At 31 December 2020 7,459,645
At 31 December 2021 7,411,782
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:
Interest
held
Registered office Country %
address of incorporation
Water Intelligence International 27-28 Eastcastle Street,
Limited* (leak detection London, United Kingdom, England
products and services) W1W 8DH and Wales 100%
Agriculture house,
Acland Rd,
Wat-er-save Services Limited Dorchester DT1 1EF 100%
Water Intelligence Australia 1 Farrer Place, Sydney,
Pty NSW 2000 Australia 100%
American Leak Detection 199 Whitney Avenue,
Holding Corp. (holding New Haven, Connecticut
company of ALD Inc.) * 06511 US US 100%
American Leak Detection, 199 Whitney Avenue,
Inc. (leak detection product New Haven, Connecticut
and services) 06511 US US 100%
8-4696 Bartlette Rd.
Canadian Leak Detection, Beamsville, Ontario
Inc. L0R 1B1 Canada 100%
Qonnectis Group Limited 27-28 Eastcastle Street, England
(dormant) London, United Kingdom, and Wales
W1W 8DH
NRW Utilities Limited (Dormant) 27-28 Eastcastle Street, England
London, United Kingdom, and Wales
W1W 8DH
* Subsidiaries owned directly by the Parent Company. These
subsidiaries - WII and ALDHC - represent the two principal business
lines of the Parent Company. Wat-er-save, Water Intelligence
Australia, Canadian Leak Detection and American Leak Detection Inc.
are also wholly-owned by the two principal subsidiaries and
indirectly owned by the Parent.
The Company's strategy involves acquisitions, especially of
franchisees. Not all acquisitions are 100% owned. American Leak
Detection has as a 60% stake in a reacquired franchise in
Bakersfield, California. 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 also has a 51%
stake in a former franchise located in Denver, Colorado. Finally,
American Leak Detection owns 75% of the IntelliDitch subsidiary
that was set up as part of the acquisition of IP assets from
FastDitch in 2021.
16 Inventories
Group
Year ended Year ended
31 December 31 December
2021 2020
$ $
Group Inventories 677,218 444,791
During the year ended 31 December 2021, an expense of $8,964,486
(2020: $8,830,250) was recognized in the Consolidated Statement of
Comprehensive Income, including business to business expenses of
$8,288,217 (2020: $8,024,178). There has been no write down of
inventories during 2021.
17 Trade and other receivables
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2021 2020 2021 2020
$ $ $ $
Trade notes receivable 429,219 581,191 - - -
Due from Group undertakings - - 23,270,653 4,019,000
All trade notes receivables are due within five years from the
end of the reporting period.
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2021 2020 2021 2020
$ $ $ $
Trade receivables 4,414,329 2,843,462 - -
Prepayments 1,928,308 899,903 110,917 3,973
Due from Group undertakings - - 4,670,366 3,049,570
Accrued royalties receivable 513,853 673,832 - -
Trade notes receivable 194,590 212,681 - -
Other receivables 997,709 1,093,994 - -
Due from related party 331,106 325,195 - -
Current portion 8,379,894 6,049,067 4,781,282 3,053,543
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 (2020: 39
days).The carrying amounts of the Group's trade and other
receivables are denominated in the following currencies:
Year ended Year ended
31 December 31 December
2021 2020
$ $
US Dollar 7,108,323 5,229,898
UK Pound 905,624 504,926
Australian Dollar 286,598 293,179
Canadian Dollar 34,100 21,063
8,334,644 6,049,067
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivable mentioned above. The
Group does not hold any collateral as security.
18 Cash and cash equivalents
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2021 2020 2021 2020
$ $ $ $
Cash at bank and in hand 23,802,352 6,818,715 1,865,798 366,737
19 Trade and other payables
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2021 2020 2021 2020
$ $ $ $
Trade payables 723,458 1,526,733 6,881 21,094
Accruals and other payables
(Note 2) 3,470,573 2,373,732 125,745 121,452
Due to Group undertakings - - - -
4,194,031 3,900,465 132,626 142,546
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 (2020:16 days ).
20 Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group 2021 2020
$ $
Deferred tax (liability)/assets (1,576,872) (957,170)
The movement in deferred tax liabilities is as follows:
2021 Recognized Recognized
Opening in the income in Other Comprehensive Closing
balance statement Income balance
$ $ $ $
Temporary differences: - - - -
Net operating profit - - - -
(loss) (non-current)
Short term temporary
differences (957,170) (557,329) (62,373) (1,576,872)
(957,170) (557,329) (62,373) (1,576,872)
2020 Recognized Recognized
Opening in the income in Other Comprehensive Closing
balance statement Income balance
$ $ $ $
Temporary differences: - - - -
Net operating profit - - - -
(loss) (non-current)
Short term temporary
differences (588,684) (436,637) 68,151 (957,170)
(588,684) (436,637) 68,151 (957,170)
At the balance sheet date, the Group's UK trading subsidiaries
had unused tax losses (as reported on the Group's tax returns) of
GBP3,739,716 (2020: GBP5,898,312) available for offset against
future profits. GBP934,929 (2020: GBP1,002,713) represents
unrecognized deferred tax assets thereon at 25%. 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
Shares held
Ordinary in treasury
Shares Number Number Total Number
At 31 December 2020 15,434,784 65,538 15,500,322
At 31 December 2021 17,366,688 51,000 17,417,688
.
Group & Company
Shares in
Share capital Share premium Treasury
$ $ $
At 31 December 2020 116,212 12,091,069 (340,327)
At 31 December 2021 141,594 35,208,586 (468,425)
At various times during 2021, the Company bought 51,000 shares
into treasury at a purchase price range of 600p to 992p.
On 8 February 2021, the Company issued 6,500 shares to Bobby
Knell in lieu of 2019 and 2020 director fees.
On 12 March 2021, the Company issued 20,000 shares pursuant to
an exercise of options.
On 14 July 2021, the Company announced a capital raise, pursuant
to which the Company sold 547,078 new ordinary shares to raise
GBP5.0 million. At the same time, Patrick DeSouza, Executive
Chairman of the Company, fully paid 120,000 of his partly paid
shares and, in addition, options over 130,000 ordinary shares were
exercised and sold to incoming investors. All of these shares were
admitted to trading on AIM on 19 July 2021.
On 12 November 2021, the Company announced a capital raise,
pursuant to which the Company sold 1,041,667 new ordinary shares to
raise GBP12.5 million. These shares were admitted to trading on AIM
on 17 November 2021.
Reverse acquisition reserve
The reverse acquisition reserve was created in accordance with
IFRS3 Business Combinations and relates to the reverse acquisition
of Qonnectis Plc by ALDHC in July 2010. Although these Consolidated
Financial Statements have been issued in the name of the legal
parent, the Company it represents in substance is a continuation of
the financial information of the legal subsidiary ALDHC. A reverse
acquisition reserve was created in 2010 to enable the presentation
of a consolidated statement of financial position which combines
the equity structure of the legal parent with the reserves of the
legal subsidiary. Qonnectis Plc was renamed Water Intelligence Plc
on completion of the reverse acquisition on 29 July 2010.
22 Lease liability
Year ended Year ended
31 December 31 December
2021 2020
$ $
Lease liabilities in statement of
financial position
Amounts due within one year 1,161,879 771,713
Amount due after more than one year 2,048,288 991,720
3,210,167 1,763,433
Amount recognized in the statement of
comprehensive income
Interest on leasehold liabilities 136,986 93,912
Amount recognized in the statement
of
cash flows
Repayment of lease liabilities 1,448,594 813,667
23 Financial instruments
The Group has exposure to the following key risks related to
financial instruments:
i. Market risk (including foreign currency risk management)
ii. Interest rate risk
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 2021 no trading in financial
instruments was undertaken (2020: none) and the Group did not have
any derivative or hedging instruments.
The Group uses financial instruments including cash, loans and
finance leases, as well as trade receivables and payables that
arise directly from operations.
Due to the simple nature of these financial instruments, there
is no material difference between book and fair values. Discounting
would not give a material difference to the results of the Group
and the Directors believe that there are no material sensitivities
that require additional disclosure.
Fair value of financial assets and financial liabilities
The estimated difference between the carrying amount and the
fair values of the Group's financial assets and financial
liabilities is not considered material.
Credit risk
The Group's principal financial assets are bank balances, cash,
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 2021, 70.39% was held with one
counterparty with a credit rating of Aaa and a further 14.83% 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
losses, trade receivables have been grouped based on the shared
credit risk characteristics and the days past due. The expected
loss rates are based on the historic payment profiles of sales and
the credit losses experienced within this period. The historical
loss rates are adjusted to reflect current and forward-looking
information.
As the Group does not hold any collateral, the maximum exposure
to credit risk is represented by the carrying amount of the
financial assets as at the end of each reporting period.
As at 31 December 2021, trade receivables of $438,284 (2020:
$281,805) 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
Year ended Year ended
31 December 31 December
2021 2020
$ $
60-90 days 196,106 87,621
90+ days 242,178 194,184
438,284 281,805
Average age (days) 95 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.
Categories of financial instruments
Group Company
Year
Year ended ended Year ended Year ended
31 December 31 December 31 December 31 December
2021 2020 2021 2020
$ $ $ $
Loans and receivables - - - -
Cash and cash equivalents 23,802,352 6,818,715 1,865,798 366,737
Trade and other receivables
- current 8,379,894 6,049,067 28,051,935 7,072,544
Trade and other receivables
- non-current 429,219 581,191 - -
Financial Liabilities
measured at amortised cost
Trade and other payables 4,194,031 3,900,465 132,626 142,545
Borrowings - current 3,325,579 3,713,323 - -
Borrowings - non-current 8,176,893 6,839,981 - -
Deferred consideration
- current 5,494,663 2,241,939 - -
Deferred consideration
- non-current 8,220,613 3,421,936 - -
Borrowings
Bank Debt
The Group has a commercial banking relationship with People's
United Bank (People's) (acquired in April 2022 by M&T Bank)
with various facilities: a working capital line of credit ("WCL");
acquisition lines of credit ("ALOCs"), and term loans ("Term
Loans").
A $2,000,000 WCL is secured by substantially all of the assets
of the Group. On October 13, 2020, the WCL was extended to a
maturity date of December 5, 2021 and bore an annual variable
interest rate equal to equal to LIBOR plus 3.00%. On December 4,
2021, the WCL was extended to a maturity date of December 5, 2023
and bears an annual variable interest rate equal to LIBOR plus
3.00%. At December 31, 2021 and 2020, the interest rate was 4.00%.
Monthly interest only payments on any unpaid balance were made
during 2021 and 2020. The balance outstanding at December 31, 2021
and 2020 was $226,737, and is included within line of credit on the
consolidated balance sheets.
In addition to the $2,000,000 line of credit, People's had
provided the Group with two acquisition lines of credit (ALOC 1 and
ALOC 2). 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 at December 31, 2021 and 2020 was $3,497,907 and
$4,521,685, respectively 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 line bears interest at a rate equal to
LIBOR plus 3.00%. As of December 31, 2021 and 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, the
New ALOC advance 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.
The balance outstanding at December 31, 2021 and 2020 was
$1,831,546 and $2,309,342, respectively and is included within
notes payable on the balance sheets.
In February 2021, the Group was advanced $3,200,000 from the New
ALOC which converted the New ALOC into a new term loan ("New Term
Loan"). The New Term Loan bears interest at a rate equal to 3.64%
and requires installments consisting of principal and interest
amounting to $53,333 to be paid monthly beginning in March 2021
until maturity in February 2026. The New Term Loan is secured by
substantially all of the assets of the Group. The balance
outstanding at December 31, 2021 and 2020 was $2,666,667 and $0,
respectively and is included within notes payable on the balance
sheets.
To summarize the above, the total amount of prior borrowings
that have been refinanced at December 31, 2021 and 2020 was
$3,497,907 and $4,521,685 respectively. In addition, the total
amount of borrowings under new ALOC facilities at December 31, 2021
and 2020 was $4,498,213 and $2,309,341 respectively.
As noted in the subsequent events, the Group expanded its credit
facilities in April 2022. The interest rate for the new acquisition
line of credit was established using the SOFR index. Additionally,
the existing working capital line of credit interest rate was
amended upon renewal in December 2021 to be calculated using the
SOFR index. Therefore, the Group will not be impacted by the IBOR
reform.
In connection with the People's line of credit, ALOC, and term
note facilities, the Group is required to comply with certain
financial and non-financial covenants. 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, 2021.
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. The gain on the loan
forgiveness was recognized in 2021, with the related expenses
recognized in 2020.
Current Non-Current
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2021 2020 2021 2020
Financial Instruments $ $ $ $
Term loans 1,106,366 1,074,507 2,676,484 3,585,440
PPP Loan - 1,449,769 - 420,031
Working Capital Line of
Credit - - 226,737 226,737
Acquisition Line of Credit 1,117,795 477,795 3,380,418 1,831,546
Less: Loan Closing Costs (60,461) (60,461) (155,034) (215,495)
Lease Liabilities 1,161,879 771,713 2,048,288 991,721
Total 3,325,579 3,713,323 8,176,893 6,839,981
Capital risk management
In managing its capital, the Group's primary objective is to
maintain a sufficient funding base to enable working capital,
research and development commitments and strategic investment needs
to be met and therefore to safeguard the Group's ability to
continue as a going concern in order to provide returns to
shareholders and benefits to other stakeholders. In making
decisions to adjust its capital structure to achieve these aims,
through new share issues, the Group considers not only its
short-term position but also its long term operational and
strategic objectives.
The capital structure of the Group currently consists of cash
and cash equivalents, short and medium term borrowings and equity
comprising issued capital, reserves and retained earnings. Other
than with respect to Bank Debt, the Group is not subject to any
externally imposed capital requirements.
Significant accounting policies
Details of the significant accounting policies including the
criteria for recognition, the basis of measurement and the bases
for recognition of income and expense for each class of financial
asset, financial liability and equity instrument are disclosed in
Note 3.
Foreign currency risk management
The Group undertakes transactions denominated in foreign
currencies (other than the functional currency of the Company and
its UK operations, being GBP 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 2021 were $104,760 (2020:
$119,271). No foreign exchange contracts were in place at 31
December 2021 (2020: Nil).
The carrying amount of the Group's foreign currency denominated
monetary assets and monetary liabilities were:
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2021 2020 2021 2020
$ $ $ $
Assets
Sterling, Australian
and Canadian Dollars 4,288,235 1,685,233 29,917,733 7,439,281
Liabilities
Sterling, Australian
and Canadian Dollars 1,146,338 1,053,196 132,626 142,545
As shown above, at 31 December 2021 the Group had Sterling,
Australian and Canadian denominated monetary net assets of
$4,288,235 (2020: $1,685,233). If the foreign currency weakens by
10% against the US dollar, this would decrease net assets by
$428,824 (2020: $168,523) with a corresponding impact on reported
losses. Changes in exchange rate movements resulted in a loss from
exchange differences on a translation of foreign exchange of
$221,281 in 2021 (2020: gain of $33,375), 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 majority of
borrowings are subject to fixed rates with only the WCL subject to
variable rates. The fixed rate borrowings at the year end are
$8,065,568 (2020: $8,563,132) and the variable rate borrowings are
$226,767 for both years.
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the
year ended 31 December 2021 would not materially change if market
interest rates had been 1% higher/lower throughout 2021 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 2023. The forecast contains certain
assumptions about the level of future sales and the level of
margins achievable. These assumptions are the Directors' best
estimate of the future development of the business. The Directors
acknowledge that the Group in the near-term trading is primarily
reliant on cash generation from its predominantly US-based
corporate-operated profits and franchisee 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.
0-6 months 6-12 months >12 months Total
Group $ $ $ $
2021
Payables 4,194,030 - - 4,194,030
Lease liabilities 607,899 553,980 2,048,288 3,210,167
Borrowings 1,092,915 1,070,786 6,128,605 8,292,306
Deferred consideration 4,558,239 936,424 8,220,613 13,715,276
0-6 months 6-12 months >12 months Total
Group $ $ $ $
2020
Payables 3,900,465 - - 3,900,465
Lease liabilities 365,363 406,350 991,720 1,763,433
Borrowings 2,619,786 321,824 5,848,261 8,789,871
Deferred consideration 1,364,771 877,168 3,421,936 5,663,875
Interest expected to be paid on liabilities are shown in the
table below
0-6 months 6-12 months >12 months Total
Group $ $ $ $
2021
Payables - - - -
Lease liabilities 79,609 80,041 250,157 409,807
Borrowings 220,481 277,735 942,856 1,441,072
Deferred consideration 365,666 304,101 646,268 1,316,034
The Company has no non-derivative financial liabilities.
Derivatives
The Group and Company have no derivative financial instruments
.
Fair values
The Directors consider that the carrying amounts of financial
assets and financial liabilities approximate their fair values.
Reconciliation of liabilities arising from financing
activities
The changes in the Group's liabilities arising from financing
activities can be classified as follows:
Long-term Short-term Lease Liabilities Total
borrowings borrowings
$ $ $ $
At 1 January 2021 5,848,261 2,941,610 1,763,433 10,553,304
Cash flows
* Repayment (1,827,765) - (1,448,594) (3,276,359)
* Proceeds 3,200,000 - - 3,200,000
Non-cash
* New Leases - - 2,895,328 2,895,328
* PPP loan forgiveness (420,031) (1,449,769) - (1,869,800)
* Reclassification (671,860) 671,860 - -
As at 31 December
2021 6,128,605 2,163,701 3,210,167 11,502,473
Long-term Short-term Lease Liabilities Total
borrowings borrowings
$ $ $ $
At 1 January 2020 2,321,401 1,163,055 1,703,805 5,188,261
Cash flows
* Repayment (848,421) - (813,667) (1,662,088)
* Proceeds 6,153,836 - - 6,153,836
Non-cash
* New Leases - - 873,295 873,295
- - - -
* Fair value
* Reclassification (1,778,555) 1,778,555 - -
As at 31 December
2020 5,848,261 2,941,610 1,763,433 10,553,304
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 Significant Significant
in active observable unobservable
markets inputs inputs
Total (Level (Level (Level 3)
1) 2)
Assets measured at
fair value Date of valuation $000 $000 $000 $000
Listed equity investments
SEEEN investment 31 December 2021 1,185 1,185 - -
SEEEN investment 31 December 2020 1,564 1,564 - -
To estimate fair value, the lower end of the bid-offer spread as
at 31 December 2021 was used to calculate the value of the holding.
There is an active market for the Group's liquid equity
investment.
25 Contingent liabilities
The Directors are not aware of any material contingent
liabilities.
26 Related party transactions
PSS was one former owner of ALDHC 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 23, 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 $18,937 and $18,062 for the years December
31, 2021 and 2020, respectively. The guarantee fee expense for the
PSS guarantee amounted to $67,000 and $38,219 for the years ended
December 31, 2021 and 2020, respectively. During 2021 the Company
paid expenses on behalf of PSS in the amount of $54,374. The
related receivable/prepaid balance remaining is $331,106 and
$325,195 at December 31, 2021 and 2020, respectively.
During the year, the Company had the following transactions with
its subsidiary companies:
Water Intelligence International Limited $
Balance at 31 December 2020 3,049,570
Net loans to subsidiary -
Other expenses recharged and exchange differences 1,620,796
Balance at 31 December 2021 4,670,366
ALDHC $
Balance at 31 December 2020 -
Loans prepaid by WI capital raise -
Balance at 31 December 2021 -
ALD Inc. $
Balance at 31 December 2020 4,019,000
Loans incurred due to WI capital raise 19,205,100
Loans paid to WI -
Other expenses recharged and exchange differences 46,552
Balance at 31 December 2021 23,270,653
27 Subsequent events
On 19 January 2022, the Group announced the reacquisition of its
Fort Worth, Texas franchise territory within the Group's ALD
franchise business. The Fort Worth operation is fast-growing and
expected to accelerate further by adding new service locations in
north and west Texas during 2022. Moreover, this reacquisition
reinforces the Group's strategy of establishing regional corporate
hubs in the US that have scale to fuel growth in nearby corporate
and franchise locations. The purchase price of $7.7 million in cash
is to be paid over three years.. The purchase price is based on
2021 pro forma of $3.6 million in revenue and $1.2 million in
profit before tax.
On 3 February 2022, the Group announced the sale of certain
territory in rural North Carolina to an existing, fast-growing
franchisee of American Leak Detection (ALD). The purchase price for
the territory is $90,000, all of which is recognised as revenue at
100% profit margin. It is also expected that the franchise owner
will be purchasing additional equipment from ALD to launch service
vehicles to develop the territory. Finally, the commercialization
of such "greenfield" territory will also add royalty income to the
Group's ALD business unit during 2022.
On 7 April 2022, the Group announced the expansion of its
acquisition line of credit to include an additional $15 million for
further acquisitions of its franchises. As part of the facility,
the Group entered into swap arrangements that maintain a fixed
interest rate of approximately 5.5% on amounts drawn under the
facility and are amortised over a term of five years. The covenants
and guarantee requirements for the new facility remain the same all
other credit facilities with People's Bank, now operating
post-acquisition as part of M&T Bank.
On 12 May 2022, the Group announced the reacquisition of its
American Leak Detection Central Texas franchise. The franchise
includes the cities of Abilene, Lubbock and Midland which are west
of recently launched corporate-operated locations of Fort Worth
(via franchise acquisition) and Wichita Falls (greenfield). The
purchase price of $0.75 million in cash is based on the franchise's
2021 Statement of Income of $0.65 million in revenue and $0.21
million in profit before tax.
28 Control
The Company is under the control of its shareholders and not any
one party. The shareholdings of the directors and entities in which
they are related are as outlined within the Director's Report.
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END
FR EKLBBLQLBBBQ
(END) Dow Jones Newswires
June 09, 2022 02:02 ET (06:02 GMT)
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