TIDMWATR
RNS Number : 2244A
Water Intelligence PLC
22 September 2022
Water Intelligence plc (AIM: WATR.L)
Interim Results
Water Intelligence plc (AIM: WATR.L) (the "Group" or "Water
Intelligence" or the "Company"), a leading multinational provider
of precision, minimally-invasive leak detection and remediation
solutions for both potable and non-potable water is pleased to
provide its unaudited Interim Results for the period ending 30 June
2022.
Consistent with its historic trajectory, results are comfortably
in-line with market expectations as the Group continues to execute
on its long-run growth plan while navigating short-run market
volatility.
Financial Highlights*
-- Revenue increased by 44% to $35.6 million (1H 2021: $24.7 million)
o Network Sales (implied gross sales of franchisees from which
reported royalty is derived plus direct sales of corporate
locations) grew 12.5% to $85 million (1H 2021: $75.5 million)
-- EBITDA increased by 15% to $6.2 million (1H 2021: $5.4 million)
-- PBT Adjusted** increased by 10% to $4.6 million (1H 2021: $4.2 million)
-- Cash and equivalents increased to $21.9 million (1H 2021: $7.2 million)
o Net Cash at $5.3 million (cash minus bank borrowings)
o Bank borrowings amortized through 2027 at an average fixed
rate of 4.9%
* To make proper like-for-like comparisons, the above
comparisons of Statutory EBITDA and PBT Adjusted exclude the 1H
2021 one-time gain of $1.9 million
**PBT Adjusted (amortisation, share based payments and non-core
costs)
Corporate Development
-- Operations: Increase of 45 headcount, mostly technicians in training for growth plan
-- Financial:
o Expanded bank credit facilities by $17 million (with headroom
of approximately $7 million as of 30 June 2022)
-- Accretive acquisitions:
o 2 Franchises re-acquired: Fort Worth, Texas; Midland,
Texas
o Bolt-on acquisition: Connecticut Plumbing
-- New Locations:
o Greenfield territory launched as corporate location: Wichita
Falls, Texas
o Additional territory sold to Franchisee to be developed:
central North Carolina
o New Technician Training Center launched in Seattle
-- Technology:
o Field trials in US for proprietary new technologies:
residential sewer diagnostic tool and video e-commerce
o Salesforce.com implementation: on-boarding completed for all
corporate locations; franchise locations currently on-boarding
Dr. Patrick DeSouza, Executive Chairman of Water Intelligence,
commented:
We delivered strong results while navigating 1H market
volatility. We remain positive about the future and see
opportunities ahead even as we manage prudently in the short to
medium-run for both inflation and threats of future recession from
rising interest rates. We are pleased to have expanded our credit
facilities early in 1H and locked-in an attractive fixed rate
through 2027.
Ironically, now is a good time for us to capture more of the
market given our market leading position and competitive advantages
that we can exploit. Market demand for water and wastewater-related
infrastructure solutions remains strong whether we face Covid-19,
inflation or potentially recession. Long-run, climate change is
adversely affecting water infrastructure whether manifested by
droughts, floods or deterioration of pipe materials. In attacking
the market, which is characterized by fragmented, local service
providers, we have operating efficiencies to leverage: our
multinational sales footprint; business-to-business channels;
proprietary technology; Salesforce.com implementation; and
available financial resources for sustaining our long-run growth
plan. Moreover, in the short to medium-run, because most of our
operations are in the US, we are additionally assisted by the
strong US dollar and have the ability to be opportunistic
internationally."
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
RBC Capital Markets - Joint Broker Tel: +44 (0)20 7653 4000
Jill Li
Daniel Saveski
WH Ireland Limited - NOMAD & Joint Tel: +44 (0)20 7220 1666
Broker
Chris Hardie
Ben Good
Tel: +44 (0)20 3903 7715
Dowgate Capital Ltd - Joint Broker
Stephen Norcross
Nicholas Chambers
Chairman's Statement
Overview
Once again, as has been the case consistently since 2016, our
operating fundamentals are strong. And market demand for our green
economy brand and water infrastructure solutions only looks to be
getting stronger given droughts, flooding and an inability of aging
infrastructure internationally to cope. We appreciate our
shareholders commitment to building a leading world-class growth
company over the long-run. Nonetheless, during 1H we implemented
important steps to get ahead of marketplace challenges threatening
various stakeholders - employees, customers, shareholders -
including rapid inflation and the threat of future recession from
rising interest rates geared to stem inflation. We expanded our
credit facilities by $17 million during 1H and locked-in an
attractive blended interest rate for all bank borrowings at 4.9%.
We have made prudent budget adjustments during 1H while staying
true to our long-run growth plan because it will create the highest
value for all stakeholders. For example, in putting capital to
work, we have continued to hire and train technicians to capture
market demand for solutions and at the same time we have managed
other expenses. Fortunately, our asset base gives Water
Intelligence a competitive advantage and management an ability to
navigate short-run, medium-run, and long-run operating windows.
Analysis
We remain on-track for another good year with respect to revenue
and profits. To present a comparable period-over-period analysis of
operations, we have excluded a one-time gain of $1.9 million in
2021 for the forgiveness of a PPP loan granted at the onset of
Covid in 2020. This loan forgiveness was treated in our 2021
audited accounts as profit before tax. In that report, we explained
the IFRS requirement and communicated that even excluding the
one-time gain for 2021, full year 2021 revenue grew by 44% to $54.5
million and adjusted EBITDA still grew 48% to $10.3 million. To
provide a meaningful comparison between operating performance for
1H 2022 and 1H 2021, we need to make the same adjustment. Revenue
grew in 1H by 44% to $35.6 million (1H 2021: $24.7 million), profit
before taxes adjusted for non-cash and non-core costs increased by
10% to $4.6 million (1H 2021: $4.2 million) and EBITDA grew by 15%
to $6.2 million (1H 2021: $5.4 million).
While strong, we note that our EBITDA growth percentage over
sequential periods from full year 2021 to 1H 2022 decreased. In
part, EBITDA margins declined somewhat to 17.5% from 21.9% because
of rapid inflation of direct costs from labor, gasoline for service
vehicles and supplies. However, it should also be noted that part
of increasing expenses was actually the timing of reinvestment due
to increased hiring and training of operating personnel including
45 technicians. Such execution personnel will become fully
productive in 2023 to capture increased market demand for water and
wastewater solutions and contribute revenue and profit over the
medium and long-run. As part of our growth plan, we raised equity
capital during 2H 2021, committing to institutional shareholders to
put capital to work to accelerate market capture given the global
market opportunity for providing water infrastructure
solutions.
Short-run Window. In the near-term, despite navigating market
volatility with care, we are continuing to grow organically both
the Water Intelligence (WI) brand and that of our core American
Leak Detection (ALD) business. In breaking down WI revenue growth,
each business line tracked well given our growth plan and key
performance indicators (KPIs) set forth in the Strategic Report as
part of our annual Accounts.
The core of our strategic plan focuses on growing the American
Leak Detection brand both organically by adding service
capabilities at each of our 150 locations across the United States
and by the reacquisition of franchises and converting such
locations to corporate operations. Converting franchises into
corporate operations unlocks significant shareholder value by
bringing underlying franchise revenue and profits directly onto
Water Intelligence accounts instead of as royalty income. We use
the concept of "Network Sales" to evaluate our growth plan because
it illuminates the growth of total sales to customers under our
American Leak Detection brand - both direct sales from corporate
operations and gross sales from franchisees from which royalty
income is reported. Both corporate and franchisee personnel execute
in the same branded vehicles and uniforms for customers. For 1H
2022, Network Sales grew 12.5% to $85 million (1H 2021: $75.5
million).
Each KPI tracks our growth plan well. Franchise royalties
declined by 3% to $3.6 million (1H: $3.7 million) as a result of
the franchise reacquisitions during 2021, which reduced the
available pool of royalty income for 2022. At the same time,
however, the franchise system still grew. Despite there being fewer
franchises, franchise-related revenues grew by 5% (1H 2022: $5.2
million vs. 1H 2021: $4.9 million). Our business-to-business
insurance channel component of franchise-related revenues grew by
7% to $4.8 million (1H 2021: $4.5 million). It is worth noting that
our business-to-business channel is growing faster than 7% because
we do not report insurance jobs executed by our corporate-operated
locations. Meanwhile, US corporate-operated locations grew 75% to
$23.3 million (1H 2021: $13.3 million) reflecting both organic
growth and growth through reacquisition of franchisees as discussed
above. With respect to organic growth, same store sales increased
by 30% to $17.1 million (1H 2021: $13.1 million). Finally,
international corporate operations (UK, Australia, Canada) grew 27%
to $3.6 million (1H 2021: $2.8 million).
Medium-run Window. We remain positive about market demand for
our water infrastructure solutions even in the medium-run scenario
of recession. For reference, during the first year of Covid-19,
when US GDP shrank, WI revenue still grew by 17%. We have made, and
are continuing to make, investments to capture a greater share of
the market over the medium term given strong demand for our
offerings. Firstly, we are adding more capacity - trained service
professionals - across all of our franchise and corporate
locations, especially in the US. At the beginning of 1H 2022, we
invested in creating a new training centre in Seattle. By the end
of 1H 2022, this centre has already trained several classes of new
technicians who are now deployed to different parts of the US and
gaining experience using our leak detection technology. These new
technicians will be contributing to revenue and profit in a
meaningful way during 2023. Secondly, to enable ALD to operate more
efficiently with more capacity, we have invested over the last two
years in Salesforce.com customer management technology and related
applications (together "Salesforce"). With the Salesforce suite of
applications, the entire American Leak Detection workflow across
its 150 locations will be automated from receipt of jobs from
customers to scheduling and delivery, report writing, payments and
follow-on sales. Importantly, all data will be secure with the
highest level of compliance; an attribute critical to our insurance
business-to-business channel. At the end of 1H 2022, all corporate
locations were successfully on-boarded to Salesforce. Prior to
year-end all franchise locations are scheduled to be on-boarded.
Thirdly, we have invested in proprietary technologies, such as a
new sewer diagnostic tool, that will increase our range of
offerings to meet market demand for wastewater services. A version
of this proprietary tool is currently being used commercially in
the UK for municipal customers such as Thames Water and a version
for residential users is currently being tested in the United
States for use by our American Leak Detection brand.
Outlook
Water Intelligence is well positioned for the future whether it
is characterized by persistent inflation or a shift to recession
from higher interest rates. Our balance sheet is strong with $21.9
million in cash as of 30 June 2022. Cash, net of bank borrowings,
is $5.3 million as at 30 June 2022. Credit availability under our
expanded facilities is $7 million as of 30 June 2022. The terms of
the bank debt are favorable with a fixed rate of approximately 4.9%
and amortization spread through 2027. Deferred consideration to
franchisees from reacquisitions at 30 June 2022 is $13.7 million
with payments spread through 2026. Given EBITDA growth and readily
available cash and credit, Water Intelligence has sufficient
capital to meet its obligations, reinvest in growth and even
consider selective acquisitions. With a strong US dollar forecast
through at least 2023 and since Water Intelligence generates cash
from operations largely in dollars, we are reviewing opportunities
internationally that have become relatively more attractive.
In evaluating any tactical changes, Water Intelligence does have
operating flexibility. If the medium-run is marked by inflation,
Water Intelligence has made significant investments in its
Salesforce.com infrastructure that is expected to deliver operating
efficiencies in 2023 and beyond. On the other hand, if the
medium-run is marked by recession due to rising US interest rates,
Water Intelligence also has the ability to navigate this given its
diverse matrix both in terms of solutions covering water and
wastewater and in terms of the variety of its customers from
homeowners to businesses like insurance to municipal. Both private
and public spending for water infrastructure solutions are expected
to increase irrespective of macroeconomic trends.
Long-run. We are mindful of macroeconomic variables. However, we
remain optimistic about the global opportunities in front of us and
management's ability to adjust as we move from short-run monitoring
to medium-run tactics. For our long-run outlook, global market
demand for water and wastewater infrastructure services continues
to increase. To a degree, we are acyclical because of the
importance of water and wastewater solutions especially as climate
change creates more anomalous conditions that puts stress on
infrastructure at all levels - residential, commercial,
municipal.
Importantly, as a competitive strategy matter, in a largely
fragmented market of local service providers, we are distinguished
from our competitors because we have: a well-recognized American
Leak Detection national brand; proprietary technology; established
US business-to-business channels; an installed base of operations
in over 150 locations across the US and in the UK, Canada and
Australia; and investments already made in the leading customer
relationship management system in the world that will come on line
fully during 2023. With these operating attributes and against a
landscape of smaller less-adaptable players, we should be prudent
as to tactics but confident in our growth plan and ability to
capture the market with a platform company as the market leader in
our category.
Patrick DeSouza
Executive Chairman
September 22, 2022
Interim Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2022
Six months Six months Year ended
ended ended 31
30 June 30 June December
2022 2021 2021
------------------------------------ ------ ------------- ------------- -------------
Notes $ $ $
------------------------------------ ------ ------------- ------------- -------------
Unaudited Unaudited Audited
Revenue 4 35,583,457 24,698,724 54,543,408
Cost of sales (4,656,279) (4,504,060) (8,964,486)
------------------------------------ ------ ------------- ------------- -------------
Gross profit 30,927,178 20,194,664 45,578,922
Administrative expenses
* Other income 41,631 54,063 69,484
* Share-based payments (226,525) (187,719) (442,708)
* Amortisation of intangibles (429,440) (140,605) (470,226)
* Other administrative costs (26,074,124) (15,744,678) (38,131,195)
------------------------------------ ------ ------------- ------------- -------------
Total administrative
expenses (26,688,458) (16,018,939) (38,974,645)
------------------------------------ ------ ------------- ------------- -------------
Operating profit 4,238,720 4,175,725 6,604,277
PPP loan forgiveness - 1,869,800 1,869,800
Finance income 21,851 26,043 51,092
Finance expense (753,508) (341,612) (969,130)
------------------------------------ ------ ------------- ------------- -------------
Profit before tax 4 3,507,063 5,729,956 7,556,039
Taxation expense (1,106,026) (1,184,724) (1,641,350)
Profit for the period 2,401,037 4,545,232 5,914,689
Attributable to:
Equity holders of
the parent 2,407,239 4,452,586 5,764,952
Non-controlling interests (6,202) 92,646 149,737
------------------------------------ ------ ------------- ------------- -------------
2,401,037 4,545,232 5,914,689
Other comprehensive
income
Exchange differences
arising on translation
of foreign operations (370,207) (89,168) (221,281)
Fair value adjustment
on listed equity investment
(net of deferred tax) (475,794) 540,943 (300,049)
Total comprehensive
income for the period 1,555,036 4,997,007 5,393,359
------------------------------------ ------ ------------- ------------- -------------
Earnings per share Cents Cents Cents
------------------------------------ ------ ------------- ------------- -------------
Basic 5 13.9 28.8 36.1
------------------------------------ ------ ------------- ------------- -------------
Diluted 5 13.0 26.8 33.3
------------------------------------ ------ ------------- ------------- -------------
The gain on PPP loan forgiveness was a one-time extraordinary
item related to the Covid-19 pandemic. Under IFRS guidelines, we
were required to present this as a one-time gain in profit before
tax. However, this gain is not reflective of our underlying
operating results, and as such has been excluded from our period
over period analysis. See note 5 for adjusted EPS calculation.
Consolidated Statement of Financial Position as at 30 June
2022
At At At
30 June 30 June 31 December
2022 2021 2021
------------------------------ ------ ------------- ------------- -------------
Notes $ $ $
------------------------------ ------ ------------- ------------- -------------
Unaudited Unaudited Audited
ASSETS
Non-current assets
Goodwill 45,382,040 34,864,735 37,268,469
Listed equity investment 592,516 2,156,777 1,185,039
Other intangible assets 4,534,059 2,200,394 3,818,037
Property, plant and
equipment 9,655,046 7,255,295 7,807,227
Trade and other receivables 454,619 455,739 429,219
------------------------------ ------ ------------- ------------- -------------
60,618,280 46,932,940 50,507,991
------------------------------ ------ ------------- ------------- -------------
Current assets
Inventories 735,722 641,034 677,218
Trade and other receivables 12,461,108 8,981,051 8,379,894
Cash and cash equivalents 21,907,224 7,159,023 23,802,352
------------------------------ ------ ------------- ------------- -------------
35,104,054 16,781,108 32,859,464
------------------------------ ------ ------------- ------------- -------------
TOTAL ASSETS 4 95,722,334 63,714,048 83,367,455
------------------------------ ------ ------------- ------------- -------------
EQUITY AND LIABILITIES
Equity attributable
to holders of the parent
Share capital 6 142,260 116,606 142,260
Share premium 6 35,252,633 12,395,783 35,252,633
Shares held in treasury 6 (529,077) (284,611) (468,427)
Merger reserve 1,001,150 1,001,150 1,001,150
Share based payment
reserve 1,319,519 856,932 1,092,993
Other reserves (1,465,700) (963,380) (1,095,492)
Reverse acquisition
reserve 6 (27,758,089) (27,758,089) (27,758,088)
Equity investment reserve (429,123) 887,664 46,672
Retained profit 45,959,816 42,240,210 43,552,575
------------------------------ ------ ------------- ------------- -------------
53,493,389 28,492,265 51,766,276
------------------------------ ------ ------------- ------------- -------------
Equity attributable
to Non-Controlling interest
Non-controlling interest 568,513 555,436 612,528
------------------------------ ------ ------------- ------------- -------------
Non-current liabilities
Borrowings and lease
liabilities 15,369,104 8,447,368 8,176,893
Deferred consideration 7,929,371 9,981,713 8,220,613
Deferred tax liability 2,502,840 2,193,742 1,576,872
------------------------------ ------ ------------- ------------- -------------
25,801,315 20,622,823 17,974,378
------------------------------ ------ ------------- ------------- -------------
Current liabilities
Trade and other payables 4,730,349 3,888,937 4,194,031
Borrowings and lease
liabilities 5,365,027 3,010,759 3,325,579
Deferred consideration 5,763,741 7,143,828 5,494,663
15,859,117 14,043,524 13,014,273
------------------------------ ------ ------------- ------------- -------------
TOTAL EQUITY AND LIABILITIES 95,722,334 63,714,048 83,367,455
------------------------------ ------ ------------- ------------- -------------
Interim Consolidated Statement of Changes in Equity
For the six months ended 30 June 2022
Share Share Shares Reverse Merger Share Other Equity Retained Total Non-controlling Total
Capital Premium held Acquisition Reserve based Reserves investment Profit interest Equity
in Reserve payment reserve
treasury reserve
$ $ $ $ $ $ $ $ $ $ $ $
--------------- -------- ----------- ---------- ------------- ---------- ---------- ------------ ----------- ----------- ----------- ---------------- -----------
As at 1
January
2021 116,212 12,091,069 (340,327) (27,758,088) 1,001,150 650,284 (874,211) 346,721 37,787,623 23,020,434 346,124 23,366,558
--------------- -------- ----------- ---------- ------------- ---------- ---------- ------------ ----------- ----------- ----------- ---------------- -----------
Issue of
ordinary
shares 20 59,224 - - - - - - - 59,244 - 59,244
Options
purchase 374 38,553 - - - - - - - 38,928 - 38,928
Share based
payment
expense - - - - - 206,648 - - - 206,648 - 206,648
Share buyback - - (282,737) - - - - - (282,737) - (282,737)
Sale of
treasury
stock - 206,936 338,452 - - - - - - 545,388 - 545,388
Capital
Contribution
NCI - - - - - - - - - - 116,667 116,667
Profit for the
period - - - - - - - - 4,452,587 4,452,587 92,645 4,545,232
Other
comprehensive
income - - - - - - (89,169) 540,943 - 451,774 - 451,774
As at 30 June
2021
(unaudited) 116,606 12,395,783 (284,612) (27,758,088) 1,001,150 856,932 (963,380) 887,664 42,240,210 28,492,265 555,436 29,047,701
--------------- -------- ----------- ---------- ------------- ---------- ---------- ------------ ----------- ----------- ----------- ---------------- -----------
Issue of
ordinary
shares 21,271 22,126,416 - - - - - - - 22,147,687 - 22,147,687
Options
purchase 4,383 716,352 - - - - - - - 720,735 - 720,735
Share-based
payment
expense - - - - - 236,060 - - - 236,060 - 236,060
Share buyback - - (183,814) - - - - - (183,814) - (183,814)
Sale of
treasury
stock - 14,082 - - - - - - - 14,082 - 14,082
Profit for the
period - - - - - - - 1,312,365 1,312,365 57,092 1,369,457
Other
comprehensive
income - - - - - - (132,112) (840,992) - (973,104) - (973,104)
As at 31
December
2021
(audited) 142,260 35,252,633 (468,427) (27,758,088) 1,001,150 1,092,993 (1,095,492) 46,672 43,552,575 51,766,276 612,528 52,378,804
--------------- -------- ----------- ---------- ------------- ---------- ---------- ------------ ----------- ----------- ----------- ---------------- -----------
Share based
payment
expense - - - - - 226,525 - - - 226,525 - 226,525
Share buyback - - (60,650) - - - - - (60,650) - (60,650)
Dividend paid - - - - - - - - - - (37,813) (37,813)
Profit for the
period - - - - - - - - 2,407,239 2,407,239 (6,202) 2,401,037
Other
comprehensive
income - - - - - - (370,207) (475,794) - (846,001) - (846,001)
--------------- -------- ----------- ---------- ------------- ---------- ---------- ------------ ----------- ----------- ----------- ---------------- -----------
As at 30 June
2022
(unaudited) 142,260 35,252,633 (529,076) (27,758,088) 1,001,150 1,319,518 (1,465,699) (429,122) 45,959,814 53,493,389 568,513 54,061,902
--------------- -------- ----------- ---------- ------------- ---------- ---------- ------------ ----------- ----------- ----------- ---------------- -----------
Interim Consolidated Statement of Cash Flows
For the six months ended 30 June 2022
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
----------------------------------------- -------------- ------------ -------------
$ $ $
----------------------------------------- -------------- ------------ -------------
Unaudited Unaudited Audited
Cash flows from operating activities
Profit before tax 3,507,063 5,729,956 7,556,039
Adjustments for non-cash/non-operating
items:
Depreciation of plant and equipment 1,559,464 1,086,086 2,475,069
Amortisation of intangible assets 429,440 140,605 470,225
Share based payments 226,525 187,719 442,708
PPP loan forgiveness - (1,869,800) (1,869,800)
Interest paid 466,225 341,612 969,130
Interest received (21,851) (26,043) (51,092)
----------------------------------------- -------------- ------------ -------------
Operating cash flows before movements
in working capital 6,166,866 5,590,134 9,992,279
----------------------------------------- -------------- ------------ -------------
Increase in inventories (58,504) (196,243) (232,427)
Increase in trade and other receivables (4,055,364) (2,806,532) (1,924,070)
Increase/(Decrease) in trade and
other payables 509,562 (226,127) (684,618)
Cash generated by operations 2,562,560 2,361,232 7,151,164
----------------------------------------- -------------- ------------ -------------
Income taxes (60,046) (4,724) (1,021,648)
----------------------------------------- -------------- ------------ -------------
Net cash generated from operating
activities 2,502,514 2,356,508 6,129,516
----------------------------------------- -------------- ------------ -------------
Cash flows from investing activities
Purchase of plant and equipment (649,120) (389,784) (517,707)
Purchase of intangibles (1,165,452) (142,890) (2,078,559)
Acquisition of subsidiaries (3,850,000) - (979,782)
Reacquisition of Franchises (1,400,000) (1,551,999) (5,239,558)
Interest received 21,851 26,043 51,092
----------------------------------------- -------------- ------------ -------------
Net cash used in investing activities (7,042,720) (2,058,631) (8,764,514)
----------------------------------------- -------------- ------------ -------------
Cash flows from financing activities
Issue of ordinary share capital - 20 21,291
Premium on issue of ordinary share
capital - 59,224 22,185,641
Share buy-back (60,652) (282,736) (466,551)
Sale of treasury shares - 545,389 559,469
Options exercised - 38,928 714,950
Dividend paid (37,812) - -
Interest paid (466,225) (341,612) (969,130)
Proceeds from borrowings 10,057,373 3,200,000 3,200,000
Repayment of borrowings (1,778,343) (879,733) (1,827,765)
Repayment of notes (4,309,447) (1,610,167) (2,350,676)
Repayment of lease liabilities (759,815) (686,881) (1,448,594)
Net cash generated by/(used in)
financing activities 2,645,079 42,431 19,618,635
----------------------------------------- -------------- ------------ -------------
Net (decrease)/increase in cash
and cash equivalents (1,895,128) 340,308 16,983,637
Cash and cash equivalents at the
beginning of period 23,802,352 6,818,715 6,818,715
Cash and cash equivalents at end
of period 21,907,224 7,159,023 23,802,352
----------------------------------------- -------------- ------------ -------------
Notes to the Interim Consolidated Financial Information
for the six months ended 30 June 2022
1 General information
The Group is a leading provider of minimally-invasive leak
detection and remediation services and products for water and
wastewater infrastructure. The Group's strategy is to be a provider
of "end-to-end" solutions - a "one-stop shop" for residential,
commercial and municipal customers.
Water Intelligence plc is a public limited company domiciled in
the United Kingdom and incorporated under registered number
03923150 in England and Wales. Its registered office is 27-28
Eastcastle Street, London, W1W 8DH.
2 Significant accounting policies
Basis of preparation and changes to the Group's accounting
policies
The accounting policies adopted in the preparation of the
interim consolidated financial information are consistent with
those of the preparation of the Group's annual consolidated
financial statements for the year ended 31 December 2021.
This interim consolidated financial information for the six
months ended 30 June 2022 has been prepared in accordance with IAS
34, "Interim financial reporting". This interim consolidated
financial information is not the Group's statutory financial
statements and should be read in conjunction with the annual
financial statements for the year ended 31 December 2021, which
have been prepared in accordance with International Financial
Reporting Standards (IFRS) and have been delivered to the Registrar
of Companies. The auditors have reported on those accounts; their
report was unqualified, did not include references to any matters
to which the auditors drew attention by way of emphasis of matter
without qualifying their report and did not contain statements
under section 498(2) or (3) of the Companies Act 2006.
The interim consolidated financial information for the six
months ended 30 June 2022 is unaudited. In the opinion of the
Directors, the interim consolidated financial information presents
fairly the financial position, and results from operations and cash
flows for the period. Comparative numbers for the six months ended
30 June 2021 are unaudited.
This interim consolidated financial information is presented in
US Dollars ($), rounded to the nearest dollar.
Foreign currencies
(i) Functional and presentational currency
Items included in this interim consolidated financial
information are measured using the currency of the primary economic
environment in which each entity operates ("the functional
currency") which is considered by the Directors to be the Pounds
Sterling (GBP) for the Parent Company and US Dollars ($) for
American Leak Detection Holding Corp. This interim consolidated
financial information has been presented in US Dollars which
represents the dominant economic environment in which the Group
operates and is considered to be the functional currency of the
Group. The effective exchange rate at 30 June 2022 was GBP1 = US$
1.2161 (30 June 2021: GBP1 = US$ 1.3851).
Critical accounting estimates and judgments
The preparation of interim consolidated financial information
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets and liabilities and the reported amounts of
income and expenses during the reporting period. Although these
estimates are based on management's best knowledge of current
events and actions, the resulting accounting estimates will, by
definition, seldom equal the related actual results.
In preparing this interim consolidated financial information,
the significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements for the year ended 31 December 2021.
3 Significant events and transactions
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 and $2 million for a working
capital line of credit. 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 blended fixed interest
rate for our various credit facilities is approximately 4.9%. 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 .
As detailed in Footnote 7 - "Reacquisition of franchisee
territories and other acquisitions" the Group reacquired the
following franchises and 3(rd) party companies: Franchises - Fort
Worth, Texas (1 January 2022); Central Texas (1 May 2022); Shanahan
Plumbing (1 May 2022). The Group also sold additional territory to
a franchisee.
4 Segmental information
In the opinion of the Directors, the operations of the Group
currently comprise four operating segments: (i) franchise royalty
income, (ii) franchise-related activities including sale of
franchise territory, business-to-business sales and product and
equipment sales, (iii) US corporate-operated locations led by the
Group's U.S.-based American Leak Detection subsidiary and (iv)
international corporate locations led by the Group's UK-based Water
Intelligence International subsidiary.
The Group mainly operates in the US, with operations in the UK,
Canada and Australia. In the six months to 30 June 2022, 89.8% (1H
2021: 88.6%) of its revenue came from the US-based operations; the
remaining 10.2% (1H 2021: 11.4%) of its revenue came from its
international corporate operated locations.
No single customer accounts for more than 10% of the Group's
total external revenue.
The Group adopted IFRS 8 Operating Segments with effect from 1
July 2008. IFRS 8 requires operating segments to be identified on
the basis of internal reports about components of the Group.
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 separated into
four income generating segments that serve as key performance
indicators (KPI's):
- Franchise royalty income;
- Franchise-related activities (including sale of franchise
territory, product and equipment sales and Business-to-Business
sales);
- US corporate operated locations; and
- International corporate operated locations.
Items that do not fall into the four segments have been
categorised as unallocated head office costs and non-core costs
which largely reflect transaction costs associated with the Group's
acquisition strategy.
The following is an analysis of the Group's revenues, results
from operations and assets:
Revenue Six months Six months Year ended
ended ended 31 December
30 June 2022 30 June 2021 2021
$ $ $
Unaudited Unaudited Audited
------------------------------ --------------- --------------- -------------
Franchise royalty income 3,574,855 3,679 450 6,803,489
Franchise related activities 5,154,080 4,926,435 9,769,657
US corporate operated
locations 23,267,410 13,272,353 31,861,087
International corporate
operated locations 3,587,113 2,820,487 6,109,175
------------------------------- --------------- --------------- -------------
Total 35,583,457 24,698,724 54,543,408
------------------------------- --------------- --------------- -------------
Profit before tax Six months Six months Year ended
ended ended 31 December
30 June 2022 30 June 2021 2021
$ $ $
Unaudited Unaudited Audited
------------------------------ --------------- --------------- -------------
Franchise royalty income 963,463 1,251,346 1,808,730
Franchise related activities 497,801 422,375 805,171
US corporate operated
locations 4,462,386 3,058,470 6,007,153
International corporate
operated locations 39,007 191,288 315,740
Unallocated head office
costs (2,035,594) (1,050,697) (2,927,132)
PPP loan forgiveness - 1,869,800 1,869,800
Non-core costs (420,000) (12,626) (323,423)
------------------------------- --------------- --------------- -------------
Total 3,507,063 5,729,956 7,556,039
------------------------------- --------------- --------------- -------------
As previously noted, the gain on PPP loan forgiveness was a
one-time extraordinary item related to the Covid pandemic. Under
IFRS guidelines, we were required to present this as a one-time
gain in profit before tax. However, this gain is not reflective of
our underlying operating results, and as such has been excluded
from our period over period analysis.
Assets Six months Six months Year ended
ended ended 31 December
30 June 2022 30 June 2021 2021
$ $ $
Unaudited Unaudited Audited
------------------------------ --------------- --------------- -------------
Franchise royalty income 28,132,461 12,896,040 27,869,663
Franchise related activities 2,725,813 2,476,084 2,452,933
US corporate operated
locations 48,408,920 40,492,132 43,050,953
International corporate
operated locations 16,455,139 7,849,792 9,993,906
------------------------------- --------------- --------------- -------------
Total 95,722,334 63,714,048 83,367,455
------------------------------- --------------- --------------- -------------
Geographic Information
The Group has two wholly-owned subsidiaries - American Leak
Detection (ALD) and Water Intelligence International (WII).
Operating activities are captured as both franchise-executed
operations and corporate-executed operations. ALD has both US
franchises and corporate-operated locations. It also has
international franchises, principally located in Australia and
Canada. Operations focus on residential and commercial water leak
detection and remediation with some municipal activities. By
comparison, WII has only corporate operations located outside the
United States. These WII international operations are principally
municipal activities with some residential leak detection and
remediation. As noted herein, the Group's vision is to become a
multinational growth company and a "One Stop Shop" for residential,
commercial and municipal solutions to water and wastewater
infrastructure problems.
Total Revenue
Six months ended 30 June Year ended 31 December
2022 2021
Unaudited Audited
US International Total US International Total
$ $ $ $ $ $
----------------------- ----------- -------------- ----------- ----------- -------------- -----------
Franchise royalty
income 3,525,982 48,872 3,574,855 6,698,729 104,760 6,803,489
Franchise related
activities 5,154,080 - 5,154,080 9,769,657 - 9,769,657
US corporate operated
locations 23,267,410 - 23,267,410 31,861,087 - 31,861,087
International
corporate operated
locations - 3,587,113 3,587,113 - 6,109,175 6,109,175
----------------------- ----------- -------------- ----------- ----------- -------------- -----------
Total 31,947,472 3,635,985 35,583,457 48,329,473 6,213,935 54,543,408
----------------------- ----------- -------------- ----------- ----------- -------------- -----------
5 Earnings per share
The earnings per share has been calculated using the profit for
the period and the weighted average number of Ordinary shares
outstanding during the period as follows:
Six months Six months Year ended
ended ended 31 December
30 June 2022 30 June 2021 2021
Unaudited Unaudited Audited
-------------------------- --------------- --------------- -------------
Earnings attributable
to shareholders ($) 2,407,239 4,452,586 5,764,952
Weighted average number
of ordinary shares 17,361,439 15,473,540 15,972,588
Diluted weighted average
number of ordinary
shares 18,463,573 16,587,603 17,286,616
--------------------------- --------------- --------------- -------------
Earnings per share
(cents) 13.9 28.8 36.1
--------------------------- --------------- --------------- -------------
Diluted earnings
per share (cents) 13.0 26.8 33.3
--------------------------- --------------- --------------- -------------
Adjusting for the exclusion of the one-time PPP loan forgiveness
has the following effect:
Earnings per share
(cents) - (12.1) (11.7)
Adjusted Earnings
per share (cents) 13.9 16.7 24.4
----------------------- ----- ------- -------
Diluted earnings per
share (cents) - (11.3) (10.8)
----------------------- ----- ------- -------
Adjusted Diluted
earnings per share
(cents) 13.0 15.6 22.5
----------------------- ----- ------- -------
Earnings per share are computed based on Ordinary shares. There
is a class of B Ordinary Shares that are not admitted to
trading.
6 Share capital
The issued share capital at the end of the period was as
follows:
Group & Company
Ordinary Shares held
Shares of 1p each in treasury
Number
Number Total Number
-------------------- ------------------- ------------- ------------
At 30 June 2022 17,366,688 56,500 17,423,188
At 30 June 2021 15,492,443 36,500 15,528,943
-------------------- ------------------- ------------- ------------
At 31 December 2021 17,366,688 51,000 17,417,688
-------------------- ------------------- ------------- ------------
On 1 May 2022 in connection with the acquisition of Shanahan
Plumbing, the vendor, was granted options to purchase 20,000 New
Ordinary Shares at a price of $8.95. These options have a four-year
vesting requirement.
On 30 June 2022, in connection with employee grants, certain
employees received options to purchase 152,000 New Ordinary Shares
at a price of $12.50 per share. These options have a four-year
vesting requirement.
The net number of options including the new grants and leavers
from the Group at 30 June 2022 is 2,375,000.
Group & Company Share Capital Share Premium Shares In
Treasury
$ $ $
-------------------- ------------- --------------- ---------
At 30 June 2022 142,260 35,252,633 (529,077)
At 30 June 2021 116,606 12,395,783 (284,611)
-------------------- ------------- --------------- ---------
At 31 December 2021 142,260 35,252,633 (468,427)
-------------------- ------------- --------------- ---------
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, Water Intelligence plc, 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.
7 Reacquisition of franchisee territories and other acquisitions in the period
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 26 January 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.
Effective 1 May 2022, the Group acquired Shanahan Plumbing LLC,
a plumbing company with operations in both Connecticut and New York
("Acquisition"). The Acquisition builds upon the Group's growing
American Leak Detection ("ALD") operations in Connecticut and New
York and enables customers to be offered a full range of leak
detection and repair solutions. The purchase price of $1 million is
based on Shanahan Plumbing's 2021 Statement of Income of $1.9
million in revenue and $0.2 million in adjusted profit before
tax.
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.
8 Publication of announcement and the Interim Results
A copy of this announcement will be available at Water
Intelligence plc's registered office ( 27-28 Eastcastle Street,
London, W1W 8DH ) from the date of this announcement and on its
website - www.waterintelligence.co.uk . This announcement is not
being sent to shareholders.
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END
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END
IR SEMFUFEESEEU
(END) Dow Jones Newswires
September 22, 2022 02:01 ET (06:01 GMT)
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