TIDMWATR

RNS Number : 8332M

Water Intelligence PLC

19 September 2023

Water Intelligence plc (AIM: WATR.L)

Interim Results

Water Intelligence plc (AIM: WATR.L) (the "Group" or "Water Intelligence"), 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 ended 30 June 2023.

Results are in-line with market expectations with strong profit growth as the Group continues to execute on its long-run growth plan.

Financial Highlights

   --    Revenue increased by 9% to $38.7 million (1H 2022: $35.6 million) 

o Franchise Royalty income grew 2% to $3.63 million (1H 2022: $3.57 million)

o Franchise Related sales grew 14% to $5.9 million (1H 2022: $5.2 million)

o Corporate Store sales grew 9% to $29.2 million (1H 2022: $26.9 million)

-- US Corporate store sales grew 8% to $25.2 million (1H 2022: $23.3 million)

-- International Corporate store sales grew 10% to $4.0 million (1H 2022: $3.6 million)

o Network Sales (implied gross sales of franchisees from which reported royalty is derived plus direct sales of corporate locations) grew 5% to $89 million (1H 2022: $85 million)

   --    Statutory Profit Before Tax increased by 21% to $4.2 million (1H 2022: $3.5 million) 
   --    Statutory EBITDA increased by 12% to $7.0 million (1H 2022: $6.2 million) 
   --    PBT Adjusted* increased by 18% to $5.4 million (1H 2022: $4.6 million) 
   --    EBITDA Adjusted** increased by 12% to $7.7 million (1H 2022: $6.9 million) 
   --    EPS Basic increased by 18% to 16.4 cents (1H 2022: 13.9 cents) 
   --    EPS Fully Diluted increased by 22% to 15.9 cents (1H 2022: 13.0 cents) 
   --    PBT Margin increased to 11% (1H 2022: 10%) 
   --    EBITDA margin increased to 18% (1H 2022: 17.5%) 
   --    Cash and equivalents at 30 June of $18.7 million 

o Net Cash of $1.75 million (cash minus bank borrowings)

o Bank borrowings amortized through 2028 at a blended fixed rate of 4.9%

o Net Debt (including both Bank Debt and Deferred Acquisition Payments) to EBITDA ratio: 0.65x

*PBT Adjusted (adjusted for amortisation, share based payments and non-core costs)

**EBITDA Adjusted (adjusted for share based payments and non-core costs)

Corporate Development

   --    Accretive re-acquisitions: 

o Franchise Acquisition: Nashville, Tennessee

o Subsequent to 1H: Franchise acquisition of Covina, California

   --    Technology: 

o Commercialisation of New Technology Offerings

-- IntelliDitch (Liner for open channel water conveyance and storm water run-off)

-- Pulse (Sewer diagnostics for municipal and residential customers respectively)

-- LS1 (Rapid municipal area surveys)

-- CreatorSuite (Video ecommerce of water and wastewater products & services; distance learning)

o Salesforce.com implementation: on-boarding of all locations continuing

Dr. Patrick DeSouza, Executive Chairman of Water Intelligence, commented:

"We continue to deliver strong results while navigating market volatility produced by rising interest rates and inflationary pressures. Profits increased strongly. Margins improved. Our balance sheet remains strong enabling us to make investments for future growth both in terms of more trained technicians, new technology solutions for customers and software infrastructure to enable continuous customer engagement and operating efficiencies. We remain positive about the future as market demand for water infrastructure solutions continues to grow."

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 
  Hugh Morgan 
  James Bavister 
 
   RBC Capital Markets - Joint Broker       Tel: +44 (0)20 7653 4000 
 Rupert Walford 
  Elizabeth Evans 
  Daniel Saveski 
                                            Tel: +44 (0)20 3903 7715 
   Dowgate Capital Ltd - Joint Broker 
   Stephen Norcross 
 
 

Chairman's Statement

Overview

Our fundamentals remain strong despite volatile conditions in the broader marketplace. Business is growing, profits are strong, earnings per share is up and we have a balance sheet that provides the Group with flexibility to be opportunistic. Moreover, market demand for water and wastewater solutions is only expected to grow over the next decade around the world. The concerns expressed in the UK media during early July over the significant capital investment required for water infrastructure in the UK are generally shared with respect to national water infrastructure around the world.

During 1H, we continued to execute our long-run growth plan to build a "One Stop Shop" for customers needing water and wastewater solutions; a strategic concept that we first articulated over a decade ago when we first came to AIM. Our plan continues to recognize two core attributes of our market presence. First, we solve problems for customers across the United States with over 200,000 customer visits annually. This is a significant installed base from which to grow the business through follow-on offerings. Second, we are uniquely positioned at the starting point of any customer's journey by having proprietary solutions that address the customer's first concern: "Do I have a leak and can you help me find it with minimal destruction?" As a trusted advisor to the customer from inception, we have the opportunity to upsell various solutions for related water and wastewater problems. Because of this unique value proposition or "USP", we have a scalable model that has lower customer acquisition costs. Our results reinforce these key attributes for achieving a "One Stop Shop" distribution platform.

Results

During 1H, overall revenue grew by 9% to $38.7 million (1H 2022: $35.6 million). All key performance indicators grew. Franchise royalty grew by 2% to $3.63 million (1H 2022: $3.57 million). Franchise related activities grew 14% to $5.9 million (1H 2022: $5.2 million) with the sub-component of the insurance business-to-business channel growing by 15%. US Corporate stores grew by 8% to $25.2 million (1H 2022: $23.3 million). International corporate store sales grew by 10% to $4 million (1H 2022: $3.6 million).

The sharp rise in interest rates did adversely affect revenue growth, particularly US corporate store sales as new construction slowed dramatically. However, the biggest impact was concentrated in three regions: Texas, Kentucky and to a lesser degree Florida. In these corporate locations, sales declined by approximately $1.5 million versus 2022 1H sales. We are currently redeploying leak detection specialists to other water and wastewater projects in those same regions and are confident in the future growth rate of these locations. For example, instead of new construction, consumers and property managers are focusing on rental properties which also need pinpoint leak detection solutions. Moreover, our proprietary new offerings with respect to residential sewer diagnostics should assist with our adjustment to market changes regarding new construction by providing solutions for older properties.

As we navigate volatile market conditions, we are also mindful of profitability and operating efficiencies. During 1H, despite sharply rising interest rates, persistent inflation adversely affected our cost structure, particularly in terms of wages and health care benefits. However, we have navigated this backdrop successfully. Profits grew along all measures, whilst margins also grew along all measures. Statutory profit before tax (PBT) increased by 21% to $4.2 million (1H 2022: $3.5 million). PBT adjusted for non-cash amortization and share-based payment expenses and non-core costs grew by 18% to $5.4 million (1H 2022: $4.6 million). Earnings before interest, taxes, depreciation and amortization (EBITDA) grew by 12% to $7.0 million (1H 2022: $6.2 million). EBITDA Adjusted for share-based payments and non-core costs grew by 12% to $7.7 million (1H 2022: $6.9 million). PBT margins grew to 11% (1H 2022: 10%); EBITDA margins grew to 18% (1H 2022: 17.5%).

In navigating the dual shocks of rapidly rising interest rates and persistent inflation, we have been prudent in our corporate finance. Our balance sheet remains strong, enabling the Group to make both operating adjustments to navigate the short-run markets and the proper investments for long-run growth. In addition, we continued to reacquire franchises - Nashville, Tennessee and Covina, California - in strategic locations. Such acquisitions are fully accretive to our shareholders.

At 30 June, the Group had $18.7 million in cash and cash equivalents. Net cash after taking into account bank borrowings was $1.75 million. The Group's bank facilities, locked-in prior to the interest rate hikes, are favourable with borrowings amortized through 2028 at a blended rate of 4.9%. As a result, Water Intelligence has flexibility to increase its credit facilities if needed as the Group is under-leveraged. The Group's Net Debt (including both bank debt and deferred consideration) to EBITDA ratio is 0.65x. Such prudent corporate finance, combined with our results, enabled us to grow EPS - both basic and diluted. EPS (Basic) increased by 18% to 16.4 cents (1H 2022: 13.9 cents). EPS (Fully Diluted) increased by 22% to 15.9 cents (1H 2022: 13 cents).

Strategic Outlook

We will continue to execute our long-run growth plan to create a One-Stop Shop because we operate in a market where customer demand for solutions to water and wastewater problems will remain strong given the rising price of water and the reality of aging water and wastewater infrastructure. Because of underlying market demand, we are still hiring to put more service vehicles on the road and training more technicians to deploy our minimally-invasive technologies. Such new hires are an operating expense but should be considered an investment given the length of time it takes to train a leak detection professional and the importance of fully-trained technicians for future revenue generation based our USP of pinpointing water and wastewater leaks with minimal destruction. While we have the resources to make this investment, we will be prudent and monitor the general macroeconomic picture.

Our prior technology investments will help manage our people investments in growing the business. On 11 September, we released an update on our new technology offerings that we are building into our sales plan for 2024: IntelliDitch (irrigation and stormwater run-off); Pulse (Resident and Municipal); LS1 (Municipal); CreatorSuite (ecommerce).

First, each of these offerings will add to our matrix of solutions - residential, commercial, municipal, clean water, wastewater - and enable us to further position ourselves to customers, whether homeowners or insurance companies, as a One Stop Shop. For example, with our Pulse product, rapid sewer diagnostics is a natural upsell during a visit to a home for water leak detection as most homeowners have insurance or warranty policies for both water damage and sewer blockages. This offering will also help to drive our business-to-business channels.

Having a matrix of solutions also helps with navigating changes in market segments and the management of our workforce. As noted above, the slowdown in new construction because of the spike in interest rates may be offset by a focus on aging rental properties, with problems such as sewer blockages. Our technicians are all cross-trained on the various technologies, making it easier to redeploy the technicians we have invested in. It should also be noted that our proprietary LS1 product for rapid, automated municipal surveys is geared for deploying headcount with less training than is required for pinpoint leak detection. As this offering is rolled-out, we are planning on using such surveys as a bridge for technicians to generate sales while training for full leak detection capabilities.

Second, our software infrastructure enabling customer relationship management (Salesforce) and video ecommerce (CreatorSuite) applications positions us to be part of the customer's entire journey across their lifecycle with sales opportunities to provide solutions to various problems related to water and wastewater. Given our sales footprint across the US and in the UK, Australia and Canada, we can also work with partner companies anywhere in the world to recommend their products to homeowners or property management. Related to demand for water and wastewater solutions, the development of the smart home is another sectoral trend that is expected to continue.

Our software infrastructure will also help with workforce management. With our Salesforce application, we will be more efficient with job scheduling for our technicians and achieve higher levels of service responsiveness to residential customers and business-to-business partners. We will also be able to better integrate work crews with trainees for on-the-job training. With our CreatorSuite video technology, we can not only use it for ecommerce but also for distance learning with short form training videos housed in a secure environment for our technicians. Cutting the time for training will enable the Group to accept more sales opportunities instead of managing backlogs of work.

In navigating market conditions, we will continue to execute our growth plan. However, we are mindful that it all starts with fundamentals, especially profits. As we build on the fundamentals by simply adding more trained technicians and service vehicles because of market demand for water and wastewater solutions, we will be integrating prior investments that make our operations more efficient and lower customer acquisition costs.

Patrick DeSouza

Executive Chairman

September 19, 2023

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2023

 
                                                 Six months     Six months     Year ended 
                                                      ended          ended             31 
                                                    30 June        30 June       December 
                                                       2023           2022           2022 
------------------------------------  ------  -------------  -------------  ------------- 
                                       Notes              $              $              $ 
------------------------------------  ------  -------------  -------------  ------------- 
                                                  Unaudited      Unaudited        Audited 
 Revenue                                 4       38,674,922     35,583,457     71,333,461 
 
 Cost of sales                                  (5,387,099)    (4,656,279)    (9,659,600) 
------------------------------------  ------  -------------  -------------  ------------- 
 
 Gross profit                                    33,287,823     30,927,178     61,673,861 
 Administrative expenses 
 
   *    Other income                                 10,716         41,631     130,405 
 
   *    Share-based payments                      (206,319)      (226,525)      (462,097) 
 
   *    Amortisation of intangibles               (416,484)      (429,440)      (968,086) 
 
   *    Other administrative costs             (27,909,904)   (26,074,124)   (53,528,825) 
------------------------------------  ------  -------------  -------------  ------------- 
 
 Total administrative 
  expenses                                     (28,521,991)   (26,688,458)   (54,828,603) 
------------------------------------  ------  -------------  -------------  ------------- 
 
 Operating profit                                 4,765,832      4,238,720      6,845,258 
 
 Finance income                                     334,049         21,851        229,550 
 Finance expense                                  (864,530)      (753,508)    (1,570,592) 
------------------------------------  ------  -------------  -------------  ------------- 
 
 Profit before tax                       4        4,235,351      3,507,063      5,504,216 
 
 Taxation expense                               (1,266,129)    (1,106,026)    (1,837,737) 
 
 Profit for the period                            2,969,192      2,401,037      3,666,479 
 Attributable to: 
 Equity holders of 
  the parent                                      2,854,408      2,407,239      3,566,540 
 Non-controlling interests                          114,784        (6,202)         99,939 
------------------------------------  ------  -------------  -------------  ------------- 
                                                  2,969,192      2,401,037      3,666,479 
 
 Other comprehensive 
  income 
 Exchange differences 
  arising on translation 
  of foreign operations                             238,363      (370,207)      (409,371) 
 Cash flow hedge movement 
  not subsequently reclassified 
  to the P&L                                         24,310              -        448,177 
 Fair value adjustment 
  on listed equity investment 
  (net of deferred tax)                           (209,923)      (475,794)      (690,885) 
 Total comprehensive 
  income for the period                           3,021,943      1,555,036      3,014,400 
------------------------------------  ------  -------------  -------------  ------------- 
 
 Earnings per share                                   Cents          Cents          Cents 
------------------------------------  ------  -------------  -------------  ------------- 
 Basic                                   5             16.4           13.9           20.5 
------------------------------------  ------  -------------  -------------  ------------- 
 Diluted                                 5             15.9           13.0           19.2 
------------------------------------  ------  -------------  -------------  ------------- 
 

Consolidated Statement of Financial Position as at 30 June 2023

 
                                                   At             At             At 
                                              30 June        30 June    31 December 
                                                 2023           2022           2022 
------------------------------  ------  -------------  -------------  ------------- 
                                 Notes              $              $              $ 
------------------------------  ------  -------------  -------------  ------------- 
                                            Unaudited      Unaudited        Audited 
 ASSETS 
 Non-current assets 
 Goodwill                                  47,953,610     45,382,040     44,966,672 
 Listed equity investment                     219,049        592,516        474,613 
 Other intangible assets                    7,136,062      4,534,059      6,019,360 
 Interest rate swap                           472,487              -        448,177 
 Property, plant and 
  equipment                                 9,266,935      9,655,046      9,224,955 
 Trade and other receivables                  267,612        454,619        287,572 
------------------------------  ------  -------------  -------------  ------------- 
                                           65,315,755     60,618,280     61,421,349 
------------------------------  ------  -------------  -------------  ------------- 
 
 Current assets 
 Inventories                                  802,904        735,722        759,070 
 Trade and other receivables               12,595,302     12,461,108     11,393,584 
 Cash and cash equivalents                 18,731,207     21,907,224     23,014,454 
------------------------------  ------  -------------  -------------  ------------- 
                                           32,129,413     35,104,054     35,167,108 
------------------------------  ------  -------------  -------------  ------------- 
 TOTAL ASSETS                      4       97,445,168     95,722,334     96,588,457 
------------------------------  ------  -------------  -------------  ------------- 
 
 EQUITY AND LIABILITIES 
 Equity attributable 
  to holders of the parent 
 Share capital                     6          143,192        142,260        143,192 
 Share premium                     6       35,417,072     35,252,633     35,417,072 
 Shares held in treasury           6      (1,139,404)      (529,077)    (1,139,404) 
 Merger reserve                             1,001,150      1,001,150      1,001,150 
 Share based payment 
  reserve                                   1,816,423      1,319,519      1,555,090 
 Foreign exchange reserve                (1,266,500)    (1,465,700)     (1,504,863) 
 Reverse acquisition 
  reserve                          6     (27,758,089)   (27,758,089)   (27,758,088) 
 Equity investment reserve                  (854,136)      (429,123)      (644,213) 
 Cash flow hedge reserve                      472,487              -        448,177 
 Retained profit                           49,951,542     45,959,816     47,097,133 
------------------------------  ------  -------------  -------------  ------------- 
                                           57,783,737     53,493,389     54,615,246 
------------------------------  ------  -------------  -------------  ------------- 
 
 Equity attributable 
  to Non-Controlling interest 
 Non-controlling interest                     416,539        568,513        598,636 
------------------------------  ------  -------------  -------------  ------------- 
 
 Non-current liabilities 
 Borrowings and lease 
  liabilities                              14,725,059     15,369,104     15,334,813 
 Deferred consideration                     4,731,313      7,929,371      7,164,421 
 Deferred tax liability                     3,092,054      2,502,840      1,915,581 
------------------------------  ------  -------------  -------------  ------------- 
                                           22,548,426     25,801,315     24,414,815 
------------------------------  ------  -------------  -------------  ------------- 
 
 Current liabilities 
 Trade and other payables                   5,415,716      4,730,349      6,331,107 
 Borrowings and lease 
  liabilities                               6,634,568      5,365,027      5,519,560 
 Deferred consideration                     4,646,182      5,763,741      5,109,093 
                                           16,696,466     15,859,117     16,959,760 
------------------------------  ------  -------------  -------------  ------------- 
 TOTAL EQUITY AND LIABILITIES              97,445,168     95,722,334     96,588,457 
------------------------------  ------  -------------  -------------  ------------- 
 

Interim Consolidated Statement of Changes in Equity

For the six months ended 30 June 2023

 
                      Share        Share        Shares        Reverse      Merger       Share       Foreign       Equity      Cash     Retained        Total   Non-controlling        Total 
                    Capital      Premium          held    Acquisition     Reserve       based      exchange   investment      Flow       Profit                       interest       Equity 
                                           in treasury        Reserve                 payment       reserve      reserve     Hedge 
                                                                                      reserve                              Reserve 
                          $            $             $              $           $           $             $            $         $            $            $                 $            $ 
-----------------  --------  -----------  ------------  -------------  ----------  ----------  ------------  -----------  --------  -----------  -----------  ----------------  ----------- 
 As at 1 January 
  2022              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 
  loss                    -            -             -              -           -           -     (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 
-----------------  --------  -----------  ------------  -------------  ----------  ----------  ------------  -----------  --------  -----------  -----------  ----------------  ----------- 
 Options purchase       932      164,439     (584,150)              -           -           -             -            -                      -    (418,779)                 -    (418,779) 
 Share-based 
  payment 
  expense                 -            -             -              -           -     235,572             -            -                      -      235,572                 -      235,572 
 Share buyback            -            -      (26,177)              -           -           -             -            -                            (26,177)                 -     (26,177) 
 Purchase 
  non-controlling 
  interest                -            -             -              -           -           -             -            -               (21,983)     (21,983)          (76,017)     (98,000) 
 Profit for the 
  period                  -            -             -              -           -           -             -                           1,159,302    1,159,302           106,141    1,265,443 
 Other 
  comprehensive 
  income                  -            -             -              -           -           -      (39,164)    (215,091)   448,177            -      193,922                 -      193,922 
 As at 31 
  December 
  2022 (audited)    143,192   35,417,072   (1,139,404)   (27,758,088)   1,001,150   1,555,090   (1,504,863)    (644,213)   448,177   47,097,133   54,615,246           598,636   55,213,882 
-----------------  --------  -----------  ------------  -------------  ----------  ----------  ------------  -----------  --------  -----------  -----------  ----------------  ----------- 
 Share based 
  payment 
  expense                 -            -             -              -           -     206,319             -            -                      -      206,319                 -      206,319 
 Transaction 
  options                 -            -             -              -           -      55,013             -            -                              55,013                 -       55,013 
 Partnership 
  distribution            -            -             -              -           -           -             -            -                      -            -         (296,882)    (296,882) 
 Profit for the 
  period                  -            -             -              -           -           -             -            -              2,854,409    2,854,409           114,784    2,969,193 
 Other 
  comprehensive 
  income                  -            -             -              -           -           -       238,363    (209,923)    24,310            -       52,750                 -       52,750 
-----------------  --------  -----------  ------------  -------------  ----------  ----------  ------------  -----------  --------  -----------  -----------  ----------------  ----------- 
 As at 30 June 
  2023 
  (unaudited)       143,192   35,417,072   (1,139,404)   (27,758,088)   1,001,150   1,816,422   (1,266,500)    (854,136)   472,487   49,951,542   57,783,738           416,539   58,200,277 
-----------------  --------  -----------  ------------  -------------  ----------  ----------  ------------  -----------  --------  -----------  -----------  ----------------  ----------- 
 

Interim Consolidated Statement of Cash Flows

For the six months ended 30 June 2023

 
                                               Six months      Six months       Year ended 
                                                    ended           ended      31 December 
                                                  30 June         30 June             2022 
                                                     2023            2022 
-----------------------------------------  --------------  --------------  --------------- 
                                                        $               $                $ 
-----------------------------------------  --------------  --------------  --------------- 
                                                Unaudited       Unaudited          Audited 
 Cash flows from operating activities 
 Profit before tax                              4,235,351       3,507,063        5,504,216 
 
 Adjustments for non-cash/non-operating 
  items: 
 Depreciation of plant and equipment            1,776,887       1,559,464        3,236,683 
 Amortisation of intangible assets                416,484         429,440          968,086 
 Share based payments                             206,319         226,525          462,097 
 Interest paid                                    864,530         466,225        1,570,591 
 Interest received                              (334,049)        (21,851)        (229,550) 
-----------------------------------------  --------------  --------------  --------------- 
 Operating cash flows before movements 
  in working capital                            7,165,521       6,166,866       11,512,123 
-----------------------------------------  --------------  --------------  --------------- 
 Increase in inventories                         (43,834)        (58,504)         (81,852) 
 Increase in trade and other receivables      (1,181,758)     (4,055,364)      (2,820,793) 
 Increase/(Decrease) in trade and 
  other payables                              (1,010,504)         509,562        1,932,825 
 Cash generated by operations                   4,929,426       2,562,560       10,542,303 
-----------------------------------------  --------------  --------------  --------------- 
 Income taxes                                    (44,045)        (60,046)      (1,670,816) 
-----------------------------------------  --------------  --------------  --------------- 
 Net cash generated from operating 
  activities                                    4,885,381       2,502,514        8,871,487 
-----------------------------------------  --------------  --------------  --------------- 
 
 Cash flows from investing activities 
 Purchase of plant and equipment              (1,050,204)       (649,120)      (1,202,705) 
 Purchase of intangibles                      (1,335,772)     (1,165,452)      (2,424,395) 
 Acquisition of subsidiaries                            -     (3,850,000)      (3,850,000) 
 Reacquisition of Franchises                  (2,125,000)     (1,400,000)      (1,600,000) 
 Purchase of listed equity investment                   -               -        (153,700) 
 Purchase of non-controlling interest                   -               -         (98,000) 
 Interest received                                334,049          21,851          229,550 
-----------------------------------------  --------------  --------------  --------------- 
 Net cash used in investing activities        (4,176,927)     (7,042,720)      (9,099,250) 
-----------------------------------------  --------------  --------------  --------------- 
 
 Cash flows from financing activities 
 Share buy-back                                         -        (60,652)         (86,826) 
 Options exercised                                      -               -        (418,780) 
 Dividend paid                                          -        (37,812)         (37,812) 
 Partnership distribution                       (296,882)               -                - 
 Interest paid                                  (643,506)       (466,225)      (1,202,378) 
 Proceeds from borrowings                       3,358,458      10,057,373       12,356,696 
 Repayment of borrowings                      (2,330,903)     (1,778,343)      (3,815,204) 
 Repayment of notes                           (4,242,043)     (4,309,447)      (5,759,978) 
 Repayment of lease liabilities                 (836,825)       (759,815)      (1,595,853) 
 Net cash generated by/(used in) 
  financing activities                        (4,991,702)       2,645,079        (560,135) 
-----------------------------------------  --------------  --------------  --------------- 
 
 Net (decrease)/increase in cash 
  and cash equivalents                        (4,283,247)     (1,895,128)        (787,898) 
 Cash and cash equivalents at the 
  beginning of period                          23,014,454      23,802,352       23,802,352 
 Cash and cash equivalents at end 
  of period                                    18,731,206      21,907,224       23,014,454 
-----------------------------------------  --------------  --------------  --------------- 
 

Notes to the Interim Consolidated Financial Information

for the six months ended 30 June 2023

   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..

The Company is a public limited company domiciled in the United Kingdom and incorporated under registered number 03923150 in England and Wales. The Company's registered office is 27-28 Eastcastle Street, London, W1W 8DH.

   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 2022.

This interim consolidated financial information for the six months ended 30 June 2023 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 2022, 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 2023 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 2022 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 ($) for American Leak Detection Holding Corp. This interim consolidated financial information has been presented in US Dollars which represents the dominant economic environment in which the Group operates and is considered to be the functional currency of the Group. The effective exchange rate at 30 June 2023 was GBP1 = US$ 1.2627 (30 June 2022: GBP1 = US$ 1.2161).

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 2022.

   3      Significant events and transactions 

As detailed in Footnote 7 - "Reacquisition of franchisee territories and other acquisitions" the Group reacquired the following franchises and 3(rd) party companies: Franchises - Nashville Tennessee (7 February 2023) and as a Subsequent Event to 1H, Covina, California (23 July 2023).

   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 2023, 89.7% (1H 2022: 89.8%) of its revenue came from the US-based operations; the remaining 10.3% (1H 2022: 10.2%) 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.

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 2023     30 June 2022           2022 
                                               $                $              $ 
                                       Unaudited        Unaudited        Audited 
------------------------------   ---------------  ---------------  ------------- 
 Franchise royalty income              3,629,081        3,574,855      6,746,928 
 Franchise related activities          5,870,970        5,154,080     10,624,268 
 US corporate operated 
  locations                           25,224,557       23,267,410     47,296,711 
 International corporate 
  operated locations                   3,950,314        3,587,113      6,665,554 
-------------------------------  ---------------  ---------------  ------------- 
 Total                                38,674,922       35,583,457     71,333,461 
-------------------------------  ---------------  ---------------  ------------- 
 
 
 Profit before tax                    Six months       Six months     Year ended 
                                           ended            ended    31 December 
                                    30 June 2023     30 June 2022           2022 
                                               $                $              $ 
                                       Unaudited        Unaudited        Audited 
------------------------------   ---------------  ---------------  ------------- 
 Franchise royalty income              1,040,511          963,463      1,956,609 
 Franchise related activities            483,872          497,801        964,667 
 US corporate operated 
  locations                            4,393,824        4,462,386      8,252,651 
 International corporate 
  operated locations                     338,847           39,007         85,599 
 Unallocated head office 
  costs                              (1,490,273)      (2,035,594)    (4,915,011) 
 Non-core costs                        (531,430)        (420,000)      (840,299) 
-------------------------------  ---------------  ---------------  ------------- 
 Total                                 4,235,351        3,507,063      5,504,216 
-------------------------------  ---------------  ---------------  ------------- 
 
 
 Assets                               Six months       Six months     Year ended 
                                           ended            ended    31 December 
                                    30 June 2023     30 June 2022           2022 
                                               $                $              $ 
                                       Unaudited        Unaudited        Audited 
------------------------------   ---------------  ---------------  ------------- 
 Franchise royalty income             27,255,768       28,132,461     29,945,794 
 Franchise related activities          3,095,479        2,725,813      3,166,036 
 US corporate operated 
  locations                           50,991,843       48,408,920     47,356,148 
 International corporate 
  operated locations                  16,102,079       16,455,139     16,120,479 
-------------------------------  ---------------  ---------------  ------------- 
 Total                                97,445,168       95,722,334     96,588,457 
-------------------------------  ---------------  ---------------  ------------- 
 

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 
                                                             2023                                      2022 
                                                        Unaudited                                   Audited 
                                  US   International        Total           US   International        Total 
                                   $               $            $            $               $            $ 
-----------------------  -----------  --------------  -----------  -----------  --------------  ----------- 
 Franchise royalty 
  income                   3,577,830          51,252    3,629,081    6,636,512         110,416    6,746,928 
 Franchise related 
  activities               5,870,970               -    5,870,970   10,624,268               -   10,624,268 
 US corporate operated 
  locations               25,224,557               -   25,224,557   47,296,711               -   47,296,711 
 International 
  corporate operated 
  locations                        -       3,950,314    3,950,314            -       6,665,554    6,665,554 
-----------------------  -----------  --------------  -----------  -----------  --------------  ----------- 
 Total                    34,673,356       3,635,985   38,674,922   64,557,491       6,775,970   71,333,461 
-----------------------  -----------  --------------  -----------  -----------  --------------  ----------- 
 
   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 2023     30 June 2022           2022 
 
                                   Unaudited        Unaudited        Audited 
--------------------------   ---------------  ---------------  ------------- 
 Earnings attributable 
  to shareholders of 
  the Company ($)                  2,854,409        2,407,239      3,566,540 
 Weighted average number 
  of ordinary shares              17,358,688       17,361,439     17,360,189 
 Diluted weighted average 
  number of ordinary 
  shares                          17,911,023       18,463,573     18,554,459 
---------------------------  ---------------  ---------------  ------------- 
 Earnings per share 
  (cents)                               16.4             13.9           20.5 
---------------------------  ---------------  ---------------  ------------- 
 Diluted earnings 
  per share (cents)                     15.9             13.0           19.2 
---------------------------  ---------------  ---------------  ------------- 
 

Earnings per share are computed based on Ordinary shares. There is a class of B Ordinary Shares discussed in Footnote 6 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 2023                17,358,688        129,000    17,487,688 
At 30 June 2022                17,366,688         56,500    17,423,188 
--------------------  -------------------  -------------  ------------ 
At 31 December 2022            17,358,688        129,000    17,487,688 
--------------------  -------------------  -------------  ------------ 
 

On 6 February 2023, in lieu of compensation board members received options to purchase 105,000 New Ordinary Shares at a price of $8.18. These options have a four-year vesting requirement.

On 6 February 2023, certain vendors, retained as employees, were granted options to purchase 25,000 New Ordinary Shares at a price of $8.18 pursuant to the acquisition of a franchise acquired in 2023. These options have a four-year vesting requirement.

The net number of options including the new grants and leavers from the Company at 30 June 2023 is 2,358,000.

 
Group & Company       Share Capital    Share Premium    Shares In 
                                                         Treasury 
                            $                      $            $ 
--------------------  -------------  ---------------  ----------- 
At 30 June 2023             143,192       35,417,072  (1,139,404) 
At 30 June 2022             142,260       35,252,633    (529,077) 
--------------------  -------------  ---------------  ----------- 
At 31 December 2022         143,192       35,417,072  (1,139,404) 
--------------------  -------------  ---------------  ----------- 
 

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.

   7    Reacquisition of franchisee territories and other acquisitions in the period 

On 7 February 2023, the Group announced the reacquisition of its Nashville, Tennessee franchise territory within the Group's ALD franchise business. The acquisition is pursuant to the Group's growth strategy of creating regional hubs and adds further corporate scale to operations in the Midwest, United States. The cash consideration for the acquisition is $3.25 million based on a 2022 Adjusted Income Statement of $2.4 million in revenue and $550,000 in profit before tax and includes the transfer of all operating assets to the Group.

Subsequent Event

On 23 July 2023, the Group announced the reacquisition of its Covina, California franchise territory within the Group's ALD franchise business. The cash consideration for the acquisition is $1.5 million based on the trailing twelve months pro forma of $1.3 million in revenue and $0.3 million in profit before tax and includes the transfer of all operating assets to the Group.

   8   Publication of announcement and the Interim Results 

A copy of this announcement will be available at the Company'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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com .

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END

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

IR FLFETAIITLIV

(END) Dow Jones Newswires

September 19, 2023 02:00 ET (06:00 GMT)

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