TIDMWATR
RNS Number : 4106C
Water Intelligence PLC
10 February 2020
Water Intelligence plc
2019 Full Year Trading Results
Water Intelligence plc (AIM: WATR.L) (the "Company" 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 an
unaudited Trading Update for full year 2019. Audited results for
2019 are expected during mid-May as traditionally released.
As in prior years, the Company had a very strong 2019 as set
forth below. Based on analyst expectations, the Company's results
are approximately one year ahead of schedule and higher than market
expectations for revenue and profits before tax adjusted.
Highlights
-- Water Intelligence revenue growth was once again strong at
27% year-over-year reaching $32.4 million (2018: $25.5 million)
o Core business units - American Leak Detection (ALD) and Water
Intelligence International (WII) - each grew strongly enabling a
broader mix of residential, commercial and municipal offerings for
both clean water and waste water
-- Implied total sales to customers approximately $120 million
(implied gross sales from which franchise royalty is derived plus
direct sales from corporate locations)
o ALD revenue grew 29% to $29.1 million (2018: $22.6
million)
-- Royalty income from franchisees grew in absolute terms by 4%
to $6.5 million (2018: $6.3 million), despite continued franchise
reacquisitions reducing the pool of royalty income
-- Business-to-business insurance channel grew 41% to $7.1
million (2018: $5.0 million); Selective franchise reacquisitions
continue, increasing corporate presence for national account
implementation
-- Corporate location sales grew 44% year over year to $14.5
million (2018: $10.1 million)
o WII revenue grew 14% to $3.3 million (2018: $2.9 million)
-- Water Intelligence statutory profits before tax grew strongly
by 33% to $2.4 million (2018: $1.8 million)
o Corporate locations profit margins continue to scale to 13.5%
in 2019 from 12% in 2018 despite reinvestment to sustain 44% sales
growth
-- Water Intelligence profits before tax adjusted for non-core
costs* and non-cash amortisation expense grew 36% to $3.4 million
(2018: $2.5 million)
-- Water Intelligence Balance Sheet strong at 31 December 2019
o Cash: $5.3 million
o Net Cash: +$1.8 million (Bank Debt of $3.5 million with
amortization through 2022)
-- Technology reinvestment
o Commercial readiness of proprietary sewer diagnostic
product
o Successful launch of e-commerce and video display technology
via exclusive license from Entertainment AI plc
-- Equity Investment in Entertainment AI plc
o Capital Gain of $692,000 as of 31 December 2019
* Non-core costs include items such as legal expenses on
transactions and investments, and share-based payments
Commenting on the Group's performance, Executive Chairman, Dr.
Patrick DeSouza remarked:
"We had another strong year for all of our stakeholders. First,
our customers, especially our business-to-business national
accounts, value our service footprint across the US and ready
delivery of proprietary, minimally invasive solutions to water
leaks. Second, our franchisees support our growth plans and the
number of franchisees producing over one million in sales continues
to increase. Third, our shareholders continue to realize equity
value from our growth trajectory in terms of both sales and
profits. Global market demand for water infrastructure solutions is
only increasing and our company continues to scale.
We are pleased to underscore that over the last five years we
have produced a very strong compounded annual growth of 35% in
terms of sales and 33% in terms of profits before tax.
We look forward to communicating an ambitious next five-year
plan both at our annual franchise convention - this year in
Scottsdale Arizona - in mid-March and in the pages of our Annual
Report in May. We look forward to providing a preview at the Eighth
Annual Investor Growth Forum in London on 11 February."
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014
Enquiries:
Water Intelligence plc
Patrick DeSouza, Executive Tel: +1 203 654 5426
Chairman
Adrian Hargrave, VP
Corporate Development +44 (0) 7775 701 838
WH Ireland Limited - Tel: +44 (0) 207 220
NOMAD & Broker 1666
Adrian Hadden
James Sinclair-Ford
Matthew Chan
Dowgate Capital - Joint Tel: +44 (0)20 3903
Broker 772
Stephen Norcross
IFC Advisory Tel: +44 (0) 20 3934
6630
Graham Herring
Zach Cohen
Trading Overview. As stated in our last several Annual Reports,
our mission at Water Intelligence is to build a multinational
company whose strong growth-orientation can be sustained. As noted
above, for the last five years, our compounded annual growth in
sales has been 35% and profits before tax 33%. Global demand for
preventing water loss through infrastructure products and services
is only accelerating. We recognize that sustaining such growth
requires reinvestment through the roll-out of new solutions during
2020.
As reflected by our 2019 results, we are scaling nicely. For
2018, our statutory profits before tax grew faster than revenue
despite strong revenue growth and reinvestment. Once again, for
2019, the rate of growth in statutory profits before tax at 33%
exceeded the rate of growth of revenue at 27%; of course, we were
pleased by both. Moreover, we displayed such scaling in the context
of strong revenue growth in absolute terms to $32.4 million and
critical mass of market presence to approximately $120 million of
total sales to third parties (direct corporate sales and indirect
sales to third parties from which franchise royalty income is
derived). We have continued to reinvest to sustain future growth,
especially through new technology products being commercially
introduced during 2020. In fact, we are almost a year ahead of
schedule as reflected by expectations communicated in analyst
reports.
KPIs. The six KPIs that reflect our business plan - set forth
more fully in the Strategic Report to the Annual Accounts - were
all strongly positive during 2019. First, royalty growth from the
American Leak Detection ("ALD") Franchise System remains strong.
During 2019, ALD royalty income grew 4% to $6.5 million (2018: $6.2
million) in absolute terms despite four strategic reacquisitions
that removed royalty income from the pool: Ontario, Canada; South
Atlanta; Orlando; and Tucson. The latter two locations previously
contributed significant royalty income. The health of our franchise
system is important because its sales and execution contribute
market presence. Such reach across the United States results in an
efficient multiplier effect enabling Water Intelligence to be a
significant distribution platform for additional follow-through
sales to customers.
Second, our insurance business-to-business channel continues to
grow rapidly. During 2019, our insurance channel grew by 41% to
$7.1 million (2018: $5.0 million). We added two national accounts
which will fuel continued growth in 2020 and beyond. As noted in
the Strategic Report, the business-to-business channel reinforces
our franchise system and provides scaling by providing jobs to the
franchise system through a centralized corporate system at lower
customer acquisition costs.
Third, corporate-run operations complement our franchise system
by adding to critical mass of sales presence and execution across
the United States. During 2019 corporate-run operations grew 44% to
$14.5 million (2018: $10.1 million). These fast-growing locations
reinforce franchise operations with increased local marketing
presence. In addition, as corporate-run operations increase profit
margins while still reinvesting in growth, they unlock shareholder
value because the net profits that they produce are higher than
foregone net royalty income for doing the same execution activity
in the location. Profit margins for corporate-run locations reached
13.5% as compared to 12% in 2018.
Fourth, our UK based municipal business - Water Intelligence
International (WII) - continues to grow steadily. WII complements
ALD with utility offerings and leads our multinational growth
efforts. During 2019, WII grew revenue by 14% to $3.3 million
(2018: $2.9 million). It introduced a new municipal offering in the
U.S. building a book of business of $1 million (approximately
$500,000 executed during 2019) and helping the franchise system bid
for more municipal contracts during 2020. In addition, WII
continues to develop in Australia through its Sydney operations and
has begun to market its offerings in the EU and South Africa.
Fifth, as our business model continues to evolve from a "support
services" company to a distribution platform with a mix of
franchise locations and corporate-run locations all providing a
matrix of residential, business-to-business and municipal
solutions. Non-recurring transaction costs, especially from
franchise reacquisitions, and non-cash amortization from prior
acquisitions are part of the business plan and transformation of
the business model to create a platform company. During 2019, such
non-recurring and non-cash costs reached approximately $1 million.
When added back in a KPI to focus on on-going operating
performance, profits before tax adjusted grew 36% reaching
approximately $3.4 million.
Finally, Water Intelligence's net-borrowing position is very
favourable despite our reinvestment for future growth. In general,
the Company takes a conservative position despite a low interest
rate environment. Cash on hand at 31 December was $5.3 million. Net
cash after bank debt was $1.8 million. Bank debt is amortizable
through 2022. In the meantime, Water Intelligence continues to grow
profits (both statutory and adjusted). As noted above, statutory
profits before taxes grew 33% to $2.4 million. With its current
cash position, the Company has the financial strength to execute
its growth plan and continue with reinvestment to sustain growth
and take advantage of market demand for water infrastructure
solutions in markets around the world.
Strategic Direction.
Water Intelligence is evolving into a valuable distribution
platform for technology products and services that address water
infrastructure problems leading to water loss. We are establishing
a market presence and solutions matrix that is robust in each
segment: 46 states of the United States, serving approximately
200,000 residences and major insurance companies: across the UK
serving major water utilities; across Australia and Canada serving
a mix of residential and municipal customers. We use proprietary
acoustic and infrared technologies to pinpoint and repair water
leaks in every size pipe for the above mix of customers. Our next
step is to continue to fill-in the overlaps: layer-in municipal
work in the US; residential and insurance work in the UK and
insurance work in Australia and Canada. To be sure, we will expand
into other geographies with the full matrix of solutions.
We are executing our plan with focus. During the first half of
2019, we focused on reinforcing the scalability of our platform. To
this end, we are pleased that for the second consecutive year we
grew revenue strongly and profits before tax even more strongly. We
continued to execute reacquisitions of strategic franchises and
signed more national insurance accounts.
During the second half of 2019, we focused on our reinvestment
roadmap, especially proprietary acoustic products for wastewater
problems - a big problem that includes sanitary overflow to clean
water pipes. In strategic fashion, we helped launch Entertainment
AI with Sumitomo Corporation of Japan and leading UK investors. In
that context, we received an exclusive royalty-free technology
license for EAI's technology which will enable Water Intelligence
to provide its customers with the ability to purchase
water-related, smart home products from the web.
As we launch our next five-year plan, sales growth and market
capture will remain a priority given world-wide demand to prevent
water loss. Building on our ever-growing customer base and
multinational sales footprint, we plan to meet additional customer
demand for follow-through solutions with sales of new products and
services that fulfil our promise to be a "One Stop Shop" for
solutions to water loss.
Given market demand, the consistency of our execution and our
emphasis on sustainable growth, we are well-positioned for an
exciting next five-years and unlocking of substantial shareholder
value.
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London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
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contact rns@lseg.com or visit www.rns.com.
END
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