TIDMWATR
RNS Number : 3642D
Water Intelligence PLC
21 June 2023
Audited Results for Year Ended 31 December 2022
Water Intelligence plc (AIM: WATR.L) ("Water Intelligence" or
the "Group"), a leading multinational provider of precision,
minimally-invasive leak detection and remediation solutions for
both potable and non-potable water, is pleased to present its full,
audited results for the year ended 31 December 2022.
2022 and YTD Overview
Water Intelligence continues to perform strongly despite current
macroeconomic volatility. Market demand for the Group's water leak
detection and repair solutions remains strong reinforced by
increased public sector spending forecast in US and EU for aging
water and wastewater infrastructure.
2022
-- Adjusted 2022 FY Results (Not including one-time gain in
2021) in line with February Trading Update
o Revenues +31% to $71.3 million
o Adjusted EBITDA +20% to $12.4 million
o Adjusted PBT +12% to $7.8 million
-- In terms of market capture, 2022 Network Sales (direct
corporate sales and indirect gross sales to third parties from
which franchise royalty is derived) grew 11%, reaching
approximately $165 million (FY 2021: $148.5 million)
YTD
-- The Group recorded a strong start to 2023 as communicated in the 1Q Trading Update
-- Balance Sheet strong as at 31 May with Cash of $19.4 million
and Cash Net of Bank Debt and Deferred Acquisition Payments of
$(8.4) million, with deferred payments spread through 2027
-- Group has available cash resources for further Corporate
Development in 2023 to accelerate growth
2022 Highlights
Financial Performance
v Group Revenue increased by 31% to $71.3 million (2021: $54.5
million)
American Leak Detection subsidiary
-- Franchise royalty declined 1% to $6.7 million (2021: $6.8
million) (due to number of franchise acquisitions in 2021 reducing
the pool of franchise royalty for 2022; without acquisitions
franchise royalty would have grown 8%)
-- Franchise Related Activities (Insurance Channel) grew 9% to
$10.6 million (2021: $9.8 million)
-- US Corporate locations grew 48% to $47.3 million (2021: $31.9
million)
-- Same store sales grew 26% to $35 million (2021: $27.8 million)
Water Intelligence International subsidiary
-- International corporate locations grew 9% to $6.7 million
(2021: $6.1 million)
v EBITDA Adjusted** grew 20% to $12.4 million (2021: $10.3
million)
EBITDA* grew 16% to $11.1 million (2021: $9.5 million)
v PBT Adjusted** grew 12% to $7.8 million (2021: $6.9
million)
PBT* declined 3% to $5.5 million (2021: $5.7 million) (due to
non-cash expenses including amortization of Salesforce
implementation)
v Basic EPS Adjusted** of 29.5 cents (2021: 30.2 cents)
Fully diluted EPS Adjusted** of 27.6 cents (2021: 27.7
cents)
* EBITDA, PBT and EPS are adjusted to exclude the 2021 one-time
gain of $1.9 million to allow for like-for-like comparisons with
2021.
** EBITDA Adjusted, PBT Adjusted and EPS Adjusted all adjusted
for non-core costs and non-cash expense of share-based payments;
PBT Adjusted and EPS Adjusted also adjusted for non-cash expense of
amortization.
v Balance Sheet at 31 December 2022
-- Cash at $23 million
-- Cash net of bank debt at $6.2 million
-- Cash net of bank debt and deferred franchise acquisition
payments $(6.4) million
-- Debt and acquisition payments all spread through 2027 at a
blended fixed rate of approximately 4.9%
2022 Corporate Development:
-- Expansion of Acquisition Credit Facilities ($17 million at a
blended fixed rate of approximately 5.5% through 2027)
-- Franchise Acquisitions: Fort Worth, Texas; Midland, Texas
-- Plumbing Acquisition: Fairfield, Connecticut
-- Sale of Franchise Territory: Central North Carolina
-- Salesforce and related web applications being developed and
implemented across all US locations (automates all aspects of
workflow: scheduling and delivery; marketing followup; e-commerce;
highest level of data security in Salesforce Cloud)
-- New Service Offerings developed and commercial in 2023:
Municipal Pulse (sewer diagnostic tool) and Municipal LS1 (snapshot
survey tool)
2023 Corporate Development
-- Franchise Acquisition: Nashville, Tennessee
-- Productizing of Residential Pulse (sewer diagnostic tool)
Commenting on the Group's performance, Executive Chairman, Dr.
Patrick DeSouza remarked:
"We are pleased to deliver on our growth plan for our
stakeholders. During 2022 our team successfully navigated various
execution challenges posed by short-run inflationary shocks and
subsequent spikes in interest rates now raising concerns over a
coming recession. Despite it all, our core business remains strong
and market demand for water infrastructure solutions is only
growing as both private and public sectors recognize the adverse
effects of aging water and waste water infrastructure.
We remain confident in our strategic growth plan and competitive
strategy, especially as we realize the benefits of prior
investments in new technology solutions for our customers and
automation for our operations. Our entire team has a sense of
mission. Given increasingly adverse climate conditions - whether
droughts, freezes or flooding - our customers need us more than
ever.
We appreciate the continued support of our shareholders as we
deliver results and build a market leader."
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 Chairman Tel: +1 203 654 5426
Maria McDonald, Director, Communications Tel: +1 415 272 2459
RBC Capital Markets - Joint Broker Tel: +44 (0)207 653 4000
Rupert Walford
Elizabeth Evans
Daniel Saveski
WH Ireland Limited - NOMAD & Joint Broker Tel: +44 (0)207 220 1666
Hugh Morgan
James Bavister
Dowgate Capital Ltd - Joint Broker Tel: +44 (0)20 3903 7721
Stephen Norcross
Chairman's Statement
Overview
Over the next decade, the water and wastewater industries will
be transformed globally as a result of stresses produced by climate
change and growing populations. Both the US and EU are committed to
spending tens of billions annually to address problems of aging
water and wastewater infrastructure. In the US, the Infrastructure
Investment and Jobs Act signed in November 2022 authorizes USD$55
billion in spending on water initiatives over the next five years.
The OECD estimates that the EU over the next decade will need
additional spending of approximately EUR290 billion to meet water
and sanitation needs under Directives covering Drinking Water and
Urban Waste Water Treatment.
Water Intelligence is well-positioned to accelerate its growth
trajectory to meet such market demand. Over the last decade, the
Group has grown quickly by attacking two critical infrastructure
problems occurring across the range of residential, commercial and
municipal pipes: water loss from leakage and wastewater overflow.
Our compounded annual growth from 2017 to 2022 has been 32% in
terms of revenue and 37% in terms of statutory profit before taxes.
And we have been able to achieve this record despite various
challenges brought on by Covid and now macroeconomic volatility in
a post-Covid world.
The opportunity ahead for Water Intelligence is particularly
exciting for two reasons: First, our Group attacks these water
infrastructure problems in a differentiated way by using
proprietary technologies to provide solutions that are
minimally-invasive - akin to precision medicine but for pipes as
opposed to arteries. Second, the competitive landscape is largely
fragmented, particularly on the residential side where we are
strong and have the leading national brand in the US through our
subsidiary American Leak Detection.
Our 2022 performance reaffirms our strong foundation and our
growth plan. During 2022 Water Intelligence grew each of its
operating businesses: American Leak Detection (ALD) and Water
Intelligence International (WII). Broadly, we use the concept of
network sales ("Network Sales") to illuminate our market capture.
Network Sales measures total gross sales from all corporate
operations and franchisees. For the end-user/ customer, there is no
distinction between our franchise-delivered and corporate-delivered
services because both operate under the same ALD brand with the
same training and uniformed service and provide the same menu of
solutions. However, as an accounting matter, while corporate gross
sales are recorded directly by Water Intelligence, franchise gross
sales are only reflected indirectly on Water Intelligence IFRS
accounts as franchisee royalty income, understating the Group's
actual market presence. For 2022, Network Sales grew by 11% to $165
million (2021: $149 million).
2022 Financial Performance and KPIs .
Our IFRS Accounts follow. Water Intelligence revenue increased
31% to $71.3 million (2021: $54.5 million). We then evaluate such
progress on our growth plan through key performance indicators
(KPIs) more fully reported in our Strategic Report as part of these
Accounts. Four KPIs, identified below, reflect our execution
through franchise-operated and corporate-operated locations.
Our franchise System sales continue to grow despite the number
of reacquisitions of franchise locations during 2021. KPI #1 - ALD
royalty income - is a proxy for System-wide franchise sales.
Franchise royalty decreased 1% to $6.7 million (2021: $6.8
million). Had those same locations remained as franchises instead
of being converted to corporate stores, royalty income would have
grown by 8%. KPI #2 - Franchise-related Activity - measures Group
support of franchise growth through the sale of equipment and
additional territory and the development of channel sales such as
insurance. Franchise-related Activity grew 9% to $10.6 million
(2021: $9.8 million).
Our corporate operations also grew both in the US and
internationally even after one adjusts for franchise
reacquisitions. KPI #3 - US Corporate sales - grew 48% to $47.3
million (2021: $31.9 million). As noted above, some of the US
corporate store growth resulted from franchise reacquisitions
converting royalty income into direct revenue and profits from
corporate operations. But even if we exclude those acquired
locations in 2021 and 2022 and just consider "same store" corporate
sales, same store locations grew 26% to $35 million (2021: $27.8
million). Same store numbers, underscore a key driver of our
reacquisition strategy: corporate reacquisition provides the
location with additional working capital from the Group's more
substantial balance sheet, further accelerating growth. KPI #4 -
International Corporate sales - grew by 9% to $6.7 million (2021:
$6.1 million). It should be noted that the Group is supporting
international growth not only organically but also through
acquisitions such as UK-based Wat-er-Save Limited in Q4 2021.
Wat-er-Save enhances WII's ability in the UK to execute not only
its current municipal work but also more residential and commercial
work. It also prepares the way for an introduction into the UK
market during 2024 of our ALD brand which is more focused on
minimally-invasive residential solutions. WII, though smaller today
than ALD in terms of sales, is leading the way in commercializing
our waste water solutions technology which segment is expected to
grow strongly.
The above component lines of Group sales growth have increased
Group profits. To make a like for like comparison between 2022 and
2021 operating results, we must hold aside a one-time gain of $1.9
million during 2021. Holding that aside, earnings before interest,
taxes and depreciation (EBITDA) grew 16% to $11.1 million (2021:
$9.5 million). When EBITDA is also adjusted for non-cash expenses
of share-based payments and non-core or one-time costs, EBITDA
Adjusted increased by 20% to $12.4 million (2021: $10.3 million).
Moreover, when profit before taxes (PBT) is adjusted for
amortization, non-cash share-based payments and non-core costs,
PBTA grew 12.3% to $7.8 million (2021: $6.9 million).
As noted above, our business plan reflects not only current
market capture but also seeks to better position the Group for
future market capture through targeted investment, especially given
the forecasted growth in the addressable market for the Group's
solutions over the next decade. First, we have invested over $3
million in automating operations via Salesforce and associated
applications. This set of applications, when fully implemented,
will ensure that both franchise and corporate locations are able to
schedule and dispatch trucks more efficiently both to provide the
needed solution and then to also sell more follow-up solutions for
other homeowner needs, thus enabling Water Intelligence to scale
operations more quickly and capture more sales.
Second, to increase capture of market demand, we need to invest
in hiring and training more technicians on our proprietary
technologies. Our trained technicians are our most important
assets. Each new technician requires training of up to eighteen
months before that technician can reliably and comfortably deploy
our proprietary leak detection solutions by himself. During the
training period, the compensation expense for "technicians in
training" is largely a drag. Though an expense today, like any
asset, a fully trained technician will return significant
incremental revenue and profits each year over a career life cycle.
For 2022, we increased our investment in training headcount by
approximately $1 million.
Our strong balance sheet with available cash and a comfortable
debt repayment schedule supports our reinvestment to sustain our
growth trajectory and to increase market share. At year-end 2022,
cash stood at $23 million. Bank debt was approximately $17 million.
Deferred payments from franchise reacquisitions were approximately
$12 million. Notably, total bank debt and deferred payments from
reacquisitions (approximately $29 million) are spread through 2027
with a blended fixed interest rate of approximately 4.9%. The
amount of bank debt and deferred payments coming due in 2023 is
approximately $9.2 million and well-covered by 2023 EBITDA which is
anticipated to be above the $11.1 million generated in 2022 and the
$23 million in cash on the balance sheet at year-end 2022. Hence we
have cash resources available for further corporate
development.
Direction
We believe that market demand for our services and products will
continue to be strong despite various macroeconomic scenarios
ranging from stagflation to recession driven by higher interest
rates. Simply put, water and wastewater infrastructure continue to
age, producing leaks and blockages that cannot be ignored. We have
the asset base to deliver on our vision of a "one stop shop" for
minimally invasive solutions to aging water and waste water
infrastructure: a critical mass of approximately $165 million in
Network Sales; more than 150 operating locations from which to
scale; national business channels in the US, such as insurance,
that leverage our sales footprint; and prior investments in new
technology products for customers and business automation for
enhanced scheduling and delivery that now can be realized in
meeting increased market demand over the next decade. Onward with
confidence.
Dr. Patrick DeSouza
Executive Chairman
Strategic Report
Business Review and Key Performance Indicators
The Chairman's Statement provides an overview of the year and an
outlook for Water Intelligence plc and its subsidiaries, together
referred to as the "Group". The business indicators offered below
are meant to capture for the Board not only the state of
performance but also the evolution of our business model as a
platform company with multiple sales channels. As a "One-stop Shop"
for our growing base of customers, we offer a matrix of clean water
and waste-water solutions for residential, commercial and municipal
infrastructure problems. With such offerings, we can both
cross-sell services from different business units or up-sell
technology products from partners.
The Water Intelligence platform has two wholly-owned
subsidiaries: American Leak Detection (ALD) and Water Intelligence
International (WII). These business units generated approximately
$165 million of gross sales to third-parties during 2022. The two
subsidiaries are distinguished by the degree of franchise-operated
and corporate-operated locations and their respective priorities
with respect to residential, business-to-business and municipal
customers.
ALD, our core business, is largely a franchise business with
strategic corporate-operated locations. ALD is a leader in using
technology to pinpoint and repair water leaks without destruction.
Solutions target both residential and business-to-business
customers, such as insurance companies, which value our "minimally
invasive" value proposition. During 2022 ALD generated
approximately $158 million of gross sales to end-users. That
critical mass of gross sales is derived from direct sales via
corporate-operated locations and indirect sales measured by royalty
income from franchisees, which, in turn, is based on franchisee
gross sales to end-users.
WII, our international based operation, focuses on municipal
solutions to the world-wide problem of failing water
infrastructure. During 2022 WII generated approximately $7 million
of sales to customers. Like ALD, WII's solutions are also
technology-based. WII is exclusively a corporate-run unit that
leads the Group's international expansion. WII does have the
capability to execute ALD service offerings and is currently doing
so at our corporate-operated locations in Australia. WII also
cross-sells complementary municipal offerings and residential
wastewater solutions to ALD customers in the US.
The Group's business model and growth strategy is evaluated
through key performance indicators (KPIs). The KPIs capture both
corporate-operated and franchise-operated organic growth from ALD
and WII solutions. They also capture acquisition-led growth,
especially by selectively converting ALD franchises into
corporate-operated locations. Such re-acquisitions of franchisee
operations enable some amount of the approximately $100 million in
highly profitable franchisee gross sales to end-users, currently
recorded as royalty income, to be converted to the Group's direct
Statement of Income. In evaluating such acquisition-led growth, it
is also important to separate continuing operating costs from
non-recurring costs or transaction costs. Finally, we have a KPI
that provides guidance as to the availability of capital to execute
our growth plan. Because of the monthly recurring royalty income
from the franchise business, the Group is able to be efficient in
its capital formation by mixing in non-dilutive bank debt. As a
result, the Group manages to the right balance in capital formation
between debt and equity by monitoring the level of bank
borrowings.
Six key performance indicators (KPIs) are used by the Board to
monitor the above described business model: (i) growth in ALD
franchise royalty income, (ii) growth in ALD franchise-related
activities that include both business to business sales and sales
of parts and equipment, (iii) growth in ALD corporate-operated
locations in the United States, (iv) growth in WII corporate
activities located outside the United States, (v) non-core costs
and (vi) net borrowings from banks which are subject to financial
covenants. These six indicators are reported to the Board and used
to assist the Board in the management of the business.
Evaluation of Strategic Plan Drawn From 6 KPIs:
i. Royalty income is a measure of the health of the ALD
franchise System which represents the majority of gross sales under
the ALD brand. The change in royalty income must be evaluated
against the number of franchise reacquisitions in any given year
which reduces the pool of available royalty income for the
subsequent year.
ii. Franchise-related Activities are a measure of the services
and products sold by Corporate to its franchises to fuel growth in
the franchise System. ALD's Business-to-Business Channel leverages
for customers our national execution presence under one brand and
is led by insurance companies.
iii. ALD Corporate-operated locations add to critical mass of
Group revenue and profits. Selective reacquisitions from our
franchise System further unlock equity value for the Group in two
ways. First, reacquisitions set up corporate regional hubs from
which corporate may help grow both franchise and corporate units.
Second, reacquisitions add growing revenue and profits directly
onto the accounts of the Group.
iv. WII complements our ALD brand which is focused largely on
residential and commercial customers, by contributing municipal
sales to the Group's overall sales presence in the US and
international geographies.
v. Non-core costs (transactions costs and non-recurring costs)
should be taken into account in evaluating on-going operating
performance.
vi. Credit facilities enable the Group to fuel expansion and
preserve shareholder equity. Because of the quality of monthly
recurring royalty income, the Group is attractive to banks enabling
the Group to optimize capital formation.
(i) Franchise Royalty Income.
ALD is the Group's core business generating approximately $158
million of corporate and franchisee gross sales. During 2022
approximately $100 million of such gross sales may be attributed to
the franchise System. The Group derives royalty income from such
gross sales. There are currently 82 franchises operating in over
100 locations across 46 states of the US, with additional locations
in Australia and Canada. Some franchisees operate multiple
locations in their territory.
Part of the Group's growth strategy to unlock shareholder value
by selectively reacquiring franchises and operating the business as
a corporate location. By executing such conversions, the Group is
trading-off a portion of the pool of available royalty income to
directly aggregate and grow the underlying revenue and profits from
those locations. Royalty income in 2022 decreased in absolute terms
by 1% compared with 2021. It is important to note that this small
decline is attributable to a significant number of reacquisitions
during 2021 which had the effect of reducing the eligible pool of
royalty income for 2022. Without such reacquisitions in 2021,
royalty income would have grown 8% indicating that on a
like-for-like basis the franchise System is still growing, driven
especially by the growth of the insurance channel noted in KPI
#2.
Performance from royalty income is as follows:
Year ended Year ended
31 December 31 December
2022 2021 Change
$'000 $'000 %
----------------------------- --------------------------- -------------- --------
Total USA 6,637 6,699 (1)%
International 110 105 5%
----------------------------- --------------------------- -------------- --------
Total Group Royalty Income 6,747 6,803 (1)%
----------------------------- --------------------------- -------------- --------
Profit before tax (see note
4) 1,957 1,809 8%
----------------------------- --------------------------- -------------- --------
(ii) Franchise-related Activities.
US franchise-related activities capture what Corporate
Administration ("Corporate") does to grow the franchise System. It
is also one indication of the reinvestment of franchisees in the
Group's growth plan.
Parts and equipment sold to franchisees by Corporate enables
franchisees to further grow their respective operations. For 2022,
not captured within this subcategory are amounts paid by
franchisees for licenses to Salesforce and associated applications
($0.16 million) which is also part of their reinvestment in the
Group's growth plan. If added to the parts and equipment sales
subcategory, franchisee reinvestment in their operations grew 3% to
$0.83 million.
Business-to-Business channels, such as insurance, capture the
market demands of national customers. These customers place
significant value on ALD's nationwide brand, service
standardization and delivery footprint - an important aspect of
competitive strategy when one considers that the market for service
providers is fragmented. Jobs for franchisees are sourced by
Corporate from insurance companies using a centralized processing
system. Important to note is that national channel jobs executed by
Corporate locations are not counted in the Group's
Business-to-Business sales. Hence the 11% growth of
Business-to-Business sales understates the contribution of
insurance relationships for Network Sales.
Finally, Sales of Franchise Units represent the decision to
develop a new territory through a franchisee as opposed to
corporate operations. It should be noted that the Group's current
priority is to add corporate-operated locations as opposed to
franchisee-operated locations. Given the rising value of franchise
territory given franchise reacquisitions, demand for additional
territory is rising among franchisees. The Group reviews annually
its priority on new corporate locations as opposed to franchise
locations.
Revenue from franchise-related activities in 2022 grew by 9%
compared to 2021 largely because of the growth of the Group's
business-to-business channel. Profits before tax grew 20% in 2022
compared with 2021 largely driven by the high margin surrounding
the sale of franchise territory. Performance from franchise-related
activities are as follows:
Year ended Year ended
31 December 31 December
2022 2021 Change
$'000 $'000 %
------------------------------------ -------------- -------------- --------
Parts and equipment sales 668 806 (17)%
Business-to-Business sales 9,893 8,941 11%
Sales of Franchise Units 63 23 175%
------------------------------------ -------------- -------------- --------
Total Revenue Franchise Activities 10,624 9,770 9%
------------------------------------ -------------- -------------- --------
Profit before tax (see note
4) 965 805 20%
------------------------------------ -------------- -------------- --------
(iii) US Corporate Operated Locations (ALD).
Corporate-run locations, both greenfield and initiated after
reacquisition of franchise locations, contribute revenue and
profits to the Group. In addition, such operations also support the
franchise System with strategy, marketing and execution support in
further developing territories. Performance of US corporate-run
locations after reacquisition is also an indication of the success
of the Group's strategy to capture more market demand for our
minimally invasive leak detection and repair solutions. The Group
directly operates 41 locations, an increase of 3 locations (2021:
38).
As set forth below, ALD Corporate-operated revenue grew 48% to
$47.3 million (2021: $31.9 million). Meanwhile profits before tax
grew strongly by 37% to a $8.2 million (2021: $6.0 million). Such
growth is a result of both organic growth and the contribution of
revenue and profits from franchisees reacquired during the period.
Much like the pro forma adjustment for royalty income in KPI #1
based on the number of franchisees reacquired in the prior year, so
also we can separate out corporate locations owned prior to January
2021 so that a comparison may be made for "same store sales" as a
measure of organic growth post franchise reacquisition.
Corporate-operated "same store" revenue grew 26% to $34.9 million
(2021: $27.8 million) and profit before tax grew 13% to $5.9
million (2021: $5.2 million).
Table (iii) also enables us to illustrate the trade-off between
franchise royalty growth and corporate-operated growth by examining
yield in terms of Group profit before tax. For 2022 US corporate
locations profit before tax amounted to $8.2 million. If the Group
was a "franchise-only" business and the same $47.3 million of sales
to the same customers under the same ALD brand were executed by
franchisees, the Group would only receive approximately $0.93
million of the profit before taxes. ($47.3 million of sales
multiplied by 6.75% average royalty fee equals approximately $3.19
million of royalty income; and $3.19 million is then multiplied by
29% profit margin of royalty income - see KPI #1 - to yield $0.93
million of profit before tax to the Group). Even at a much higher
margin of managing the franchise System, corporate profits on
direct sales is higher; to be sure, depending on the location, such
yield may require additional management costs.
Performance from corporate-operated locations is as follows:
Year ended Year ended
31 December 31 December
2022 2021 Change
$'000 $'000 %
----------------------------- -------------- --- -------------- --------
Revenue 47,297 31,861 48%
Locations owned prior to
1 January 2021 34,979 27,815 26%
Profit before tax (see note
4) 8,253 6,007 37%
Locations owned prior to
1 January 2021 5,985 5,287 13%
----------------------------- -------------- --- -------------- --------
(iv) International Corporate Operated Locations (WII)
The Group continues to strengthen its multinational presence
through its UK-based WII subsidiary. WII focuses largely on
municipal solutions while maintaining core residential and
commercial offerings. In the UK, WII executes municipal work for
all major utilities and residential and commercial projects through
its Wat-er-Save subsidiary. In this way, WII has multinational
operating scope by managing corporate locations established in
Australia and Ontario, Canada after ALD franchisee
reacquisitions.
WII sales grew 9% during 2022 to $6.7 million. (2021: $6.1
million) and profits decreased by 73% to $0.09 million (2021: $0.32
million). Much of the decline in profits is attributable to
extraordinary conditions in Australia during Q1 2022 identified
below in non-core costs and initial investments in the UK
Wat-er-Save Services Limited during 1H 2022 after its acquisition
in Q4 2021.
Performance from Water Intelligence International is as
follows:
Year ended Year ended
31 December 31 December
2022 2021 Change
$'000 $'000 %
---------------------------------- -------------- -------------- --------
UK 3,437 2,384 44%
Australia 2,038 2,614 (22)%
Canada 1,191 1,111 7%
Total Revenue from International
Corporate Activities 6,666 6,109 9%
---------------------------------- -------------- -------------- --------
Profit before tax (see note
4) 86 316 (73)%
---------------------------------- -------------- -------------- --------
(v) Non-Core Costs.
During 2022, the Group incurred non-core costs relating to
transactions or non-recurring expenses. As discussed herein,
understanding non-core costs, as distinct from continuing operating
costs, helps the Board evaluate capital allocation choices made to
accelerate operations organically and to scale through acquisition.
In 2022, there were $840,000 of non-core costs (2021:
$323,000).
Please see table below for details:
Year ended Year ended
31 December 2022 31 December
2021
$'000 $'000
------------------------------------ ----------------- ------------
ADP software upgrade - 30
Technology upgrades 450 193
Transaction-related legal and other
costs 243 100
Australian flood conditions 147 -
Total 840 323
------------------------------------ ----------------- ------------
(vi) Net Bank Borrowings.
Management of financial resources is important for making
various decisions regarding the reinvestment rate for the growth of
operations. As noted herein, the monthly recurring income from
franchise royalty provides the Group with attractive attributes for
using bank debt to complement equity sources of capital. The
Group's objective for risk management purposes is to be prudent
with respect to bank financial covenants. Net cash after Bank
Borrowings is positive and amortisation of such debt extends
through 2027.
Group
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
----------------------------------- --- --- -------------- --------------
Lines of credit: acquisition and
working capital - 227
Bank borrowings 16,425 7,780
----------------------------------- ------- -------------- --------------
16,425 8,007
Less: Cash
Held in US Dollars 20,514 20,403
Held in GBP Sterling 1,779 2,570
Held in CDN Dollars 359 270
Held in AU Dollars 362 559
---------------------------------------- --- -------------- --------------
23,014 23,802
--------------------------------------- --- -------------- --------------
Total Net Bank Borrowings/(Cash) (6,589) (15,795)
---------------------------------------- --- -------------- --------------
Principal Risks and Uncertainties
The Group's objectives, policies and processes for measuring and
managing risk are described in note 23. The principal risks and
uncertainties to which the Group is exposed include:
Market Risk
The Group's activities expose it to the financial risk of
changes in foreign currency exchange rates as it undertakes certain
transactions denominated in foreign currencies. There has been no
change to the Group's exposure to market risks. The Group monitors
exposure to foreign exchange rate changes on a daily basis by a
daily review of the Group's cash balances in the US, UK, Canada and
Australia.
Interest Rate Risk
The Group's interest rate risk arises from its working capital
and term loan borrowings.
Whilst borrowing issued at variable rates would expose the Group
to cash flow risks, as at year-end, the Company is only subject to
a variable rate on its working capital line of credit. As of the
report date, all credit facilities in use are at fixed interest
rates.
Credit Risk
The Group's credit risk is primarily attributable to its cash
and cash equivalents and trade receivables. The credit risk on
other classes of financial assets is considered insignificant.
Liquidity Risk
The Group manages its liquidity risk primarily through the
monitoring of forecasts and actual cash flows.
Covid-19 Risk
2022 represented the third year of the global pandemic. Some
regulations eased while others remained. The Group delivers water
and wastewater solutions and is considered a supplier of "essential
services" under governmental policies covering shelter-in-place.
The Group continually evaluates health and safety protocols for our
technicians. The Group has sufficient cash to execute its plan and
balance work protocols for the health and safety of all our
stakeholders, especially our technicians and our customers.
Other Risks
There is a risk that existing and new customer relationships and
R&D will not lead to sales growth and increased profits. The
Group is reliant on a small number of skilled managers. The Group
is reliant on effective relationships with its franchisees,
especially in the US. Finally, while not fully apparent during
2022, there are emerging risks given the sharp rise in interest
rates during 2022 in the aftermath of inflationary pressures, The
Group is monitoring risks associated with stagflation or recession
during 2023.
Corporate Governance statement S172 of the UK's Companies
Act
Each director must act in a way that, in good faith, would most
likely promote the success of the Group for the benefit of its
stakeholders. The Board of Directors consider, both individually
and together, that they have acted in the way they consider, in
good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole (having regard to
the stakeholders and matters indicated in S172) in the decisions
taken during the year ended 31 December 2022. Following is an
overview of how the Board performed its duties during 2022.
Shareholders and Banking Relationships
The Executive Chairman, Chief Financial Officer, members of the
Board and senior executives on the management team have regular
contact with major shareholders and banking relationships. The
Board receives regular updates on the views of shareholders which
are taken into account when the Board makes its decisions. During
February 2021 and March 2022, the Group expanded its credit
facilities. During July and November 2021, the Company raised
capital largely from its current shareholders. The Group received
feedback during each process.
Employees
The Board recognizes the importance of skilled human capital for
a technology and services-led business. The Board works through its
human resources director to provide on-going training and benefits.
It also provides advancement opportunities in its various
corporate-operated locations. As noted herein, the Group has taken
a variety of steps to address the COVID-19 pandemic in terms of its
employees and stakeholders.
Franchisees
The Group holds an annual convention for its franchisees which
includes education and training sessions. During 2021, as a result
of the pandemic, the Group did not hold its Convention but rather
relied on video conference meetings. During October 2022, the Group
held its annual convention in Nashville, Tennessee. Franchisees
have an Advisory Committee that provides input to the Board with
quarterly meetings. Moreover, one of our Board members, Bobby
Knell, successfully developed the Dallas franchise and retired as
one of our leading franchisees. He provides an additional channel
for input from the franchise System. Throughout the year, the Group
continues to share best practices guidance with franchisees in
responding to various business topics including Covid-19
circumstances and now a Salesforce.com implementation.
Customers
ALD has a reputation for high quality service delivery across
the United States for over forty years. Given the importance of our
reputation with customers, especially insurance companies, the
Board pays significant levels of attention to the quality of our
service delivery. Management gathers data that it shares with the
Board on customer satisfaction.
Community and Environment
The Group's brand stands for the conservation of water and the
importance of providing solutions to potable and non-potable water
leaks. Through our advertising and marketing the Group seeks to
communicate to the public both the importance of sustainability,
particularly with respect to water loss through leakage, and the
importance for public health of remediating sewer blockages as
consumers dispose of sanitary wipes in toilets during Covid-19. The
Group took an active role not only in providing leak detection
services to local government in Flint, Michigan - a community known
for its lead in the water crisis - but also in working to educate
community members on the importance of on-going water monitoring.
The Board has sought to be active with respect to education and
water. During 2019 and 2020, members of the Board have worked with
Columbia University to contribute to its "Year of Water" education
campaign.
By order of the Board
Patrick DeSouza
Executive Chairman
Director's Report
The Directors present their report on the affairs of Water
Intelligence plc and its subsidiaries, referred to as the Group,
together with the audited Financial Statements and Independent
Auditors' report for the year ended 31 December 2022.
Principal Activities
The Group is a leading provider of minimally invasive leak
detection and remediation services for potable and non-potable
water. The Group's strategy is to be a "One-stop Shop" for services
and product solutions for residential, commercial and municipal
customers.
Results
The financial performance for the year, including the Group's
Statement of Comprehensive Income and the Group's financial
position at the end of the year, is shown in the Financial
Statements.
2022 was marked by sustained and balanced multinational growth
for both ALD and WII. Total revenue for Water Intelligence grew 31%
to $71.3 million (2021: $54.5 million). ALD revenue grew 34% to
$64.6 million (2021: $48.3 million). WII revenue grew 9% to $6.8
million (2021: $6.2 million). The splits between ALD and WI revenue
remained consistent during 2022 when compared with 2021 with
approximately 91% of total revenue attributable to ALD and 9% of
total revenue attributable to WII.
Profit-based comparisons between 2022 and 2021 need to take into
account a one-time profit before tax gain of $1.9 million in 2021.
Holding that one-time gain aside, statutory earnings before
interest, taxes and depreciation (EBITDA) grew 16% to $11.1 million
(2021: $9.5 million). When EBITDA is adjusted for non-cash expenses
of share-based payments and non-core or non-recurring costs, EBITDA
Adjusted increased by 20% to $12.4 million (2021: $10.3 million).
Statutory profit before taxes (PBT) decreased by 3% to $5.5 million
(2021: $5.7 million). When profit before taxes is adjusted for
amortization, non-cash share-based payments and non-core costs,
PBTA grew 12.3% to $7.8 million (2021: $6.9 million).
Going Concern
The Directors have prepared a business plan and cash flow
forecast for the period to December 2024. The forecast contains
certain assumptions about the level of future sales and the level
of margins achievable. These assumptions are the Directors' best
estimate of the future development of the business. The Group
generates increasing levels of cash driven by its profitable and
growing US-based business, ALD. The Directors also note that the
Group has diversified its operations with growth in WII. Moreover,
after oversubscribed capital raises in July and November 2021 and
expansion of its credit facilities in February 2021 and March 2022,
the Directors believe that funding will be available on a
case-by-case basis for additional initiatives.
Cash at 31 December 2022 was $23 million (2021: $23.8 million).
At 31 December 2022, total debt (borrowings and deferred
consideration from franchise acquisitions) was $29 million with
amortisation of such amount spread through 2027. Meanwhile,
operating cash flows (EBITDA) in 2022 increased by 16% to $11.1
million (2021: $9.5 million). Cash on the balance sheet plus an
ability to generate significant cash relative to the amount of debt
that comes due in any one year between 2023 and 2027 are important
variables for Director considerations. Moreover, the Directors
consider various scenarios that may influence cash availability
such as inflationary pressures, the threat of recession from rising
interest rates and the use of cash for investments, such as
Salesforce.com and related software applications, geared to create
operational efficiencies that enhance future organic cash
generation.
The Directors conclude that the Group will have adequate cash
resources both to pursue its growth plan and to accelerate
execution if it so chooses. The Directors are satisfied that the
Group has adequate resources to continue in operational existence
for the foreseeable future and accordingly, continue to adopt the
going concern basis in preparing the financial statements.
Research & Development; Commercialization
The Group's focus is currently on reinvestment for
commercialization of technology and technology-based products not
pure R&D. Expenditure on pure research, all of which is
undertaken by third parties not related to the Group, was $0 (2021:
$0). The Group remains committed to anticipate market demands and
has spent money on product development during the year which has
been capitalised.
Dividends
The Directors do not recommend the payment of a dividend (2021:
$nil).
Share Price
On 31 December 2022, the closing market price of Water
Intelligence plc ordinary shares was 660.0 pence. The highest and
lowest prices of these shares during the year to 31 December 2022
were 1140.0 pence and 560.0 pence respectively.
Capital Structure
Details of the authorised and issued share capital are shown in
Note 21. No person has any special rights of control over the
Company's share capital and all issued shares are fully paid.
Future Developments
Future developments are outlined throughout the Chairman's
Statement.
Financial Risk Management
Financial risk management is outlined in the principal risks and
uncertainties section of the Strategic Report.
Subsequent Events
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.
Directors
The Directors who served the Company during the year and up to
the date of this report were as follows:
Executive Directors
Patrick DeSouza - Executive Chairman
Non-Executive Directors
Laura Hills
Bobby Knell
Michael Reisman
C. Daniel Ewell
The biographical details of the Directors of the Company are set
out on the Corporate Governance section of the report and on the
Company's website www.waterintelligence.co.uk
Directors' emoluments
2022 Salary,
Fees & Bonus Benefits Redundancy Total
-------------------------
$ $ $ $
------------------------- -------------- --------- ----------- --------
Executive Directors
P DeSouza 591,473 - - 591,473
Non-Executive Directors
------------------------- -------------- --------- ----------- --------
L Hills 49,231 - - 49,231
D Ewell - - - -
B Knell - - - -
M Reisman - - - -
640,704 - - 640,704
------------------------- -------------- --------- ----------- --------
* In lieu of cash compensation, all of the directors were awarded
stock options with an exercise price of $8.18 as announced on
7, February 2023. (See Note 7) The value of the options is as
follows: P DeSouza $80k, L Hills $40k, D Ewell $40k, B Knell
$80k, M Reisman $40k, for a total of $280k. Options granted plus
cash compensation above totals $920,704 which is to be compared
to $889,385 in 2021
2021 Salary,
Fees & Bonus Benefits Redundancy Total
-------------------------
$ $ $ $
------------------------- -------------- --------- ----------- --------
Executive Directors
P DeSouza 639,381 15,004 - 654,385
L Hills 125,000 - - 125,000
Non-Executive Directors
------------------------- -------------- --------- ----------- --------
D Ewell 30,000 - - 30,000
B Knell 40,000 - - 40,000
M Reisman 40,000 - - 40,000
------------------------- -------------- --------- ----------- --------
874,381 15,004 - 889,385
------------------------- -------------- --------- ----------- --------
Directors' interests
The Directors who held office at 31 December 2022 and subsequent
to year end had the following direct interest in the voting rights
of the Company at 31 December 2022 and at the date of this report,
excluding the shares held by Plain Sight Systems, Inc.
Number of shares % held at
at 31 December 31 December Number of shares % held at
2022 2022 at 20 June 2023 20 June 2023
Patrick DeSouza*/** 4,867,110 27.83 4,867,110 27.83
Michael Reisman* 184,126 1.05 184,126 1.05
Laura Hills 122,723 0.70 122,723 0.70
Bobby Knell 27,000 0.15 27,000 0.15
Dan Ewell 33,670 0.18 33,670 0.18
---------------------- ---------- ------------- ----------------- --------------
*Included in the total above, Patrick DeSouza has (i) 180,000
Partly Paid Shares (2016), (ii) 750,000 (March 2018) (iii) 850,000
(May 2019) and (iv) 300,000 Partly Paid Shares (October 2020).
These will not be admitted to trading or carry any economic rights
until fully paid.
*Patrick DeSouza and Michael Reisman are directors and
shareholders in Plain Sight Systems, Inc.
**Patrick DeSouza's interests include 1,965,000 shares held by
The Patrick J. DeSouza 2020 Irrevocable Trust U/A Dtd 11/23/2020
and 605,936 shares held in The Patrick J. DeSouza GRAT #1 U/T/A Dtd
11/23/2020
Share option schemes
To provide incentive for the management and key employees of the
Group, the Directors award stock options. Details of the current
scheme are set out in Note 7.
Substantial Shareholders
As well as the Directors' interests reported above, the
following interests of 3.0% and above as at the date of this report
were as follows:
Number of shares % held
----------------------------- ---------------- ------
Plain Sight Systems, Inc. 2,430,410 13.90
Canaccord Genuity Group Inc. 2,134,432 12.21
Berenberg Asset Management 1,259,992 7.21
George D. Yancopoulos 880,920 5.04
Amati AIM VCT 814,660 4.66
Herald Investment Trust 642,526 3.67
----------------------------- ---------------- ------
Corporate Responsibility
The Board recognises its employment, environmental and health
and safety responsibilities. It devotes appropriate resources
towards monitoring and improving compliance with existing
standards. An Executive Director has responsibility for these areas
at Board level, ensuring that the Group's policies are upheld and
providing the necessary resources.
Employees
The Board recognises that the Group's employees are its most
important asset.
The Group is committed to achieving equal opportunities and to
complying with relevant anti-discrimination legislation. It is
established Group policy to offer employees and job applicants the
opportunity to benefit from fair employment, without regard to
their sex, sexual orientation, marital status, race, religion or
belief, age or disability. Employees are encouraged to train and
develop their careers.
The Group has continued its policy of informing all employees of
matters of concern to them as employees, both in their immediate
work situation and in the wider context of the Group's well-being.
Communication with employees is effected through the Board, the
Group's management briefings structure, formal and informal
meetings and through the Group's information systems.
Independent Auditors
Crowe UK LLP has expressed their willingness to continue in
office. In accordance with section 489 of the Companies Act 2006,
resolutions for their re-appointment and to authorise the Directors
to determine the Independent Auditors' remuneration will be
proposed at the forthcoming Annual General Meeting.
Statement of disclosure to the Independent Auditor
Each of the persons who are directors at the time when this
Directors' report is approved has confirmed that:
-- so far as that Director is aware, there is no relevant audit
information of which the Company and the Group's auditor is
unaware; and
-- that Director has taken all the steps that ought to have been
taken as a director in order to be aware of any relevant audit
information and to establish that the Company and the Group's
auditor is aware of that information.
By order of the Board
Patrick DeSouza
Executive Chairman
Corporate Governance Statement
As a Board, we believe that practicing good Corporate Governance
is essential for building a successful and sustainable business in
the long-term interests of all stakeholders. Water Intelligence's
shares are listed on AIM, a market operated by the London Stock
Exchange.
With effect from September 2018, Water Intelligence has adopted
the QCA Corporate Governance Code. The Company has adopted a share
dealing code for the Board and employees of the Company which is in
conformity with the requirements of Rule 21 of the AIM Rules for
Companies. The Company takes steps to ensure compliance by the
Board and applicable employees with the terms of such code.
The following sections outline the structures, processes and
procedures by which the Board ensures that high standards of
corporate governance are maintained throughout the Group.
Further details can be found on our website at
www.waterintelligence.co.uk/corporate-Board-and-governance.
Takeovers and Mergers
The Company is subject to The City Code on Takeovers and
Mergers.
Board
The Board, chaired by Patrick DeSouza, comprises one executive
and four non-executive directors and it oversees and implements the
Company's corporate governance program. As Chairman, Dr. DeSouza is
responsible for the Company's approach to corporate governance and
the application of the principles of the QCA Code. Michael Reisman
and Dan Ewell are the Company's independent directors. The Board is
supported by two committees: audit and remuneration. The Board does
not consider that it is of a size at present to require a separate
nominations committee, and all members of the Board are involved in
the appointment of new directors.
Each Board member commits sufficient time to fulfil their duties
and obligations to the Board and the Company. They are required to
attend at least 4 Board meetings annually and join regular Board
calls that take place between formal meetings and offer
availability for consultation when needed.
Board papers are sent out to all directors in advance of each
Board meeting including management accounts and accompanying
reports from those responsible.
Meetings held during the period between 1 January 2022 and 31
December 2022 and the attendance of directors is summarized
below:
Board meetings Audit committee Remuneration committee
Possible (attended) Possible (attended) Possible (attended)
----------------- -------------------- -------------------- -----------------------
Patrick DeSouza 6/6
Bobby Knell 5/6 2/2
Michael Reisman 5/6 2/2 2/2
Dan Ewell 5/6 2/2
Laura Hills 6/6
Board Committees
The Board has established an Audit Committee and a Remuneration
Committee with delegated duties and responsibilities.
(a) Audit Committee
Dan Ewell, Non-Executive Director, is Chairman of the Audit
Committee. The other member of the Committee is Michael Reisman.
The Audit Committee is responsible for ensuring that the financial
performance, position and prospects for the Company are properly
monitored, controlled and reported on and for meeting the auditors
and reviewing their reports relating to accounts and internal
controls.
(b) Remuneration Committee
Michael Reisman, Non-Executive Director, is Chairman of the
Remuneration Committee. The other member of the Committee is Bobby
Knell. The Remuneration Committee is responsible for reviewing
performance of Executive Directors and determining the remuneration
and basis of service agreement with due regard for the Combined
Code. The Remuneration Committee also determines the payment of any
bonuses to Executive Directors and the grant of options.
The Company has adopted and operates a share dealing code for
directors and senior employees on the same terms as the Model Code
appended to the Listing Rules of the UKLA.
Board Experience
All five members of the Board bring complementary skill sets to
the Board. One director is female and four are male. The Board
believes that its blend of relevant experience, skills and personal
qualities and capabilities is sufficient to enable it to
successfully execute its strategy. In addition, the Board receives
regular updates from, amongst others, its nominated adviser, legal
counsel and company secretary in relation to key rule changes and
corporate governance requirements, as well as regular liaison with
audit firms both in the UK and the US in respect of key disclosure
and accounting requirements for the Group, especially as accounting
standards evolve. In addition, each new director appointment is
required to receive AIM rule training from the Company's nominated
adviser at the time of their appointment.
Patrick J. DeSouza, Executive Chairman
Term of office: Appointed as Executive Chairman in July
2010.
Background and suitability for the role: Dr. DeSouza has been
Chairman of American Leak Detection since 2006 and Executive
Chairman since its reverse merger to create Water Intelligence plc
in 2010. He has 25 years of operating and advisory leadership
experience with both public and private companies in the defence,
software/Internet and asset management industries. Over the course
of his career, Dr. DeSouza has had significant experience in
corporate finance and cross-border mergers and acquisition
transactions. He has practised corporate and securities law as a
member of the New York and California bars. Dr. DeSouza has also
worked at the White House as Director for Inter-American Affairs on
the National Security Council. He is the author of Economic
Strategy and National Security (2000). He is a graduate of Columbia
College, the Yale Law School and Stanford Graduate School.
Laura Hills, Non-Executive Director
Term of office: Appointed 7 June 2021 as Executive Director but
returned to non-executive director which she originally was
appointed since 6 February 2018.
Background and suitability for the role: Laura has more than 30
years' experience as a legal professional, having spent 10 years
working for Overseas Private Investment Corporation (OPIC), where
she served as Associate General for the agency's finance program,
supervising a team of lawyers on all finance transactions ranging
from micro-lending and small business to multi-creditor
infrastructure project financing in emerging market countries. In
2002, Ms. Hills founded Hills, Stern & Morley LLP, an emerging
markets legal firm based in Washington D.C. Laura sits on the Board
of the Gerald Ford Presidential Foundation. Laura brings
considerable expertise in negotiating on infrastructure and
renewables related transactions globally. Moreover, Ms. Hills
experience with non-profits assists the Board in fulfilling its
responsibility to advance the mission of Water Intelligence to
support underserved communities globally. Laura holds
undergraduate, graduate and law degrees from Stanford
University.
Bobby Knell, Non-Executive Director
Term of office: Appointed 7 June 2021, having previously been an
executive director, non-executive director since 17 January
2019.
Background and suitability for the role: The ALD franchise
business is central to the operations and value proposition of
Water Intelligence. Bobby has served as a managing director at
Water Intelligence responsible for franchise relations for the last
four years. Prior to this role, Bobby founded and grew the Dallas
franchise of American Leak Detection into a multi-million dollar
operation, an operation now run by his son. His appointment
furthers the alignment of strategy and interests between corporate
operations and the core American Leak Detection franchise
business.
Michael Reisman, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 30 July
2010.
Background and suitability for the role: Professor Reisman
currently serves as Myres S. McDougal Professor of International
Law at the Yale Law School, where he has been on the faculty since
1965 and has previously been a visiting professor in Tokyo, Berlin,
Basel, Paris, Geneva and Hong Kong Professor Reisman is the
President of the Arbitration Tribunal of the Bank for International
Settlements and a member of the Advisory Committee on International
Law of the Department of State. He has served as arbitrator and
counsel in many international cases. He was also President of the
Inter-American Commission on Human Rights of the Organization of
American States. Because of his international legal experience and
the growing multinational character of the Company, Professor
Reisman leads matters of governance, corporate responsibility and
remuneration. He is a graduate of Yale Law School.
C. Daniel Ewell, Independent Non-executive Director
Term of office: Appointed as a non-executive director on 8 April
2021
Background and suitability for the role: Dan Ewell is currently
a Senior Advisor at Morgan Stanley, where he has worked as an
investment banker for over 33 years. Prior to assuming his current
role, Mr. Ewell served as Vice Chairman and Head of Western Region
Investment Banking for Morgan Stanley. Dan has extensive experience
in advising companies and helping them grow through capital raising
and strategic transactions. His experience spans a range of sectors
including consumer/retails, industrial, healthcare and
media/technology, and included companies with franchised business
models. As the Group continues to scale its operations
internationally, it has a need to broaden its institutional and
strategic activity in capital markets. Mr. Ewell brings
considerable expertise in this area. He is a graduate of University
of California, Berkeley, Yale Law School and Yale School of
Management.
The Group has a non-Board Chief Financial Officer, Pat Lamarco
Jr., who attends all Board meetings and reports regularly to the
Board and assists in the preparation of Board materials and in
reviewing the budget and ongoing performance.
The Company Secretary is responsible for ensuring that Board
procedures are followed and that all applicable rules and
regulations are complied with. Adrian Hargrave currently performs
the role of Company Secretary, providing an advisory role to the
Board. The Company Secretary is supported and guided in this role
by the Company's legal advisors.
The Directors have access to the Company's CFO, NOMAD, Company
Secretary, lawyers and auditors as and when required and are able
to obtain advice from other external bodies when necessary.
Board Performance and Effectiveness
The performance and effectiveness of the Board, its committees
and individual Directors is reviewed by the Chairman and the Board
an ongoing basis. Training is available should a Director request
it, or if the Chairman feels it is necessary. The performance of
the Board is measured by the Chairman and Michael Reisman, one of
the non-executive directors, with reference to the Company's
achievement of its strategic goals.
Risk Management
The Directors recognise their responsibility for the Group's
system of internal control and have established systems to ensure
that an appropriate and reasonable level of oversight and control
is provided. The Group's systems of internal control are designed
to help the Group meet its business objectives by appropriately
managing, rather than eliminating, the risks to those objectives.
The controls can only provide reasonable, not absolute, assurance
against material misstatement or loss.
The Executive Chairman with the assistance of the Company
Secretary and the Chief Financial Officer manages a risk register
for the Group that identifies key risks in the areas of corporate
strategy, financial, clients, staff, environmental and the
investment community. The Board is provided with a copy of the
register. The register is reviewed periodically and is updated as
and when necessary.
Within the scope of the annual audit, specific financial risks
are also evaluated in detail, including in relation to foreign
currency, interest rates, debt covenants, taxation and
liquidity.
The annual budget is reviewed and approved by the Board.
Financial results, with comparisons to budget and latest forecasts
are reported on a monthly basis to the Board together with a report
on operational achievements, objectives and issues encountered.
Significant variances from plan are discussed at Board meetings and
actions set in place to address them.
Approval levels for authorisation of expenditure are at set
levels throughout the management structure with any expenditure in
excess of pre-defined levels requiring approval from the Executive
Chairman and the Chief Financial Officer.
Measures continue to be taken to review and embed internal
controls and risk management procedures into the business processes
of the organisation and to deal with areas of improvement which
come to the management's and the Board's attention. We expect the
internal controls for the business to change as the business
expands both geographically and in terms of product
development.
The Company's auditors are encouraged to raise comments on
internal control in their management letter following their audit,
and the points raised and actions arising are monitored through to
completion by the Audit Committee.
Corporate Culture
Corporate Responsibility
The Board recognises its employment, environmental and health
and safety responsibilities. It devotes appropriate resources
towards monitoring and improving compliance with existing
standards. There is a professional Human Resources Director. Laura
Hills is responsible for oversight at the Board level. Ms. Hills
ensures that the Group's policies are upheld and providing the
necessary resources. All members of the Board have significant
experience in matters of public policy.
Employees
The Board recognises that the Group's employees are its most
important asset.
The Group is committed to achieving equal opportunities and to
complying with relevant anti-discrimination legislation. It is
established Group policy to offer employees and job applicants the
opportunity to benefit from fair employment, without regard to
their sex, sexual orientation, marital status, race, religion or
belief, age or disability. Employees are encouraged to train and
develop their careers. The Group has an employee handbook that is
provided to all employees upon starting their employment within the
Group.
The Group has continued its policy of informing all employees of
matters of concern to them as employees, both in their immediate
work situation and in the wider context of the Group's
well-being.
In addition, all directors and senior employees are required to
abide by the Group's share dealing code, which was updated in 2016
to reflect changes made to legislation following the introduction
of the Market Abuse Regulation.
Audit Committee Annual Review
The role of the Audit Committee is to monitor the quality of
internal controls and check that the financial performance of the
Group is properly assessed and reported on. It receives and reviews
reports from the Chief Financial Officer, other members of
management and external auditors relating to the interim and annual
accounts and the accounting and internal control systems in use
throughout the Group. The members of the Audit Committee are Dan
Ewell (Chairman) and Michael Reisman.
The Executive Chairman and Chief Financial Officer are invited
to attend parts of meetings, with other senior financial managers
required to attend when necessary. The external auditors attend
meetings to discuss the planning and conclusions of their work and
meet with the members of the Committee. The Committee is able to
call for information from management and consults with the external
auditors directly as required.
The objectivity and independence of the external auditors is
safeguarded by reviewing the auditors' formal declarations,
monitoring relationships between key audit staff and the Company
and tracking the level of non-audit fees payable to the
auditors.
The Committee met twice during the year, to review the 2021
annual accounts and the interim accounts to 30 June 2022. The
Committee reviewed with the independent auditor its judgements as
to the acceptability of the Company's accounting principles.
Remuneration Committee Annual Review
The Remuneration Committee convenes not less than once a year
and during the year it met on two occasions. The Committee
comprises Michael Reisman and Bobby Knell, with Michael Reisman as
Chairman. The Remuneration Committee is responsible for reviewing
the performance of Executive Directors and determining the
remuneration and basis of service agreement. The Remuneration
Committee also determines the payment of any bonuses to Executive
Directors and the grant of options. Where appropriate the Committee
consults the Executive Chairman regarding its proposals. No
Director plays a part in any discussion regarding his or her own
remuneration.
Relations with Shareholders
The Company is available to hold meetings with its shareholders
to discuss objectives and to keep them updated on the Company's
strategy, Board membership and management.
The Board also welcome shareholders' enquiries, which may be
sent via the Company's website www.waterintelligence.co.uk .
Statement of Directors' Responsibilities
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with the Companies Act
2006 and for being satisfied that the Financial Statements give a
true and fair view. The Directors are also responsible for
preparing the Financial Statements in accordance with UK adopted
International Accounting Standards.
Company law requires the Directors to prepare Financial
Statements for each financial period which give a true and fair
view of the state of affairs of the Company and the Group and of
the profit or loss of the Company and the Group for that period. In
preparing those Financial Statements, the Directors are required
to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company and the
Group will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements. The Directors
are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions, disclose
with reasonable accuracy at any time the financial position of the
Company and the Group, and to enable them to ensure that the
Financial Statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the Annual Report and
Financial Statements are made available on a website. Financial
Statements are published on the Group's website (
www.waterintelligence.co.uk ) in accordance with legislation in the
United Kingdom governing the preparation and dissemination of
Financial Statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Group's website
is the responsibility of the Directors. The Directors'
responsibility also extends to the ongoing integrity of the
Financial Statements contained there.
Independent Auditors' report to the members of Water
Intelligence plc
Opinion
We have audited the financial statements of Water Intelligence
plc (the "Parent Company") and its subsidiaries (the "Group") for
the year ended 31 December 2022, which comprise:
-- the Group statement of comprehensive income for the year ended 31 December 2022 ;
-- the Group and parent company statements of financial position as at 31 December 2022 ;
-- the Group and parent company statements of changes in equity for the year then ended;
-- the Group and parent company statements of cash flows for the year then ended ; and
-- the notes to the financial statements, including significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the Group and parent company financial statements is
applicable law and UK-adopted international accounting
standards.
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's and of
the Parent Company's affairs as at 31 December 2022 and of the
Group's profit for the period then ended;
-- have been properly prepared in accordance with UK-adopted
international accounting standards; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Group
and the Parent Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors' assessment of the Group's and Parent
Company's ability to continue to adopt the going concern basis of
accounting included:
-- review and challenge of management's going concern assessment
and assumptions used covering a minimum of 12 months from the date
of approval of these financial statements;
-- tested mathematical accuracy of the model used by management in their assessment;
-- discussed with management and evaluated their assessment of
the group and the company's liquidity requirement;
-- assessed the reasonableness of management's budget/forecasts,
including comparison to actual results achieved in the year;
and
-- Assessing the completeness and accuracy of the matters
described in the going concern disclosures within the significant
accounting policies as set out in Note 3.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group's and Parent Company's ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept of
materiality. An item is considered material if it could reasonably
be expected to change the economic decisions of a user of the
financial statements. We used the concept of materiality to both
focus our testing and to evaluate the impact of misstatements
identified.
Based on our professional judgement, we determined overall
materiality for the Group financial statements as a whole to be
$330,000 (2021: $398,000), based on approximately 6% of Group
profit before tax (2021: 7% of Group profit before tax after
excluding the one-off gain of $1,869,800 recognised in respect of
the PPP loan forgiveness).
Materiality for the Parent Company financial statements was
based on an asset-based figure which was restricted to $100,000
(2021: $40,400) for the parent.
We use a different level of materiality ('performance
materiality') to determine the extent of our testing for the audit
of the financial statements. Performance materiality is set based
on the audit materiality as adjusted for the judgements made as to
the entity risk and our evaluation of the specific risk of each
audit area having regard to the internal control environment. This
is set at $231,000 (2021: $298,000) for the group and $70,000 (2021
$30,300) for the parent.
Where considered appropriate performance materiality may be
reduced to a lower level, such as, for related party transactions
and directors' remuneration.
We agreed with the Audit Committee to report to it all
identified errors in excess of $16,500 (2021: $19,900). Errors
below that threshold would also be reported to it if, in our
opinion as auditor, disclosure was required on qualitative
grounds.
Overview of the scope of our audit
The Group, parent company and UK subsidiaries are accounted for
from a location in the UK, whilst its material US subsidiaries and
Australian subsidiary are accounted for from the US. Our audit was
conducted from the main operating location in the UK and component
auditors were used to perform the audit work in the US. We have
planned, controlled, and reviewed the group audit under our
direction. We have remotely reviewed the US work to carry out our
review of component auditor working papers and have met with group
management virtually .
Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
This is not a complete list of all risks identified by our
audit.
Key audit matter How the scope of our audit addressed
the key audit matter
================================== =================================================================
Revenue recognition Our audit procedures included:
Revenue is recognised in * Validating that revenue is recognised in accordance
accordance with the accounting with the accounting policies;
policy set out in the financial
statements in Note 3. The
Group has several different * Evaluating that the accounting policies are
revenue streams, some of appropriate and in accordance with International
which contain judgements, Financial Reporting Standard 15 'Revenue from
particularly in recognising Contract with Customers' and performed audit
when the performance obligations procedures to provide evidence that revenue was
have been satisfied. This accounted for in accordance with the policy;
is determined with reference
to the underlying contract
with the purchaser and the * Testing a sample of revenue transaction across the
nature of the service provided. operating companies of the Group across each revenue
stream by agreeing amounts to supporting
documentation, cash receipts and ensuring the
satisfaction of the relevant performance obligation;
and
* Assessing the appropriateness of the related
disclosures in the financial statements.
================================== =================================================================
Impairment on goodwill and
indefinite life intangible * We reviewed management's assessment of the carrying
assets value of the group's intangible assets. In
The carrying value of goodwill considering this assessment, we evaluated:
and indefinite life intangible
assets relates to goodwill
on franchisor activities, * The discounted cash-flow forecasts for the group and
goodwill on acquisitions the relevant cash generating units. This assessment
and owned stores goodwill included consideration of the key assumptions, which
for which an annual impairment principally included discount rate and growth rates
review is required to be as discussed in Note 13;
performed. Recoverability
of these involves judgement
regarding the future performance * We have checked the arithmetic accuracy of the
of the cash generating units forecast;
to which these assets are
allocated, consequently,
we consider their recoverability * Held discussion with management over plans and
to have a higher risk of intentions for the group;
material misstatement
This is set out in the financial
statements in Note 3 and * Applied stress tests to the model for reasonable
13 . possible changes in the assumptions; and
* Performed a shadow calculation of the discount rate
by our internal valuation specialist.
================================== =================================================================
Other information
The directors are responsible for the other information
contained within the annual report. The other information comprises
the information included in the annual report, other than the
financial statements and our auditor's report thereon. Our opinion
on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion based on the work undertaken in the course of our
audit
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the group and the
parent company and their environment obtained in the course of the
audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of the directors for the financial
statements
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and parent company's ability
to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud, is detailed below however the primary responsibility for the
prevention and detection of fraud lies with management and those
charged with governance of the Parent Company.
Based on our understanding of the Group and the Company and
industry, discussions with management and directors we identified
financial reporting standards and Companies Act 2006 as having a
direct effect on the amounts and disclosures in the financial
statements.
-- As part of our audit planning process, we assessed the
different areas of the financial statements, including disclosures,
for the risk of material misstatement. This included considering
the risk of fraud where direct enquiries were made of management
and those charged with governance concerning both whether they had
any knowledge of actual or suspected fraud and their assessment of
the susceptibility of fraud. We considered the risk was greater in
areas that involve significant management estimate or judgement.
Based on this assessment we designed audit procedures to focus on
the key areas of estimate or judgement, this included specific
testing of journal transactions, both at the year end and
throughout the year.
-- We used data analytic techniques to assist in identifying any
unusual transactions or unexpected relationships.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that some material misstatements of the financial
statements may not be detected, even though the audit is properly
planned and performed in accordance with the ISAs (UK).
The potential effects of inherent limitations are particularly
significant in the case of misstatement resulting from fraud
because fraud may involve sophisticated and carefully organised
schemes designed to conceal it, including deliberate failure to
record transactions, collusion or intentional misrepresentations
being made to us.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
John Charlton
(Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Statutory Auditor
London
Consolidated Statement of Comprehensive Income for the year
ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Notes $ $
-------------------------------------------- ------ --------------- ---------------
Revenue 4 71,333,461 54,543,408
-------------------------------------------- ------ --------------- ---------------
Cost of sales (9,659,600) (8,964,486)
-------------------------------------------- ------ --------------- ---------------
Gross profit 61,673,861 45,578,922
-------------------------------------------- ------ --------------- ---------------
Administrative expenses
- Other Income 130,405 69,484
- Share-based payments 7 (462,097) (442,708)
- Amortisation of intangibles 13 (968,086) (470,226)
- Other administrative costs (53,528,825) (38,131,195)
) )
-------------------------------------------- ------ --------------- ---------------
Total administrative expenses (54,828,603) (38,974,645)
-------------------------------------------- ------ --------------- ---------------
Operating profit 6,845,258 6,604,277
PPP loan forgiveness 23 - 1,869,800
Finance income 8 229,550 51,092
Finance expense 9 (1,570,592) (969,130)
-------------------------------------------- ------ --------------- ---------------
Profit before tax 5,504,216 7,556,039
Taxation expense 10 (1,837,737) (1,641,350)
-------------------------------------------- ------ --------------- ---------------
Profit for the year 3,666,479 5,914,689
Attributable to:
Equity holders of the parent 3,566,540 5,764,952
Non-controlling interests 99,939 149,737
-------------------------------------------- ------ --------------- ---------------
3,666,479 5,914,689
Other Comprehensive Income
Subsequently reclassified to the P&L
Exchange differences arising on translation
of foreign operations (409,371) (221,281)
Cash flow hedge movement 448,177 -
Not subsequently reclassified to the
P&L
Fair value adjustment on listed equity
investment (net of deferred tax) (690,885) (300,049)
Total comprehensive profit for the year 3,014,400 5,393,359
-------------------------------------------- ------ --------------- ---------------
Attributable to:
Equity holders of the parent 2,914,461 5,243,622
Non-controlling interests 99,939 149,737
-------------------------------------------------- --------- ---------
3,014,400 5,393,359
Profit per share attributable to equity holders Cents Cents
of Parent
-------------------------------------------------- --------- ---------
Basic 11 20.5 36.1
Diluted 11 19.2 33.3
Basic adjusted for PPP loan
forgiveness 11 20.5 24.4
Diluted adjusted for PPP
loan forgiveness 11 19.2 22.5
--------------------------------------------- --- --------- ---------
The results reflected above relate to continuing activities.
Consolidated Statement of Financial Position as at 31 December
2022
Notes 2022 2021
$ $
ASSETS
Non-current assets
Goodwill and indefinite life
intangible assets 13 44,966,672 37,268,469
Listed equity investment 24 474,613 1,185,039
Other intangible assets 13 6,019,360 3,818,037
Interest rate swap 23 448,177 -
Property, plant and equipment 14 9,224,955 7,807,227
Trade and other receivables 17 287,572 429,219
-------------
61,421,349 50,507,991
---------------------------------------- ------ ------------- -------------
Current assets
Inventories 16 759,070 677,218
Trade and other receivables 17 11,393,584 8,379,894
Cash and cash equivalents 18 23,014,454 23,802,352
------ -------------
35,167,108 32,859,464
---------------------------------------- ------ ------------- -------------
TOTAL ASSETS 96,588,457 83,367,455
---------------------------------------- ------ ------------- -------------
EQUITY AND LIABILITIES
Equity attributable to holders
of the parent
Share capital 21 143,192 142,260
Share premium 21 35,417,072 35,252,633
Shares held in treasury 21 (1,139,404) (468,427)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 1,555,090 1,092,993
Foreign exchange reserve (1,504,863) (1.095.492)
Reverse acquisition reserve 21 (27,758,088) (27,758,088)
Equity investment reserve (644,213) 46,672
Cash flow hedge reserve 448,177 -
---------------------------------------- ------ ------------- -------------
Retained earnings 47,097,133 43,552,575
---------------------------------------- ------ ------------- -------------
54,615,246 51,766,276
---------------------------------------- ------ ------------- -------------
Equity attributable to Non-Controlling
interest
---------------------------------------- ------ ------------- -------------
Non-controlling Interest 598,636 612,528
---------------------------------------- ------ ------------- -------------
Non-current liabilities
Borrowings 23 15,334,813 8,176,893
Deferred consideration 12 7,164,421 8,220,613
Deferred tax liability 20 1,915,581 1,576,872
24,414,815 17,974,378
---------------------------------------- ------ ------------- -------------
Current liabilities
Trade and other payables 19 6,331,107 4,194,031
Borrowings 23 5,519,560 3,325,579
Deferred consideration 12 5,109,093 5,494,663
16,959,760 13,014,273
---------------------------------------- ------ ------------- -------------
TOTAL EQUITY AND LIABILITIES 96,588,457 83,367,455
---------------------------------------- ------ ------------- -------------
Company Statement of Financial Position as at 31 December
2022
2022 2021
Notes $ $
ASSETS
Non-current assets
Investment in subsidiaries 15 6,626,279 7,411,852
Trade and other receivables 17 22,605,908 23,270,653
Listed equity investment 24 474,613 1,185,039
---------------------------------- ------------------------ ---------------- ----------------
29,706,800 31,867,544
---------------------------------- ------------------------ ---------------- ----------------
Current assets
Trade and other receivables 17 4,349,554 4,781,282
Cash and cash equivalents 18 1,384,624 1,865,798
---------------------------------- ------------------------ ---------------- ----------------
5,734,178 6,647,080
---------------------------------- ------------------------ ---------------- ----------------
TOTAL ASSETS 35,440,978 38,514,624
---------------------------------- ------------------------ ---------------- ----------------
EQUITY AND LIABILITIES
Equity attributable to holders of
the parent
Share capital 21 143,192 142,260
Share premium 21 35,417,072 35,252,633
Shares held in treasury 21 (1,139,403) (468,427)
Merger reserve 1,001,150 1,001,150
Share based payment reserve 1,555,090 1,092,993
Foreign exchange reserve (3,269,732) (1,834,431)
Equity investment reserve (644,213) 46,672
Retained earnings 2,406,266 3,154,925
---------------------------------- ------------------------ ---------------- ----------------
35,469,422 38,387,775
---------------------------------- ------------------------ ---------------- ----------------
Non-current liabilities
(5,777)
Deferred tax liability (174,699) 77,943
---------------------------------- ------------------------ ---------------- ----------------
(174,699) (5,777)
Current liabilities
Trade and other payables 19 146,255 132,626
---------------------------------- ------------------------ ---------------- ----------------
146,255 132,626
---------------------------------- ------------------------ ---------------- ----------------
TOTAL EQUITY AND LIABILITIES 35,440,978 38,514,624
---------------------------------- ------------------------ ---------------- ----------------
Consolidated Statement of Cash Flows for the Year Ended 31
December 2022
Year ended Year ended
31 December 31 December
2022 2021
$ $
----------------------------------------------------- --------------- -----------------
Cash flows from operating activities
Profit before tax 5,504,216 7,556,039
Adjustments for non-cash/non-operating items:
Depreciation of plant and equipment 3,236,683 2,475,069
Amortisation of intangible assets 968,086 470,226
Share based payments 462,097 442,708
PPP loan forgiveness - (1,869,800)
Finance costs 1,570,591 969,130
Finance income (229,550) (51,092)
----------------------------------------------------- --------------- ---------------
Operating cash flows before movements in working
capital 11,512,123 9,992,280
----------------------------------------------------- --------------- ---------------
Increase in inventories (81,852) (232,427)
Increase in trade and other receivables (2,820,793) (1,924,070)
(Decrease) / Increase in trade and other payables 1,932,825 (684,619)
----------------------------------------------------- --------------- ---------------
Cash generated by operations 10,542,303 7,151,164
----------------------------------------------------- --------------- ---------------
Income taxes paid (1,670,816) (1,021,648)
Net cash generated from operating activities 8,871,487 6,129,516
Cash flows from investing activities
Purchase of plant and equipment (1,202,705) (517,707)
Purchase of intangible assets (2,424,395) (2,078,559)
Acquisition of subsidiaries (3,850,000) (979,782)
Reacquisition of franchises (1,600,000) (5,239,558)
Purchase of listed equity investment (153,700) -
Purchase of non-controlling interest (98,000) -
Finance income 229,550 51,092
----------------------------------------------------- --------------- ---------------
Net cash used in investing activities (9,099,250) (8,764,514)
----------------------------------------------------- --------------- ---------------
Cash flows from financing activities
Issue of ordinary share capital - 21,291
Premium on issue of ordinary share capital - 22,185,641
Share buyback (86,826) (466,551)
Sale of treasury shares - 559,469
Options exercised (418,780) 714,950
Dividend paid to non-controlling interest (37,812) -
Finance costs (1,202,378) (969,130)
Proceeds from borrowings 12,356,696 3,200,000
Repayment of borrowings (3,815,204) (1,827,765)
Repayment of notes (5,759,978) (2,350,676)
Repayment of lease liabilities (1,595,853) (1,448,594)
Net cash (used)/generated from financing activities (560,135) 19,618,635
----------------------------------------------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents (787,898) 16,983,637
----------------------------------------------------- --------------- ---------------
Cash and cash equivalents at the beginning
of year 23,802,352 6,818,715
----------------------------------------------------- --------------- ---------------
Cash and cash equivalents at end of year 23,014,454 23,802,352
----------------------------------------------------- --------------- ---------------
Company Statement of Cash Flows for the Year Ended 31 December
2022
Year ended Year ended
31 December 31 December
2022 2021
$ $
---------------------------------------------------- -------------- --------------
Cash flows from operating activities
Loss before tax (748,659) (808,865)
Adjustments for non-cash/non-operating
items:
Share based payment expense 462,097 442,708
---------------------------------------------------- -------------- --------------
Operating cash flows before movements
in working capital (286,562) (366,157)
---------------------------------------------------- -------------- --------------
Decrease/(Increase in trade and other receivables) 1,096,473 (20,934,141)
(Decrease)/Increase in trade and other
payables (631,779) (215,442)
---------------------------------------------------- -------------- --------------
Cash used by operations 178,132 (21,515,740)
---------------------------------------------------- -------------- --------------
Income taxes paid - -
---------------------------------------------------- -------------- --------------
Net cash used by operating activities 178,132 (21,515,740)
---------------------------------------------------- -------------- --------------
Cash flows from investing activities
---------------------------------------------------- -------------- --------------
Purchase of listed equity investment (153,700) -
Net cash used in investing activities (153,700) -
---------------------------------------------------- -------------- --------------
Cash flows from financing activities
Issue of ordinary share capital - 21,291
Premium on issue of ordinary share capital - 22,185,641
Share buyback (86,826) (466,551)
Sale of treasury shares - 559,469
Options exercised (418,780) 714,950
---------------------------------------------------- -------------- --------------
Net cash generated from financing activities (505,606) 23,014,800
---------------------------------------------------- -------------- --------------
(Decrease)/Increase in cash and cash equivalents (481,174) 1,499,060
---------------------------------------------------- -------------- --------------
Cash and cash equivalents at the beginning
of period 1,865,798 366,738
---------------------------------------------------- -------------- --------------
Cash and cash equivalents at end of period 1,384,624 1,865,798
---------------------------------------------------- -------------- --------------
Notes to the Financial Statements
1 General information
The Group is a leading provider of minimally invasive, leak
detection and remediation services for potable and non-potable
water. The Group's strategy is to be a "One-stop Shop" of water
leak and repair solutions (services and products) for residential,
commercial and municipal customers.
The Company is a public limited company limited by shares.
Domiciled in the United Kingdom and incorporated under registered
number 03923150 in England and Wales. The Company's registered
office is 27-28 Eastcastle Street, London W1W 8DH.
The Company is listed on AIM of the London Stock Exchange. These
Financial Statements were authorised for issue by the Board of
Directors on 20 June 2023.
2 Adoption of a new International Financial Reporting Standards
No new standards and interpretations issued by the IASB had a
significant impact on the consolidated financial statements.
Standards, amendments, and interpretations to published
standards not yet effective
The Directors have considered those standards and
interpretations, which have not been applied in the financial
statements but are relevant to the Group's operations, that are in
issue but not yet effective and do not consider that they will have
a material impact on the future results of the Group
3 Significant accounting policies
Basis of preparation
These Financial Statements of the Group and Company are prepared
on a going concern basis, under the historical cost convention and
in accordance with UK adopted International Accounting Standards
(IFRS). The Parent Company's Financial Statements have also been
prepared in accordance with UK adopted International Accounting
Standards as applied by the Companies Act 2006.
The preparation of Financial Statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The Financial Statements are presented in US Dollars ($),
rounded to the nearest dollar.
Going concern
Cash at 31 December 2022 was $23 million (2021: $23.8 million).
At 31 December 2022, total debt (borrowings and deferred
consideration from franchise acquisitions) was $29 million with
amortisation of such amount spread through 2027. Meanwhile,
operating cash flows (EBITDA) in 2022 increased by 16% to $11.1
million (2021: $9.5 million). Cash on the balance sheet plus an
ability to generate significant cash relative to the amount of debt
that comes due in any one year between 2023 and 2027 are important
variables for Director considerations. Moreover, the Directors
consider various scenarios that may influence cash availability
such as inflationary pressures, the threat of recession from rising
interest rates and the use of cash for investments, such as
Salesforce.com and related software applications, geared to create
operational efficiencies that enhance organic cash generation.
The Directors conclude that the Group will have adequate cash
resources both to pursue its growth plan and to accelerate
execution if it so chooses. The Directors are satisfied that the
Group has adequate resources to continue in operational existence
for the foreseeable future and accordingly, continue to adopt the
going concern basis in preparing the financial statements.
Basis of consolidation
The Group financial statements consolidate the accounts of Water
Intelligence plc and all of its subsidiary undertakings made up to
31 December 2022. The Consolidated Statement of Comprehensive
Income includes the results of all subsidiary undertakings for the
period from the date on which control passes. Control is achieved
where the Group (or one of its subsidiary undertakings) obtains the
power to govern the financial and operating policies of an investee
entity so as to derive benefits from its activities.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
excess of the cost of acquisition over the fair value of the
Group's share of the identifiable net assets acquired is recorded
as goodwill. If the cost of acquisition is less than the fair value
of the net assets of the subsidiary acquired, the difference is
recognised directly in the income statement.
The acquisition of ALDHC in 2010 was accounted for as a reverse
acquisition. The assets and liabilities revalued at their fair
value on acquisition therefore related to the Company. Both a
merger reserve and a reverse acquisition reserve were created to
enable the presentation of a consolidated statement of financial
position which combines the equity structure of the legal parent
with the reserves of the legal subsidiary.
Inter-company transactions and balances and unrealised gains or
losses on transactions between Group companies are eliminated in
full.
Parent Company income statement - UK head office only
The Company has taken advantage of Section 408 of the Companies
Act 2006 in not presenting its own Statement of Comprehensive
Income. The Company's loss after tax for the year ended 31 December
2022 is $748,658 (2021: $808,865).
Inventories
The inventories, consisting primarily of equipment, parts, and
supplies, are recorded at the lower of cost (FIFO) or net
realisable value.
Defined contribution pension scheme
Water Intelligence International provides a government run
pension scheme under UK legislation. Employees have the opportunity
to opt in or opt out. It is compulsory for companies to offer this
to their employees. This was implemented on 1 November 2017.
Taxation
Income tax expense represents the sum of the current tax and
deferred tax charge for the year.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the
Statement of Comprehensive Income because it excludes items of
income or expense that are taxable or deductible in other periods
and it further excludes items that are never taxable or deductible.
The Group's and Company's liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by
the year end.
Deferred tax
Deferred income taxes are provided in full, using the liability
method, for all temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the
Financial Statements. Deferred income taxes are determined using
tax rates that have been enacted or substantially enacted and are
expected to apply when the related deferred income tax asset is
realised or the related deferred income tax liability is
settled.
The principal temporary differences arise from depreciation or
amortisation charged on assets and tax losses carried forward.
Deferred tax assets relating to the carry forward of unused tax
losses are recognised to the extent that it is probable that future
taxable profit will be available against which the unused tax
losses can be utilised. The carrying amount of deferred tax assets
is reviewed at each balance sheet date and reduced to the extent
that it is probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Foreign currencies
(i) Functional and presentational currency
Items included in the Financial Statements are measured using
the currency of the primary economic environment in which each
entity operates
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the income statement.
(ii) Group Companies
The results and financial position of all the Group entities
that have a functional currency different from the presentational
currency are translated into the presentational currency as
follows:
(a) assets and liabilities for each statement of financial
position presented are translated at closing rate at the date of
the statement;
(b) the income and expenses are translated at average exchange
rates for period where there is no significant fluctuation in
rates, otherwise a more precise rate at a transaction date is used;
and
(c) all resulting exchange differences are recognised in other comprehensive income.
Leases
The Group recognizes a right-of-use asset and a lease liability
at the lease commencement date. The right of use lease is initially
measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before
commencement date plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the underlying asset. The
right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of
the useful life of the right-of-use asset or the end of the lease
term. The lease liability is initially measured at the present
value of the lease payments that are not paid at the commencement
date discounted using the Group incremental borrowing rate.
Revenue recognition
IFRS 15 (Revenue from Contracts with Customers) came into effect
on 1 January 2018. Under IFRS 15, revenue is recognized when a
customer obtains control of a good or service and thus has the
ability to direct the use and obtain the benefits from the good or
service.
Nature of the Business
Water Intelligence plc operates through two wholly-owned
subsidiaries: American Leak Detection (ALD) and Water Intelligence
International (WII). Both subsidiaries provide precision water leak
detection and repair services. The services that are performed for
various customers are discrete activities - locating a water leak
or fixing a leak. The services are not bundled. Each service has a
price established in a rate book. Depending on customer preference,
a service technician may stop after locating the leak. The customer
would pay a fee for that service. Or following the leak detection
service, the technician may also provide repair services for
separate fee depending on what is contracted for by the customer.
Service jobs are typically short in duration, usually 1-2 hours for
a leak detection service. ALD delivers these services through
corporate locations and franchise locations across the United
States and in Canada and Australia. WII operates outside the United
States, mainly in the UK, and delivers services only through
corporate locations.
Customers and Sources of Revenue
Residential .
Both ALD and WII provide services to residential customers.
Service technicians, whether from franchise-operated locations or
corporate-operated locations, provide services to homeowners. When
the service is delivered, the homeowner is invoiced immediately
upon completion of the service. The price of the service is a fixed
call-out charge for the technician to come to the house and an
hourly charge based on the time it takes to find the leak. Revenue
is recognized upon completion of the service.
Business-to-Business .
ALD has written national contracts with nationwide insurance
companies. The insurance company, as ALD's customer, receives
claims from homeowners or property management for water-related
damage. The insurance company contracts directly with ALD
headquarters. ALD headquarters, as the principal, takes liability
risk for performance of the service jobs and for providing to
insurance companies certain management services. A national price
book is established as part of the national contract. After the
leak detection service is performed, report from ALD headquarters
is delivered to the insurance company and the insurance company is
also invoiced for the job. Service is deemed complete upon delivery
of the report and invoice. Revenue is recognized upon delivery of
the report and invoice.
Municipal .
WII headquarters or ALD headquarters will contract with a
municipality to provide leak detection services. Such leak
detection services largely consist of surveying kilometers of pipe.
During such surveys, a designated distance is covered each day with
a daily rate per technician per kilometer covered. A report is
prepared for the municipality weekly. When the report is delivered,
the service is deemed complete with respect to the distance
covered. The municipality will be billed for the week's work when
the report is conveyed. Revenue is recognized upon the delivery of
the report.
Franchise Sales, Equipment and On-going Royalty Payments .
ALD is a franchisor and leak detection services are delivered
not only by corporate-operated locations but also by ALD's
franchise System. Franchisees are independently owned and
operated.
The franchise System has the following characteristics for
revenue recognition. ALD sells franchises to third parties. A
franchise is an exclusive territory in which a franchisee is
authorized to deliver ALD services, mainly leak detection and
repair. ALD headquarters provides training and advice to support
the delivery of services by franchisees.
The franchise sale is documented by means of a ten-year license
agreement that is renewable for ten-year increments based on
certain conditions derived from franchisee performance. The
agreement has three main components. First, the agreement provides
for the payment of an upfront fee in exchange for the exclusive
territory and training. The upfront fee is non-refundable. ALD
revenue is recognized with respect to most of the upfront fee at
the Closing of the franchise sale. The remaining portion of the
upfront fee is recognized as revenue over time using a
straight-line method to reflect the delivery of franchisor services
over the ten-year period. Second, the franchise agreement provides
that the franchisee may purchase proprietary equipment from ALD and
more general equipment from ALD-approved third parties. There is a
price book. ALD revenue is recognized upon the delivery of
equipment to franchisees and an invoice for the equipment. Third,
in accordance with the franchise license agreement, each franchise
pays a royalty fee to ALD each month based on a percentage
of the franchisee's gross sales for that month. Each month, a
franchise files a royalty report and pays the royalty amount. ALD
revenue is recognized upon the receipt of the royalty report.
In respect of the sale of franchise territories, the Group will
monitor on an ongoing basis the correct apportionment for each such
sale between recognition of upfront fees and fees which are
deferred over the length of the franchise agreement. This year such
sales were not a material part of the Group's revenue or
income.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group's statement of financial position when the Group becomes a
party to the contractual provisions of the instrument.
Investments in equity instruments are initially designated at
FVTOCI and are initially measured at fair value plus transaction
costs. Subsequently, they are measured at fair value with gains and
losses arising from changes in fair value recognised in other
comprehensive income and accumulated in the investment's
revaluation reserve. The cumulative gain or loss is not
reclassified to profit or loss on disposal of the equity
investments, instead, it is transferred to retained earnings.
The Group enters into a variety of derivative financial
instruments to manage its exposure to interest rate, including
interest rate swaps.
Derivatives are recognised initially at fair value at the date a
derivative contract is entered into and are subsequently remeasured
to their fair value at each reporting date. The resulting gain or
loss is recognised in profit or loss immediately unless the
derivative is designated and effective as a hedging instrument, in
which event the timing of the recognition in profit or loss depends
on the nature of the hedge relationship.
Loans and receivables
Trade receivables, loans, and other receivables held with the
objective to collect the contractual cash flows are classified as
subsequently measured at amortised cost. These are initially
measured at fair value plus transaction costs. At each period end,
there is an assessment of the expected credit loss in accordance
with IFRS 9, with any increase or reduction in the credit loss
provision charged or released to other selling and administrative
expenses in the statement of comprehensive income.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held
at call with banks, and other short term highly liquid investments
with original maturities of three months or less.
Impairment of financial assets
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The expected
cash flows will include cash flows from the sale of collateral held
or other credit enhancements that are integral to the contractual
terms.
The Group always recognises lifetime ECLs for trade receivables
and contract assets. ECLs on these financial assets are estimated
using a provision matrix based on the Group's historical credit
loss experience, adjusted for factors that are specific to the
debtors, general economic conditions and an assessment of both the
current as well as the forecast conditions at the reporting date,
including time value of money where appropriate.
For all other financial instruments, the Group recognises
lifetime ECL when there has been a significant increase in credit
risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial
recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12 -- month ECL.
Financial liabilities
Financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs and are
subsequently measured at amortised cost using the effective
interest method.
Equity instruments
An equity instrument is any instrument with a residual interest
in the assets of the Company after deducting all of its
liabilities. Equity instruments (ordinary shares) are recorded at
the proceeds received, net of direct issue costs.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire.
Property, plant and equipment
All property, plant and equipment is stated at cost less
accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows:
Equipment and displays: 5 to 7 years
Motor vehicles: 5 years
Leasehold improvements: 7 years or lease term, whichever is shorter
The asset's residual values and economic lives are reviewed, and
adjusted if appropriate, at each reporting date. An asset's
carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated
recoverable amount. Assets that are no longer of economic use to
the business are retired.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised within other
(losses) or gains in the income statement.
Goodwill
Goodwill represents the excess of the fair value of the
consideration over the fair values of the identifiable net assets
acquired.
Goodwill arising on acquisitions is not subject to amortisation
but is subject to annual impairment testing. Any impairment is
recognised immediately in the Consolidated Statement of
Comprehensive Income and not subsequently reversed.
Other intangible assets
Intangible assets are recorded as separately identifiable assets
and recognised at historical cost less any accumulated
amortisation. These assets are amortised over their definite useful
economic lives on the straight-line method.
Amortisation is computed using the straight-line method over the
estimated definite useful lives of the assets as follows:
Years
Covenants not to compete 1-6
Customer lists
5
Salesforce CRM platform
5
Trademarks
20
Patents
10
Product development
4
Any amortisation is included within administrative expenses in
the statement of comprehensive income.
Intangible assets with indefinite useful lives are not
amortised, but are tested for impairment annually, either
individually or at the cash-generating unit level. The assessment
of indefinite life is reviewed annually to determine whether the
indefinite life continues to be supportable. If not, the change in
useful life from indefinite to finite is made on a prospective
basis.
The asset's residual values and economic lives are reviewed, and
adjusted if appropriate, at each balance sheet date. An asset's
carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised within other
(losses) or gains in the Statement of Comprehensive Income.
Research and development
Research expenditure is recognised as an expense when incurred.
Costs incurred on development projects (relating to the design and
testing of new or improved products) are recognised as intangible
assets when the following criteria are fulfilled.
-- It is technically feasible to complete the intangible asset
so that it will be available for use or resale;
-- Management intends to complete the intangible asset and use or sell it;
-- There is an ability to use or sell the intangible;
-- It can be demonstrated how the intangible asset will generate
possible future economic benefits;
-- Adequate technical, financial and other resource to complete
the development and to use or sell the intangible asset are
available; and
-- The expenditure attributable to the intangible asset during
its development can be reliably measured.
Other development expenditures that do not meet these criteria
are recognised as an expense in the period incurred. Development
costs previously recognised as an expense are not recognised as an
asset in a subsequent period. Capitalised development costs are
recorded as intangible assets and are amortised from the point at
which they are ready for use on a straight-line basis over the
asset's estimated useful life.
Segment reporting
A business segment is a group of assets and operations engaged
in providing products or services that is subject to risks and
returns that are different from those of other business
segments.
Impairment reviews
Assets that are subject to amortisation and depreciation are
reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be fully recoverable.
Assets that are not subject to amortisation and depreciation are
reviewed on an annual basis at each year end and, if there is any
indication that an asset may be impaired, its recoverable amount is
estimated. The recoverable amount is the higher of its net selling
price and its value in use. Any impairment loss arising from the
review is charged to the Statement of Comprehensive Income whenever
the carrying amount of the asset exceeds its recoverable
amount.
Share based payments
The Group has made share-based payments to certain Directors and
employees and to certain advisers by way of issue of share options.
The fair value of these payments is calculated either using the
Black Scholes option pricing model or by reference to the fair
value of any fees or remuneration settled by way of granting of
options. The expense is recognised on a straight-line basis over
the period from the date of award to the date of vesting, based on
the best estimate of the number of shares that will eventually
vest.
Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with UK
adopted International Accounting Standards.requires the use of
judgements together with accounting estimates and assumptions that
affect the reported amounts of assets and liabilities and the
reported amounts of income and expenses during the reporting
period. Although these judgements and estimates are based on
management's best knowledge of current events and actions, the
resulting accounting treatment estimates will, by definition,
seldom equal the related actual results.
The key judgements in respect of the preparation of the
financial statements are in respect of the accounting for
acquisitions, determination of separately identifiable assets on
acquisition, the determination of cash generating units, the
evaluation of segmental information, the evaluation of whether
there is any indication of any impairment in investments,
intangibles, goodwill or receivables and whether deferred tax
assets should be recognized for tax losses.
The estimates and assumptions that have a risk of causing
material adjustment to the carrying amounts of assets and
liabilities within the next financial year are the fair value of
assets arising on acquisition (see note 12), carrying value of the
goodwill, the carrying value of the other intangibles (see note 13)
and the carrying value of the investments. Please see relevant
notes for these areas.
4 Segmental Information
In the opinion of the Directors, the operations of the Group
currently comprise five operating segments, being (i) Franchise
royalty income, (ii) Franchise-related activities (including
product and equipment sales, business-to-business sales and sales
of franchises), (iii) US corporate operated locations, (iv)
International corporate operated locations and (v) Head office
costs. Information reported to the Group's Chief Operating Decision
Maker (being the Executive Chairman), for the purpose of resource
allocation and assessment of division performance is now separated
into the four income generating segments (items (i) to (iv)), and
items that do not fall into these segments have been categorized as
unallocated head office costs (v).
The Group mainly operates in the US, with operations in the UK
and certain other countries especially Canada and Australia. No
single customer accounts for more than 10% of the Group's total
external revenue.
The following is an analysis of the Group's revenues and profits
from operations and assets by business segment.
Revenue Year ended Year ended
31 December 31 December
2022 2021
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 6,746,928 6,803,489
Franchise related activities 10,624,268 9,769,657
US corporate operated locations 47,296,711 31,861,087
International corporate operated locations 6,665,554 6,109,175
-------------------------------------------- ------------ ------------
Total 71,333,461 54,543,408
-------------------------------------------- ------------ ------------
Profit/(Loss) before tax Year ended Year ended
31 December 31 December
2022 2021
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 1,956,609 1,808,730
Franchise related activities 964,667 805,171
US corporate operated locations 8,252,651 6,007,153
International corporate operated locations 85,599 315,740
Unallocated head office costs (4,915,011) (2,927,132)
PPP loan forgiveness - 1,869,800
Non-core costs (840,299) (323,423)
-------------------------------------------- ------------ ------------
Total 5,504,216 7,556,039
-------------------------------------------- ------------ ------------
Assets Year ended Year ended
31 December 31 December
2022 2021
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income 29,945,794 27,869,663
Franchise related activities 3,166,036 2,452,933
US corporate operated locations 47,356,148 43,050,953
International corporate operated locations 16,120,479 9,993,906
-------------------------------------------- ------------ ------------
Total 96,588,457 83,367,455
-------------------------------------------- ------------ ------------
Amortisation Year ended Year ended
31 December 31 December
2022 2021
$ $
-------------------------------------------- ------------ ------------
US corporate operated locations 942,911 466,217
International corporate operated locations 25,175 4,009
-------------------------------------------- ------------ ------------
Total 968,086 470,226
-------------------------------------------- ------------ ------------
Depreciation Year ended Year ended
31 December 31 December
2022 2021
$ $
-------------------------------------------- ------------ ------------
Franchise royalty income - -
Franchise related activities - -
US corporate operated locations 2,665,878 2,009,350
International corporate operated locations 570,805 465,719
-------------------------------------------- ------------ ------------
Total 3,236,683 2,475,069
-------------------------------------------- ------------ ------------
Finance Expense Year ended Year ended
31 December 31 December
2022 2021
$ $
-------------------------------------------- ------------ ------------
US corporate operated locations 756,164 484,047
International corporate activities 11,282 13,719
Unallocated head office costs 803,146 471,364
Total 1,570,592 969,130
-------------------------------------------- ------------ ------------
Geographic Information
As noted herein, the Group has two wholly-owned subsidiaries -
ALD and WII. ALD, the Group's core business, has US
franchise-operated and corporate-operated locations and
international franchises in Australia and Canada. Meanwhile, WII
has corporate-operated activities outside the US. We may also
regroup the same information into US and Outside the US to capture
the Group's effort to be multinational company. For 2022, outside
the US sales have grown 9% to $6.7 million (2021: $6.2 million).
Sales in the US have grown 34% to $64.5 million (2021: $48.3
million). The percentage of International sales to total sales has
decreased to 9% (2021: 11%).
Total Revenue
Year ended 31 December Year ended 31 December
2022 2021
US International Total US International Total
$ $ $ $ $ $
---------------------------------- ----------- -------------- ----------- ----------- -------------- -----------
Franchise royalty income 6,636,512 110,416 6,746,928 6,698,729 104,760 6,803,489
Franchise related activities 10,624,268 - 10,624,268 9,769,657 - 9,769,657
US Corporate owned Stores 47,296,711 - 47,296,711 31,861,087 - 31,861,087
International corporate
activities - 6,665,554 6,665,554 - 6,109,175 6,109,175
---------------------------------- ----------- -------------- ----------- ----------- -------------- -----------
Total 64,557,491 6,775,970 71,333,461 48,329,473 6,213,935 54,543,408
5 Expenses by nature
The Group's operating profit has been arrived at after
charging:
Year ended Year ended
31 December 31 December
2022 2021
Note $ $
---------------------------------------- ----- ------------ ------------
Raw materials and consumables
used 4,826,483 1,954,849
Employee costs 6 29,050,991 24,226,020
Depreciation charge 3,236,683 2,475,069
Amortisation charge 968,086 470,226
Marketing costs 213,260 293,036
R&D - -
Foreign exchange (gain)/loss 38,896 1,624
---------------------------------------- ----- ------------ ------------
Year ended Year ended
31 December 31 December
2022 2021
$ $
---------------------------------------- ----- ------------ ------------
Auditors remuneration
Fees payable to the Company's
auditor for audit of Parent Company
and Consolidated Financial Statements 54,000 54,000
---------------------------------------- ----- ------------ ------------
Fees payables to the Company's - -
auditor for other services (assurance
related services)
---------------------------------------- ----- ------------ ------------
The Group auditors are not the auditors of the US subsidiary
companies. The fees paid to the auditor of the US subsidiary
companies were $214,863 (2021: $158,614) for the audit of these
companies and $40,499 (2021: $38,899) for other services.
6 Employees and Directors
The Employees and Directors of the Company contribute to the
execution and management of the business.
Year ended Year ended
31 December 31 December
2022 2021
Short-Term employee benefits
Directors fees, salaries and benefits 640,704 874,381
Employee wages and salaries 25,809,809 21,313,711
Employer payroll taxes 2,138,381 1,595,220
Long-Term employee benefits
Share based payments 462,097 442,708
-------------------------------------- ----------- -----------
29,050,991 24,226,020
-------------------------------------- ----------- -----------
Information regarding Directors' emoluments are as follows:
Year ended Year ended
31 December 31 December
2022 2021
$ $
---------------------------------------- ----------- -----------
Short-Term employee benefits
Directors' fees, salaries and benefits 640,704 889,385
Employer payroll taxes 20,039 22,079
660,743 911,464
---------------------------------------- ----------- -----------
The highest paid Director (Executive) received emoluments of
$591,473 (2021: $654,385).
In lieu of cash compensation, all of the directors were awarded
stock options with an exercise price of $8.18 as announced on 7,
February 2023. (See Note 7) The value of the options is as follows:
P DeSouza $80k, L Hills $40k, D Ewell $40k, B Knell $80k, M Reisman
$40k, for a total of $280k. Options granted plus director's fees,
salaries and benefits above totals $920,704 which is to be compared
to $889,385 in 2021
The average number of employees (including Directors) in the
Group during the year was:
Year ended Year ended
31 December 31 December
2022 2021
Directors (executive and non-executive) 5 5
Management 44 48
Field Services 271 223
Franchise Support 19 20
Administration 97 83
---------------------------------------- ----------- -----------
436 379
---------------------------------------- ----------- -----------
7 Share options
The Company grants share options at its discretion to Directors,
management and advisors. These are accounted for as equity settled
options. Should the options remain unexercised after a period of
ten years from the date of grant the options will expire unless an
extension is agreed to by the Board. Options are exercisable at a
price equal to the Company's quoted market price on the date of
grant or an exercise price to be determined by the Board.
Details for the share options and warrants granted, exercised,
lapsed and outstanding at the year-end are as follows:
Number
of share
Weighted Weighted
average exercise average exercise
price ($) options price ($)
Number of share
options 2022 2022 2021 2021
---------------------- -------------------------------- ----------------------- ---------- -----------------------
Outstanding at
beginning
of year 2,238,000 5.74 1,907,500 3.92
Granted during the
year 95,000 12.04 555,500 10.66
Forfeited/lapsed
during
the year (35,000) 12.56 - -
Exercised during the
year (70,000) 2.36 (225,000) 2.54
---------------------- -------------------------------- ----------------------- ---------- -----------------------
Outstanding at end of
the year 2,228,000 6.02 2,238,000 5.74
---------------------- -------------------------------- ----------------------- ---------- -----------------------
Exercisable at end of
the year 627,500 1.59 682,500 1.58
---------------------- -------------------------------- ----------------------- ---------- -----------------------
Fair value of share options
During the year, the Group granted 95,000 Share Options pursuant
to certain Acquisitions, with exercise prices ranging from GBP8.17
to GBP11.09 ($10.30 to $12.50).
The fair value of options granted during the current year has
been calculated using the Black Scholes model which has given rise
to fair values per share ranging from $2.03 to $3.21. This is based
on risk-free rates of 2.81% to 3.15% and volatility of 46.8% to
47.9%.
The Black Scholes calculations for the options granted during
the year resulted in a charge of $462,097 (2021: $442,708) which
has been expensed in the year.
The weighted average remaining contractual life of the share
options as at 31 December 2022 was 6.20 years (2021: 7.10
years).
Options arrangements that exist over the Company's shares at
year end and at the time of the report are detailed below:
At report Date of Exercise Exercise period
Grant date 2022 2021 Grant price From To
----------------- ----------- --------- --------- ---------- -------- -----------------------------
ALDHC Plan 67,500 67,500 67,500 01/12/2013 $1.14 01/12/2013 01/12/2023
2013 Directors 100,000 100,000 100,000 01/08/2013 $1.30 01/08/2013 01/08/2023
2015 Options 117,500 117,500 122,500 08/06/2015 $0.67 08/06/2015 08/06/2025
2016 Directors 100,000 100,000 100,000 13/06/2016 $1.26 13/06/2016 13/06/2026
2016 Employee 25,000 25,000 25,000 19/12/2016 $1.24 19/12/2019 19/12/2026
2016 Employee 82,500 82,500 132,500 19/12/2016 $1.56 19/12/2019 19/12/2026
2018 Acquisition 135,000 135,000 135,000 06/03/2018 $3.15 06/03/2021 06/03/2028
2019 Employee 425,000 425,000 425,000 04/04/2019 $6.24 04/04/2023 04/04/2029
2019 Acquisition 50,000 50,000 50,000 04/04/2019 $4.59 04/04/2023 04/04/2029
2020 Employee 485,000 485,000 500,000 31/07/2020 $5.60 31/07/2024 31/07/2030
2020 Acquisition 25,000 25,000 25,000 30/09/2020 $6.20 30/09/2024 30/09/2030
2021 Acquisition 45,500 45,500 45,500 01/01/2021 $6.80 01/01/2025 01/01/2031
2021 Directors 300,000 300,000 300,000 15/03/2021 $10.40 15/03/2025 15/03/2031
2021 Acquisition 100,000 100,000 100,000 20/04/2021 $11.38 20/04/2025 20/04/2031
2021 Acquisition 75,000 75,000 110,000 01/07/2021 $12.56 01/07/2025 01/07/2031
2022 Acquisition
(1) 20,000 20,000 - 31/05/2022 $10.30 31/05/2026 31/05/2032
2022 Acquisition
(2) 75,000 75,000 - 30/06/2022 $12.50 30/06/2026 30/06/2032
2023 Directors
(3) 105,000 - - 06/02/2023 $8.18 06/02/2027 06/02/2033
2023 Acquisition
(4) 25,000 - - 06/02/2023 $8.18 06/02/2027 06/02/2033
Total 2,358,000 2,228,000 2,238,000
----------------- ----------- --------- --------- ---------- -------- ------------- --------------
All share options are equity settled on exercise. The amounts at
the Report Date reflect all share options that have been either
exercised or forfeited.
(1) On 31 May 2022, certain vendors, retained as employees, were
granted options to purchase 20,000 New Ordinary Shares at a price
of $10.30 pursuant to an acquisition in 2022. These options have a
four-year vesting requirement.
(2) On 30 June 2022, certain vendors, retained as employees,
were granted options to purchase 75,000 New Ordinary Shares at a
price of $12.50 pursuant to the acquisition of a franchise acquired
in 2022. These options have a four-year vesting requirement.
(3) 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.
(4) 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
Patrick DeSouza received (i) 180,000 Partly Paid Shares at an
exercise price of $1.07 during 2016, (ii) 750,000 Partly Paid
Shares at an exercise price of $2.71 in March 2018, (iii) 850,000
Partly Paid Shares at an exercise price of $4.82, in May 2019 and
(iv) 300,000 Partly Paid Shares at an exercise price of $6.13 in
October 2020 in connection with capital raising and bank
financings. These Partly Paid Shares carry voting rights but will
not be admitted to trading or carry any economic rights until fully
paid.
8 Finance income
Year ended Year ended
31 December 31 December
2022 2021
$ $
Interest income 229,550 51,092
9 Finance expense
Year ended Year ended
31 December 31 December
2022 2021
$ $
------------------------------- --- -------------- --------------
Interest expense 1,381,162 832,144
Interest on lease liabilities 189,430 136,986
------------------------------------ -------------- --------------
Total interest expense 1,570,592 969,130
------------------------------------ -------------- --------------
10 Taxation
Year ended Year ended
31 December 31 December
2022 2021
Group $ $
------------------------------------- -------------- --------------
Current tax:
Current tax on profits in the year 1,261,955 1,084,021
Prior year over provision - -
------------------------------------- -------------- --------------
Total current tax 1,261,955 1,084,021
------------------------------------- -------------- --------------
Deferred tax current year 575,782 557,329
Deferred tax prior year - -
------------------------------------- -------------- --------------
Deferred tax (credit)/expense (note
20) 575,782 557,329
------------------------------------- -------------- --------------
Income tax expense 1,837,737 1,641,350
------------------------------------- -------------- --------------
The tax on the Group's loss before tax differs from the
theoretical amount that would arise using the weighted average tax
rate applicable to profits of the consolidated entities as
follows:
Profit before tax on ordinary activities 5,504,216 7,556,039
---------------------------------------------- ---------- ----------
Tax calculated at domestic rate applicable
profits in respective countries
(2022: 24.8% versus 2021: 23.6%) 1,242,058 1,457,165
Tax effects of:
Non-deductible expenses 95,621 136,081
GILTI Inclusion - 47,262
PPP loan forgiveness - (392,688)
Other tax adjustments, reliefs and transfers 154,095 136,062
State taxes net of federal benefit 339,601 263,377
Adjustment in respect of prior year (696) 2,794
Changes in rates 7,058 (8,703)
---------------------------------------------- ---------- ----------
Taxation expense recognized in income
statement 1,837,737 1,641,350
---------------------------------------------- ---------- ----------
The Group is subject to income taxes in multiple jurisdictions.
Significant judgment is required in determining the worldwide
provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain.
The Group recognises liabilities for anticipated tax audit issues
based on estimates of whether additional taxes will be due.
As also set forth, in Note 20, at the balance sheet date, the
Group's UK trading operations had unused tax losses of GBP3,449,063
(2021: GBP3,739,716) available for offset against future profits.
GBP862,266 (2021: GBP934,929) represents unrecognized deferred tax
assets thereon at 25%. The deferred tax asset has not been
recognized due to uncertainty over timing of utilization.
The effective rate for tax for 2022 is 24.8% (2021: 23.6%).
11 Earnings per share
The profit per share has been calculated using the profit for
the year and the weighted average number of ordinary shares
outstanding during the year, as follows:
Basic
Year ended Year ended
31 December
2021
31 December 2022 $
$
-------------------------------------------- ------------------------------- ---------------
Profit for the year attributable to equity
holders of the Parent ($) 3,566,540 5,764,952
Weighted average number of ordinary shares 17,360,189 15,972,588
-------------------------------------------- ------------------------------- ---------------
Diluted weighted average number of ordinary
shares 18,554,459 17,286,616
-------------------------------------------- ------------------------------- ---------------
Profit per share (cents) 20.5 36.1
-------------------------------------------- ------------------------------- ---------------
Diluted profit per share (cents) 19.2 33.3
-------------------------------------------- ------------------------------- ---------------
Adjusting for the PPP loan forgiveness has
the following effect:
--------------------------------------------- ---- ------
Profit per share (cents) - (11.7)
Adjusted Profit per share (cents) 20.5 24.4
--------------------------------------------- ---- ------
Diluted profit per share (cents) - (10.8)
--------------------------------------------- ---- ------
Adjusted Diluted profit per share (cents) 19.2 22.5
--------------------------------------------- ---- ------
12 Acquisitions
These can be summarised as follows:
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 12 May 2022, the Group announced the reacquisition of its
American Leak Detection Central Texas franchise territory within
the Group's ALD franchise business. 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.
On 16 June 2022, the Group announced the acquisition of Shanahan
Plumbing LLC. The acquisition builds upon the Group's growing ALD
operations in Connecticut and New York. The purchase price of $1.0
million in cash is based on Shanahan Plumbing's 2021 Statement of
Income of $1.9 million and $0.2 million in adjusted profit before
tax.
2022 Acquisitions
Sub. Aqu. Central
Fort Worth Texas Shanahan Adjustments Totals
---------------------------
$ $ $ $ $
--------------------------- ------------ -------- ---------- ------------ ----------
Fair value of assets
and liabilities acquired
Equipment 366,109 38,562 143,931 - 548,602
Vehicles 330,877 50,480 175,220 - 556,577
Non-compete 132,434 30,000 60,000 - 222,434
Liabilities / Other (140,080) - 572,711 - 432,631
--------------------------- ------------ -------- ---------- ------------ ----------
Net assets acquired 689,340 119,042 951,862 - 1,760,244
--------------------------- ------------ -------- ---------- ------------ ----------
Consideration
Cash 3,850,000 700,000 900,000 50,000 5,500,000
Note payable 3,850,000 50,000 100,000 (41,553) 3,958,447
Total consideration 7,700,000 750,000 1,000,000 8,447 9,458,447
--------------------------- ------------ -------- ---------- ------------ ----------
Intangible assets
arising on acquisition
(see note 13) 7,010,660 630,958 48,138 8,447 7,698,203
--------------------------- ------------ -------- ---------- ------------ ----------
The intangible assets arising on the above acquisitions of
$7,698,203 is included in additions to goodwill and indefinite life
intangible assets for owned & operated stores (see note
13).
Following acquisitions all Franchises are classed as one cash
generating unit therefore cannot separately disclose revenue and
profit for each individual franchise .
2021 Acquisitions
Sub. Sub. Las Vegas
Aqu. Aqu. and
Intelliditch Wat-er-save Clermont Reno Phoenix Daytona Medford PlumbRight Adjust-ments Totals
-----------------
$ $ $ $ $ $ $ $ $ $
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Fair value of
assets and
liabilities
acquired
Equipment - 11,199 26,250 133,100 447,000 40,595 163,455 74,305 - 895,904
Vehicles - 34,077 54,868 108,734 490,628 104,434 84,957 90,231 - 967,929
Non-compete - 41,553 30,000 60,000 120,000 90,000 30,000 70,000 - 441,553
Liabilities /
Other 116,667 539,854 - (13,001) (560,250) - (35,000) - - 48,269
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Net assets
acquired 116,667 626,684 111,118 288,833 497,378 235,029 243,412 234,536 - 2,353,655
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Consideration
Cash - 1,502,277 330,000 21,000 3,000,000 900,000 688,559 300,000 - 6,741,835
Note payable - 41,553 330,000 267,833 7,150,842 1,850,000 688,559 375,000 (100,000) 10,603,787
Non-controlling
interest 116,667 - - - - - - - - 116,667
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Total
consideration 116,667 1,543,830 660,000 288,833 10,150,842 2,750,000 1,377,117 675,000 (100,000) 17,462,288
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
Intangible
assets
arising on
acquisition
(see note 13) - 917,146 548,882 - 9,653,464 2,514,971 1,133,705 440,464 (100,000) 15,108,633
----------------- ------------- ------------ --------- --------- ----------- ---------- ---------- ----------- ------------- -----------
The amount of deferred consideration for 2022 acquisitions as
well as the remaining deferred consideration for acquisitions made
in 2018, 2019, 2020 and 2021 can be summarized as follows:
Current Year ended Year ended
31 December 31 December
Year
acquired 2022 2021
-------------------------------------------------
$ $
-------------------------------------- ---------- ----------- -----------
South Florida 2018 28,101 26,465
Tucson 2019 113,550 109,650
Minneapolis 2020 327,670 327,670
San Jose 2020 49,074 223,976
Seattle 2020 100,000 450,000
Melbourne, Florida 2020 350,000 400,000
Baton Rouge 2020 175,000 175,000
Clermont 2021 - 330,000
Las Vegas and Phoenix 2021 1,640,698 1,713,343
Daytona 2021 850,000 850,000
Medford 2021 - 688,559
PlumbRight 2021 175,000 200,000
Fort Worth 2022 1,300,000 -
Total current deferred consideration 5,109,093 5,494,663
-------------------------------------------------- ----------- -----------
Non-Current Year ended Year ended
31 December 31 December
Year 2022 2021
acquired $ $
------------------------------------------ --------- ----------- -----------
South Florida 2018 89,341 117,439
Tucson 2019 48,468 162,018
Minneapolis 2020 - 327,672
San Jose 2020 72,386 125,985
Seattle 2020 300,000 300,000
Melbourne, Florida 2020 - 350,000
Baton Rouge 2020 - 175,000
Reno 2021 - 50,000
Las Vegas and Phoenix 2021 3,954,226 5,437,499
Daytona 2021 150,000 1,000,000
PlumbRight 2021 - 175,000
Fort Worth 2022 2,550,000 -
Total non-current deferred consideration 7,164,421 8,220,613
----------------------------------------------------- ----------- -----------
13 Intangible assets
The calculation of amortisation of intangible assets requires
the use of estimates and judgement, related to the expected useful
lives of the assets.
An impairment review is undertaken annually or whenever changes
in circumstances or events indicate that the carrying amount may
not be recovered.
Goodwill and other indefinite life intangible assets
Group Goodwill relating Goodwill
Goodwill to Owned & on franchisor
Acquisitions Operated stores activities Totals
-------------------
$ $ $ $
------------------- -------------- -------------------- --------------------- -----------
Cost
At 1 January 2021 3,306,821 19,797,533 636,711 23,741,065
Additions 917,146 14,191,487 - 15,108,633
------------------- -------------- -------------------- --------------------- -----------
At 31 December
2021 4,223,967 33,989,020 636,711 38,849,698
------------------- --------------
Additions (see
note 12) 7,010,660 687,543 - 7,698,203
------------------- -------------- -------------------- --------------------- -----------
At 31 December
2022 11,234,627 34,676,563 636,711 46,547,901
------------------- --------------
Impairment
At 1 January 2021 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
At 31 December
2021 1,506,229 75,000 - 1,581,229
Impairment in year - - - -
At 31 December
2022 1,506,229 75,000 - 1,581,229
Carrying amount
At 31 December
2021 2,717,738 33,914,020 636,711 37,268,469
At 31 December
2022 9,728,398 34,601,563 636,711 44,966,672
The increase in carrying value of Goodwill Acquisitions at 31
December 2022 relate to goodwill additions arising on the
acquisitions outlined in Note 12 above during 2022.
Goodwill and indefinite life intangible assets on owned &
operated stores comprises legacy owned stores together with
additions arising from reacquisitions of franchise operations from
2015 through 2022. Details on additions in 2022 can be found in
note 12 above.
Where appropriate consideration of separately identifiable
intangible assets has been considered in the evaluation of the fair
value of assets acquired and the determination of the fair value of
goodwill arising. For the acquisitions in 2015 - 2022 relating to
the reacquisition of franchises, it is considered that the value
being attributed to the purchase consideration relates to the
synergies with surrounding franchises, obtaining wider geographical
coverage directly within the Group, the focus to seize potential
opportunity within a wider business strategy for revenue and
earnings growth and the ability to expand new service offerings.
Where appropriate, consideration of separate intangibles, such as
covenants not to compete, are evaluated.
There is no separately identified intangible considered to arise
from the customer list of a franchise reacquired given the terms of
the franchise agreement and on that these customers continue to be
customers of the Group's products and services before and after the
reacquisition.
An impairment review is undertaken annually or whenever changes
in circumstances or events indicate that the carrying amount may
not be recovered. For the purpose of impairment testing, goodwill
or indefinite life intangible assets are allocated to appropriate
cash generating units which can be summarised as follows:
Goodwill on Acquisitions is allocated to separate cash
generating units.
Goodwill or indefinite life intangible assets on owned &
operated stores is allocated to cash generating units that are
expected to benefit from the synergies of the combination.
Goodwill on Franchisor Activities is considered to be related to
a single cash generating unit by reference to revenues and
activities derived from the franchise royalty income and franchise
related activities segments (see note 4).
The cash generating units to which goodwill or indefinite life
intangible assets have been allocated are tested for impairment
annually. If the recoverable amount of the cash generating unit is
less than its carrying amount, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to
the unit and then to the other assets of the unit pro-rata on the
basis of the carrying amount of each asset in the unit. An
impairment loss recognised for goodwill is not recovered in a
subsequent period.
The key assumptions/inputs used for the impairment assessment
based on the forecast cash flow and revenues for 2022 were as
follows:
%
Discount rate 15
Short term revenue growth 5
Long term revenue growth 3.5
Tax rate 25
Discount rate sensitivity step 2
Perpetual growth rate sensitivity step 1
This has resulted in no material impairment charge being
required in 2022 (2021: $nil).
Based upon the sensitivity analysis had the estimated discount
rate used been 2% higher and the perpetual revenue growth rate used
been 1% lower in these calculations the Group would still not have
incurred any material impairment for any of the categories of
goodwill or indefinite life intangible assets.
13 Intangible assets continued
Other Intangible assets table
Enterprise
Product Covenants Customer Solution
development not to compete Lists Trademarks Patents Salesforce Development Total
$ $ $ $ $ $ $ $
Cost
At 1 January 2021 164,880 424,328 132,857 5,233,817 - - 102,000 6,057,883
Additions 515,351 446,553 - - 116,667 1,558,208 - 2,636,779
Disposals (164,880) (200,000) - - - - (364,880)
At 31 December
2021 515,351 670,881 132,857 5,233,817 116,667 1,558,208 102,000 8,329,782
Additions 598,058 222,434 572,711 - 18,242 1,758,095 - 3,169,540
Disposals - - - - - - - -
At 31 December
2022 1,113,409 893,315 705,568 5,233,817 134,908 3,316,304 102,000 11,499,322
Accumulated
amortisation
At 1 January 2021 164,880 193,101 132,857 3,881,749 - - 34,000 4,406,587
Amortisation
expense - 91,976 - 261,691 5,833 129,851 (19,125) 470,226
Disposals (164,880) (200,000) - - - - - (364,880)
Exchange
differences - (188) - - - - - (188)
At 31 December
2021 - 84,889 132,857 4,143,440 5,833 129,851 14,875 4,511,745
Amortisation
expense - 167,818 25,454 261,691 8,469 479,154 25,500 968,086
Disposals - - - - - - - -
Exchange
differences - 113 - - 19 - - 131
At 31 December
2022 - 252,819 158,311 4,405,131 14,321 609,005 40,375 5,479,962
Carrying amount
At 31 December
2021 515,351 585,992 - 1,090,377 110,833 1,428,357 87,125 3,818,037
At 31 December
2022 1,113,409 640,496 547,257 828,686 120,588 2,707,298 61,625 6,019,360
All intangible assets have been acquired by the Group.
The calculation of amortisation of intangible assets requires
the use of estimates and judgement, related to the expected useful
lives of the assets.
An impairment review is undertaken annually or whenever changes
in circumstances or events indicate that the carrying amount may
not be recovered.
14 Property, plant and equipment
Right Right
Equipment Motor Leasehold Buildings of of
& displays Vehicles Improvem-ents $ Use Vehicles Use Offices Total
$ $ $ $ $ $
Cost
At 1 January 2021 3,052,181 2,326,504 83,672 156,242 1,448,967 1,677,576 8,745,143
Acquired on acquisition
of subsidiary 77,684 115,371 - - - - 193,055
Additions 1,587,515 789,876 4,148 - 1,947,086 899,061 5,227,687
Purchase ROU Vehicles - 280,124 - - (280,124) - -
Exchange differences (23,687) (39,043) - 17 (1,517) (7,754) (71,984)
Disposals - (122,810) - - - (538,979) (661,789)
At 31 December
2021 4,693,694 3,350,021 87,820 156,259 3,114,413 2,029,904 13,432,111
Acquired on acquisition
of subsidiary 366,109 330,877 - - - - 696,986
Additions 781,433 1,008,632 - - 1,005,570 1,427,888 4,223,523
Purchase ROU Vehicles - 315,140 - - (315,140) - -
Exchange differences (79,908) (72,121) - (7,354) (3,055) (21,887) (184,325)
Disposals (29,103) (187,367) (15,000) - - (1,032,961) (1,264,431)
At 31 December
2022 5,732,225 4,745,181 72,820 148,905 3,801,787 2,402,944 16,903,863
Accumulated
depreciation
At 1 January 2021 1,241,197 781,762 23,085 50,764 762,433 713,681 3,572,921
Acquired on acquisition
of subsidiary 66,485 81,294 - - - - 147,778
Eliminated on
disposals - (91,014) - - - (449,014) (540,027)
Purchase ROU Vehicles - 256,007 - - (256,007) - -
Depreciation expense 705,334 560,828 15,789 12,086 428,548 752,483 2,475,069
Exchange differences (10,728) (16,485) - (63) (270) (3,312) (30,858)
At 31 December
2021 2,002,288 1,572,391 38,875 62,787 934,704 1,013,838 5,624,883
Eliminated on
disposals (8,790) (115,844) (7,046) - - (953,584) (1,085,264)
Purchase ROU Vehicles - 315,140 - - (315,140) - -
Depreciation expense 946,921 795,269 16,026 4,127 643,364 830,975 3,236,683
Exchange differences (47,251) (34,097) - (2,301) (1,253) (12,491) (97,393)
At 31 December
2022 2,893,168 2,532,859 47,855 64,613 1,261,677 878,737 7,678,909
Carrying amount
At 31 December
2021 2,691,406 1,777,630 48,945 93,472 2,179,709 1,016,067 7,807,227
At 31 December
2022 2,839,057 2,212,322 24,965 84,292 2,540,111 1,524,208 9,224,955
15 Investment in subsidiary undertakings
Subsidiary
Undertakings
Company $
Cost
At 31 December 2021 13,812,758
Exchange difference (785,573)
At 31 December 2022 13,027,185
Impairment
At 31 December 2021 6,400,906
Exchange difference -
At 31 December 2022 6,400,906
Carrying amount
At 31 December 2021 7,411,782
At 31 December 2022 6,626,279
The Directors annually assess the carrying value of the
investment in the subsidiary and in their opinion no impairment
provision is currently necessary. See notes 12 and 13 for the
assumptions and sensitivities in assessing the carrying value of
the goodwill and acquired intangible assets that underpins the
varying value of the investments.
The net carrying amounts noted above relate to the US
incorporated subsidiaries.
The subsidiary undertakings during the year were as follows:
Interest
held
Registered office Country %
address of incorporation
Water Intelligence International 27-28 Eastcastle Street,
Limited* (leak detection London, United Kingdom, England
products and services) W1W 8DH and Wales 100%
Agriculture house,
Acland Rd,
Wat-er-save Services Limited Dorchester DT1 1EF 100%
Water Intelligence Australia 1 Farrer Place, Sydney,
Pty NSW 2000 Australia 100%
American Leak Detection 199 Whitney Avenue,
Holding Corp. (holding New Haven, Connecticut
company of ALD Inc.) * 06511 US US 100%
American Leak Detection, 199 Whitney Avenue,
Inc. (leak detection product New Haven, Connecticut
and services) 06511 US US 100%
8-4696 Bartlette Rd.
Canadian Leak Detection, Beamsville, Ontario
Inc. L0R 1B1 Canada 100%
Qonnectis Group Limited 27-28 Eastcastle Street, England
(dormant) London, United Kingdom, and Wales
W1W 8DH
NRW Utilities Limited (Dormant) 27-28 Eastcastle Street, England
London, United Kingdom, and Wales
W1W 8DH
* Subsidiaries owned directly by the Parent Company. These
subsidiaries - WII and ALDHC - represent the two principal business
lines of the Parent Company. Wat-er-save, Water Intelligence
Australia, Canadian Leak Detection and American Leak Detection Inc.
are also wholly-owned by the two principal subsidiaries and
indirectly owned by the Parent.
The Company's strategy involves acquisitions, especially of
franchisees. Not all acquisitions are 100% owned. American Leak
Detection had a 60% stake in a reacquired franchise in Bakersfield,
California. American Leak Detection purchased the remaining 40% in
2022. American Leak Detection also has a 51% stake in a former
franchise located in Denver, Colorado. Finally, American Leak
Detection owns 75% of the IntelliDitch subsidiary that was set up
as part of the acquisition of IP assets from FastDitch in 2021.
16 Inventories
Group
Year ended Year ended
31 December 31 December
2022 2021
$ $
Group Inventories 759,070 677,218
During the year ended 31 December 2022, an expense of $9,659,600
(2021: $8,964,486) was recognized in the Consolidated Statement of
Comprehensive Income, including business to business expenses of
$9,142,777 (2021: $8,288,217). There has been no write down of
inventories during 2022.
17 Trade and other receivables
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2022 2021 2022 2021
$ $ $ $
Trade notes receivable 287,572 429,219 - - -
Due from Group undertakings - - 22,605,908 23,270,653
All trade notes receivables are due within five years from the
end of the reporting period.
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2022 2021 2022 2021
$ $ $ $
Trade receivables 7,211,414 4,414,329 - -
Prepayments 2,061,459 1,928,308 19,745 110,916
Due from Group undertakings - - 4,329,809 4,670,366
Accrued royalties receivable 566,731 513,853 - -
Trade notes receivable 256,613 194,590 - -
Other receivables 988,215 997,708 - -
Due from related party 309,152 331,106 - -
Current portion 11,393,584 8,379,894 4,349,554 4,781,282
Trade receivables disclosed above are classified as loans and
receivables and are therefore measured at amortised cost. The
Directors consider that the carrying amount of trade and other
receivables approximates their fair value.
Accrued royalties receivable are never reclassified to trade
receivables as, should any royalties be withheld or unpaid, the
Group has the right to take back the relevant franchise.
The average credit period taken on sales is 39 days (2021: 39
days).
The carrying amounts of the Group's trade and other receivables
are denominated in the following currencies:
Year ended Year ended
31 December 31 December
2022 2021
$ $
US Dollar 10,261,789 7,153,573
UK Pound 807,038 905,624
Australian Dollar 286,546 286,597
Canadian Dollar 38,211 34,100
11,393,584 8,379,894
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivable mentioned above.
18 Cash and cash equivalents
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2022 2021 2022 2021
$ $ $ $
Cash at bank and in hand 23,014,454 23,802,352 1,384,624 1,865,798
19 Trade and other payables
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2022 2021 2022 2021
$ $ $ $
Trade payables 1,519,128 723,458 305 6,881
Accruals and other payables 4,811,979 3,470,573 145,950 125,745
Due to Group undertakings - - - -
6,331,107 4,194,031 146,255 132,626
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs and are payable
within 3 months. The average credit period taken for trade
purchases is 16 days (2021:16 days ).
20 Deferred Tax
The analysis of deferred tax liabilities is as follows:
Group 2022 2021
$ $
Deferred tax (liability)/assets (1,915,581) (1,576,872)
The movement in deferred tax liabilities is as follows:
2022 Recognized Recognized
Opening in the income in Other Comprehensive Closing
balance statement Income balance
$ $ $ $
Temporary differences: - - - -
Net operating profit - - - -
(loss) (non-current)
Short term temporary
differences (1,576,872) (575,782) 237,073 (1,915,581)
(1,576,872) (575,782) 237,073 (1,915,581)
2021 Recognized Recognized
Opening in the income in Other Comprehensive Closing
balance statement Income balance
$ $ $ $
Temporary differences: - - - -
Net operating profit - - - -
(loss) (non-current)
Short term temporary
differences (957,170) (557,329) (62,373) (1,576,872)
(957,170) (557,329) (62,373) (1,576,872)
Deferred tax recognized in OCI is purely related to the
revaluation of the listed shares.
As also set forth, in Note 20, at the balance sheet date, the
Group's UK trading operations had unused tax losses of GBP3,449,063
(2021: GBP3,739,716) available for offset against future profits.
GBP862,266 (2021: GBP934,929) represents unrecognized deferred tax
assets thereon at 25%. The deferred tax asset has not been
recognized due to uncertainty over timing of utilization.
21 Share capital
The issued share capital in the year was as follows:
Group & Company
Shares held
Ordinary in treasury
Shares Number Number Total Number
At 31 December 2021 17,366,688 51,000 17,417,688
At 31 December 2022 17,358,688 129,000 17,487,688
Group & Company
Shares in
Share capital Share premium Treasury
$ $ $
At 31 December 2021 142,260 35,252,633 (468,427)
At 31 December 2022 143,192 35,417,072 (1,139,404)
At various times during 2022, the Company bought 8,000 shares
into treasury at a purchase price range of 815p to 895p.
On 19 August 2022, the Company issued 70,000 shares pursuant to
an exercise of options. These shares were re-purchased which
resulted in a $584k increase to treasury shares.
Reverse acquisition reserve
The reverse acquisition reserve was created in accordance with
IFRS3 Business Combinations and relates to the reverse acquisition
of Qonnectis Plc by ALDHC in July 2010. Although these Consolidated
Financial Statements have been issued in the name of the legal
parent, the Company it represents in substance is a continuation of
the financial information of the legal subsidiary ALDHC. A reverse
acquisition reserve was created in 2010 to enable the presentation
of a consolidated statement of financial position which combines
the equity structure of the legal parent with the reserves of the
legal subsidiary. Qonnectis Plc was renamed Water Intelligence Plc
on completion of the reverse acquisition on 29 July 2010
22 Lease liability
Year ended Year ended
31 December 31 December
2022 2021
$ $
Lease liabilities in statement of
financial position
Amounts due within one year 1,427,510 1,161,879
Amount due after more than one year 2,593,065 2,048,288
4,020,575 3,210,167
Amount recognized in the statement of
comprehensive income
Interest on leasehold liabilities 189,430 136,986
Amount recognized in the statement
of
cash flows
Repayment of lease liabilities 1,595,853 1,448,594
23 Financial instruments
The Group has exposure to the following key risks related to
financial instruments:
i. Market risk (including foreign currency risk management)
ii. Interest rate risk
iii. Credit risk
iv. Liquidity risk
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk, and the Group's
management of capital. Further quantitative disclosures are
included throughout these consolidated Financial Statements.
The Directors determine, as required, the degree to which it is
appropriate to use financial instruments or other hedging contracts
or techniques to mitigate risk. The main risk affecting such
instruments is foreign currency risk which is discussed below.
Throughout the year ending 31 December 2022 no trading in financial
instruments was undertaken (2021: none). The Group did enter into
interest rate swap agreements as detailed in the derivatives
section below.
The Group uses financial instruments including cash, loans, as
well as trade receivables and payables that arise directly from
operations.
Due to the simple nature of these financial instruments, there
is no material difference between book and fair values. Discounting
would not give a material difference to the results of the Group
and the Directors believe that there are no material sensitivities
that require additional disclosure.
Fair value of financial assets and financial liabilities
The estimated difference between the carrying amount and the
fair values of the Group's financial assets and financial
liabilities is not considered material.
Credit risk
The Group's principal financial assets are bank balances, cash,
cash equivalents, trade and other receivables. The Group's credit
risk is primarily attributable to its trade receivables and cash
and cash equivalents. Receivables are regularly monitored and
assessed for recoverability. The Group has no significant
concentration of credit risk as exposure is spread over a number of
customers. As at 31 December 2022, 45.28% was held with one
counterparty with a credit rating of Aa3 and a further 43.28% was
held with another counterparty with a credit rating of A+.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. To measure the expected credit
losses, trade receivables have been grouped based on the shared
credit risk characteristics and the days past due. The expected
loss rates are based on the historic payment profiles of sales and
the credit losses experienced within this period. The historical
loss rates are adjusted to reflect current and forward-looking
information.
As the Group does not hold any collateral, the maximum exposure
to credit risk is represented by the carrying amount of the
financial assets as at the end of each reporting period.
As at 31 December 2022, trade receivables of $1,948,729 (2021:
$438,284) were past due but not impaired. These relate corporate
store customers for whom there is no history of default. The ageing
analysis of these trade receivables is as follows:
Ageing of past due but not impaired receivables
Year ended Year ended
31 December 31 December
2022 2021
$ $
60-90 days 331,989 196,106
90+ days 1,616,740 242,178
1,948,729 438,284
Average age (days) 95 95
The Group believes that no impairment allowance is necessary in
respect of trade receivables that are past due but not impaired.
This is based on the Group's good historic track record of
collection for all such receivables.
Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group seeks to limit credit risk on liquid funds through
trading only with counterparties that are banks with high credit
ratings assigned by international credit rating agencies.
Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure. The exposure to credit risk at the year-end was in
respect of the past due receivables that have not been impaired are
disclosed in note 17.
Categories of financial instruments
Group Company
Year
Year ended ended Year ended Year ended
31 December 31 December 31 December 31 December
2022 2021 2022 2021
$ $ $ $
Loans and receivables - - - -
Cash and cash equivalents 23,014,454 23,802,352 1,384,624 1,865,798
Trade and other receivables
- current 11,393,584 8,379,894 4,349,554 4,781,282
Trade and other receivables
- non-current 287,572 429,219 22,605,908 23,270,653
Financial Liabilities
measured at amortised cost
Trade and other payables 6,331,107 4,194,031 146,255 132,626
Borrowings - current 5,519,560 3,325,579 - -
Borrowings - non-current 15,334,813 8,176,893 - -
Deferred consideration
- current 5,109,093 5,494,663 - -
Deferred consideration
- non-current 7,164,421 8,220,613 - -
Borrowings
Bank Debt
The Group has a commercial banking relationship with M&T
Bank (M&T) with various facilities: a working capital line of
credit ("WCL"); acquisition lines of credit ("ALOCs"), and term
loans ("Term Loans").
A $2,000,000 WCL is secured by substantially all of the assets
of the Group . On December 4, 2021, the WCL was extended to a
maturity date of December 5, 2023 and bore an annual variable
interest rate equal to equal to LIBOR plus 3.00%. In March 2022,
the WCL was amended to change the variable interest rate to which
the outstanding balance shall bear interest to SOFR plus 3.00%. At
December 31, 2022 and 2021, the interest rate was 4.17% and 4.00%,
respectfully. Monthly interest only payments on any unpaid balance
were made during 2022 and 2021 until the WCL was fully paid off in
May 2022. The balance outstanding at December 31, 2022 and 2021 was
$0 and $226,737, respectively and is included within line of credit
on the consolidated balance sheets.
In October 2020, M&T provided the Group with a term loan in
the amount of $4,607,000 ("Term Loan"). The Term Loan bears
interest at a rate equal to 3.58% and requires installments
consisting of principal of $85,315 plus accrued interest to be paid
monthly beginning in November 2020 until maturity in May 2025. The
loan is secured by substantially all of the assets of the Group.
The balance outstanding at December 31, 2022 and 2021 was
$2,474,130 and $3,497,907, respectively and is included within
notes payable on the balance sheets.
In October 2020, M&T provided the Group with an ALOC
("ALOC") in the amount of $6,000,000. The ALOC has a two year draw
period. The line bears interest at a rate equal to LIBOR plus
3.00%. As of December 31, 2022 and 2021, the interest rate was
3.59% and requires installments of principal and interest amounting
to $39,816 to be paid per month beginning in November 2020 until
maturity in October 2025. As part of the agreement, the ALOC
advance would be converted into a term loan if any ALOC advance
exceeded $500,000 or automatically at the end of each draw period.
Upon conversion, the term loan would bear interest at a rate per
annum equal to three (3) percentage points in excess of M&T's
five year cost of funds interest rate; with a floor of 3.25%. ALOC
is secured by substantially all of the assets of the Group. The
balance outstanding at December 31, 2022 and 2021 was $1,353,751
and $1,831,546, respectively and is included within notes payable
on the balance sheets.
In February 2021, the Group was advanced $3,200,000 from the
ALOC which converted the ALOC into a new term loan ("New Term
Loan"). The New Term Loan bears interest at a rate equal to 3.64%
and requires installments consisting of principal and interest
amounting to $53,333 to be paid monthly beginning in March 2021
until maturity in February 2026. The New Term Loan is secured by
substantially all of the assets of the Group. The balance
outstanding at December 31, 2022 and 2021 was $2,026,667 and
$2,666,667, respectively and is included within notes payable on
the balance sheets.
In March 2022, M&T provided the Group with a new ALOC ("New
ALOC") in the amount of $15,000,000. The New ALOC has a two year
draw period. As part of the agreement, M&T advanced the Company
$9,463,647 related to the New ALOC. The line bears interest at a
rate equal to 5.39% and requires installments consisting of
principal of $157,727 plus interest to be paid monthly beginning in
April 2022 until maturity in March 2027. In May 2022 and December
2022, the Company was advanced $600,000 and $2,125,000,
respectively, from the New ALOC. The advances bear interest at a
rate equal to 2.85% plus SOFR and require monthly installments
consisting of interest only to be paid until the end of the first
draw period. As part of the agreement, the New ALOC advances would
be converted into a term loan automatically at the end of each draw
period. Upon conversion, the term loan would bear interest at a
rate per annum equal to three (3) percentage points in excess of
SOFR. The New Term Loan is secured by substantially all of the
assets of the Group. The balance outstanding at December 31, 2022
and 2021 was $10,769,100 and $0, respectively and is included
within notes payable on the balance sheets. The New ALOC has
related swap agreements which mature at the same time as the
underlying loans.
As noted above, the Group expanded its credit facilities in
March 2022. The interest rate for the new acquisition line of
credit was established using the SOFR index. Additionally, the
existing working capital line of credit interest rate was amended
upon renewal in December 2021 to be calculated using the SOFR
index. Therefore, the Group will not be impacted by the IBOR
reform.
In connection with the M&T line of credit, ALOC, and term
note facilities, the Group is required to comply with certain
financial and non-financial covenants. The most restrictive of
these covenants includes a debt service coverage ratio to be tested
quarterly and a maximum total funded debt to EBITDA ratio minimum
to be tested quarterly. The Group was in compliance with those
requirements at December 31, 2022.
PPP Program - The Paycheck Protection Program (PPP) brought much
needed relief to business owners affected by the coronavirus. Not
only does this loan program provide funding to help cover payroll
and other expenses, but if used for qualifying purposes, part or
all of the loan can be forgiven. ALD applied for and received
funding of $1,869,800 under this program in April 2020. The Group
received notification from the SBA on March 31, 2021 that the full
advance of $1,869,800 was forgiven. The gain on the loan
forgiveness was recognized in 2021, with the related expenses
recognized in 2020.
Current Non-Current
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2022 2021 2022 2021
Financial Instruments $ $ $ $
Working Capital Line of
Credit - - - 226,737
External borrowings 4,162,819 2,224,161 12,869,822 6,056,902
Less: Loan Closing Costs (70,769) (60,461) (128,074) (155,034)
Lease Liabilities 1,427,510 1,161,879 2,593,065 2,048,288
Total 5,519,560 3,325,579 15,334,813 8,176,893
Capital risk management
In managing its capital, the Group's primary objective is to
maintain a sufficient funding base to enable working capital,
research and development commitments and strategic investment needs
to be met and therefore to safeguard the Group's ability to
continue as a going concern in order to provide returns to
shareholders and benefits to other stakeholders. In making
decisions to adjust its capital structure to achieve these aims,
through new share issues, the Group considers not only its
short-term position but also its long term operational and
strategic objectives.
The capital structure of the Group currently consists of cash
and cash equivalents, short and medium term borrowings and equity
comprising issued capital, reserves and retained earnings. Other
than with respect to Bank Debt, the Group is not subject to any
externally imposed capital requirements.
Significant accounting policies
Details of the significant accounting policies including the
criteria for recognition, the basis of measurement and the bases
for recognition of income and expense for each class of financial
asset, financial liability and equity instrument are disclosed in
Note 3.
Foreign currency risk management
The Group undertakes transactions denominated in foreign
currencies (other than the functional currency of the Company and
its UK operations, being GBP Sterling), with exposure to exchange
rate fluctuations. These transactions predominately relate to
royalties receivable in the US denominated in currencies other than
US$ being Canadian Dollars, Australian Dollars and Euro; royalties
from such outside US sources in 2022 were $110,416 (2021:
$104,760). No foreign exchange contracts were in place at 31
December 2022 (2021: Nil).
The carrying amount of the Group's foreign currency denominated
monetary assets and monetary liabilities were:
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2022 2021 2022 2021
$ $ $ $
Assets
Sterling, Australian
and Canadian Dollars 3,462,037 4,288,235 28,340,086 29,917,733
Liabilities
Sterling, Australian
and Canadian Dollars 1,066,160 1,146,338 146,255 132,626
As shown above, at 31 December 2022 the Group had Sterling,
Australian and Canadian denominated monetary net assets of
$3,462,037 (2021: $4,288,235). If the foreign currency weakens by
10% against the US dollar, this would decrease net assets by
$346,204 (2021: $428,824) with a corresponding impact on reported
losses. Changes in exchange rate movements resulted in a loss from
exchange differences on a translation of foreign exchange of
$409,340 in 2022 (2021: gain of $221,281), resulting primarily from
the share issuance from prior years in Pound Sterling and
subsequent intercompany transfers accounted in US Dollars.
Interest rate risk management
The Group is potentially exposed to interest rate risk because
the Group borrows and deposits funds at both fixed and floating
interest rates. However, at the year end, the majority of
borrowings are subject to fixed rates with only the WCL subject to
variable rates. The fixed rate borrowings at the year-end are
$14,108,798 (2021: $8,065,568) and the variable rate borrowings are
$2,725,000 (2021: $226,767) The variable rate borrowings from 2022
were converted to fixed rates early 2023 and were only variable for
3 months. The 2021 variable rate loan was paid in full during
2022.
Interest rate sensitivity analysis
The losses recorded by both the Group and the Company for the
year ended 31 December 2022 would not materially change if market
interest rates had been 1% higher/lower throughout 2022 and all
other variables were held constant.
Liquidity risk management
Ultimate responsibility for liquidity management rests with
management. The Group's practice is to regularly review cash needs
and to place excess funds on fixed term deposits for periods not
exceeding one month. The Group manages liquidity risk by
maintaining adequate banking facilities and by continuously
monitoring forecast and actual cash flows.
The Directors have prepared a business plan and forecast for the
period to 31 December 2024. The forecast contains certain
assumptions about the level of future sales and the level of
margins achievable. These assumptions are the Directors' best
estimate of the future development of the business. The Directors
acknowledge that the Group in the near-term trading is primarily
reliant on cash generation from its predominantly US-based
corporate-operated profits and franchisee royalty income.
The following tables detail the Group's remaining contractual
maturity for its non-derivative financial liabilities with agreed
repayment periods. The tables have been drawn up based on the
undiscounted cash flows of financial liabilities based on the
earliest due repayment dates. The table shows principal cash
flows.
Group 0-6 months 6-12 1-2 years 2-5 years >5 years Total
months
$ $ $ $ $ $
2022
Payables 6,331,107 - - - - 6,331,107
Lease liabilities 773,239 654,271 1,929,195 663,870 - 4,020,575
Borrowings 2,045,305 2,046,745 7,520,762 5,220,986 - 16,833,798
Deferred consideration 3,245,144 1,863,949 7,136,582 27,839 - 12,273,514
Group 0-6 months 6-12 1-2 years 2-5 years >5 years Total
months
$ $ $ $ $ $
2021
Payables 4,194,030 - - - - 4,194,030
Lease liabilities 607,899 553,980 1,437,794 610,493 - 3,210,166
Borrowings 1,092,915 1,070,785 4,769,556 1,359,050 - 8,292,306
Deferred consideration 4,558,239 936,424 6,099,351 2,121,262 - 13,715,276
Interest expected to be paid on liabilities are shown in the
table below
0-6 months 6-12 months >12 months Total
Group $ $ $ $
2022
Payables - - - -
Lease liabilities 88,330 71,020 174,210 333,559
Borrowings 250,918 213,702 521,472 986,092
Deferred consideration 207,290 172,976 239,386 619,651
Derivatives
The Group recognized that there was inherent risk related to
interest rates in the economic environment. Therefore, the Group
utilized interest rate swaps to fix its future rates and thereby
eliminated the risk against the numerous increases in interest
rates that occurred.
The Group entered into a swap agreement with M&T Bank which
fixed the Daily Simple SOFR interest at 2.39% through March 30,
2027. The interest rate swap had a notional amount of $9,463,647,
an effective date of March 30, 2022, and a fair value of $285,618
at December 31, 2022, which was included as an asset on the balance
sheets.
The Group entered into an additional swap agreement with M&T
Bank which fixed the Daily Simple SOFR interest at 2.68% through
March 30, 2028. The interest rate swap had a notional amount of
$5,536,353, an effective date of March 30, 2023, and a fair value
of $162,559 at December 31, 2022, which was included as an asset on
the balance sheets.
The 2022 interest rate swaps meet the criteria necessary to
qualify as effective cash flow hedges as defined in the accounting
standards. Accordingly, the Group has reflected the changes in the
fair value within other comprehensive income in the statement of
comprehensive income.
Fair values
The Directors consider that the carrying amounts of financial
assets and financial liabilities approximate their fair values.
Reconciliation of liabilities arising from financing
activities
The changes in the Group's liabilities arising from financing
activities can be classified as follows:
Long-term Short-term Lease Liabilities Total
borrowings borrowings
$ $ $ $
At 1 January 2022 6,128,605 2,163,701 3,210,167 11,502,473
Cash flows
* Repayment (3,815,204) - (1,595,853) (5,411,057)
* Proceeds 12,356,696 - - 12,356,696
Non-cash
* New Leases - - 2,406,261 2,406,261
* Reclassification (1,928,349) 1,928,349 - -
As at 31 December
2022 12,741,748 4,092,050 4,020,575 20,854,373
Long-term Short-term Lease Liabilities Total
borrowings borrowings
$ $ $ $
At 1 January 2021 5,848,261 2,941,610 1,763,433 10,553,304
Cash flows
* Repayment (1,827,765) - (1,448,594) (3,276,359)
* Proceeds 3,200,000 - - 3,200,000
Non-cash
* New Leases - - 2,895,328 2,895,328
* PPP loan
forgiveness (420,031) (1,449,769) - (1,869,800)
* Reclassification (671,860) 671,860 - -
As at 31 December
2021 6,128,605 2,163,701 3,210,167 11,502,473
24 Fair value measurement
The following table provides the fair value measurement
hierarchy for assets measured at fair value:
Fair value measurement
using
Quoted
process Significant Significant
in active observable unobservable
markets inputs inputs
Total (Level (Level (Level
1) 2) 3)
Assets measured at Date of valuation $ $ $ $
fair value
Listed equity investments
SEEEN investment 31 December 2022 474,613 474,613 - -
SEEEN investment 31 December 2021 1,185,039 1,185,039 - -
Derivative financial assets
Interest rate swap 31 December 2022 448,177 - 448,177 -
Interest rate swap 31 December 2021 - - - -
To estimate fair value, the lower end of the bid-offer spread as
at 31 December 2022 was used to calculate the value of the holding.
There is an active market for the Group's liquid equity
investment.
. 25 Contingent liabilities
The Directors are not aware of any material contingent
liabilities.
26 Related party transactions
PSS was one former owner of ALDHC until the reverse merger in
2010 that created Water Intelligence. PSS is now a significant
shareholder of Water Intelligence and hence is a related party to
the Company. PSS provides a technology license to Water
Intelligence and ALD on terms favourable to Water Intelligence and
ALD. The license is royalty-free for the first $5 million of sales
for products developed with PSS technology. PSS also guarantees the
bank debt of Water Intelligence as described below.
During the normal course of operations, there are intercompany
transactions among PSS, Water Intelligence plc, ALDHC and ALD. In
previous years, PSS charged administrative fees to the Company to
cover activities taken on behalf of company business, including
research. The financial results of these related party transactions
are reviewed by an independent director of Water Intelligence plc,
the parent of ALDHC and ALD.
As described in Note 23, the Company's parent (and the Company
as co-borrower) have different credit facilities with M&T Bank.
For the PSS guarantee, ALDHC pays 0.75% per annum based on the
outstanding balance of the loan calculated at the end of each
month. Interest charged on the PSS receivable will match the
interest rate charged by the bank. The monthly charge for the PSS
guarantee would not change and would be offset against amounts owed
by PSS. The charge will be eliminated should the guarantee no
longer be required by the bank. Interest income related to the PSS
receivable amounted to $19,089 and $18,937 for the years December
31, 2022 and 2021, respectively. The guarantee fee expense for the
PSS guarantee amounted to $99,146 and $67,000 for the years ended
December 31, 2022 and 2021, respectively. During 2022 the Company
paid expenses on behalf of PSS in the amount of $58,104. The
related receivable/prepaid balance remaining is $309,152 and
$331,106 at December 31, 2022 and 2021, respectively.
During the year, the Company had the following transactions with
its subsidiary companies:
Water Intelligence International
Limited $
Balance at 31 December 2021 4,670,366
Net loans to subsidiary -
Other expenses recharged and exchange differences (340,556)
Balance at 31 December 2022 4,329,809
ALDHC $
Balance at 31 December 2021 -
Loans prepaid by WI capital raise -
Balance at 31 December 2022 -
ALD Inc. $
Balance at 31 December 2021 23,270,653
Loans incurred due to WI capital raise -
Loans paid to WI -
Other expenses recharged and exchange differences (664,745)
Balance at 31 December 2022 22,605,908
27 Subsequent events
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.
28 Control
The Company is under the control of its shareholders and not any
one party. The shareholdings of the directors and entities in which
they are related are as outlined within the Director's Report.
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FR DGGDLRUDDGXG
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