Half Yearly Report

RNS Number : 3816N
Water Intelligence PLC
28 September 2012
 



Water Intelligence plc (AIM: WATR.L)

("Water Intelligence", the "Group" or the "Company")

 

Interim Results for the six months ended 30 June 2012

 

Water Intelligence, which is building a market-leading position as provider of water monitoring products and leak detection and remediation services to a broad range of customers including blue-chip UK utilities, such as Thames Water, announces strong interim results. The Group was established following completion of the reverse takeover of Qonnectis plc ('Qonnectis') by American Leak Detection Holding Corp ('ALDHC') in July 2010. 

 

Financial Highlights

 



   Six months ended 30 June 2012

Six months ended 30 June 2011

Year ended

31 December 2011



$'000

$'000

$'000

Total revenue


3,262

3,374

6,358

Operating profit/(loss)


574

296

(99)

Profit /(Loss) before tax


456

143

(197)

Earnings/(Loss) per share (diluted)


2.78c

1.51c

(4.50c)

 

 

Highlights

 

 

·      Profitability increased significantly; operating profits increased 94% and profits before tax increased 219%.

 

·      Revenue stable in the period compared to previous year with approximately $400,000 in respect of a confirmed Leakfrog order in May 2012 from Thames Water which will not be recognised until 2H of this year based on delivery and payment schedule that started in August. If the Thames order had been delivered in 1H revenue would have increased 9% to $3.66 million.

 

·      Qonnectis's Leakfrog sales for 2012 will have almost doubled over Leakfrog sales for 2011.

 

·      American Leak Detection franchise royalty income increased 8%; corporate store sales increased 8.5% and returned to profitability.

 

·      Strategic channel programs initiated at American Leak Detection to address customer needs in the insurance and restoration markets.

 

·      Domestic Reporter tested successfully at Thames Water during June 2012.

 

 

 

Patrick DeSouza, Executive Chairman of Water Intelligence, comments:

 

"The Group is beginning to build real momentum.  Whilst we are of course delighted with the improvement in financial performance, especially regarding earnings, the real excitement lies in the increasing demand and reach for American Leak Detection services and the traction we are gaining with major utility customers as they come to recognise the quality and value of our products. We believe that we can sustain this progress and take advantage of favourable market demand for water infrastructure solutions despite general market conditions in Europe and the United States that are less certain for other sectors."

 

 

 

27 September 2012

 

ENQUIRIES:

 

Water Intelligence plc (www.waterintelligence.co.uk)


Patrick DeSouza, Executive Chairman

Tel: +1 203 654 5426



Merchant Securities Limited


David Worlidge/Simon Clements

Tel: +44 20 7628 2200



College Hill


Mark Garraway

Tel: +44 20 7457 2020

 



 

Executive Chairman's Statement

 

The Interim results for the six months ended 30 June 2012 demonstrate our continued growth in key business drivers - revenue, earnings, margin, product commercialisation and strategic channels - since Water Intelligence plc was admitted to the AIM market in July 2010.  Most importantly, despite difficult macroeconomic conditions in Europe and in the United States, our core American Leak Detection (ALD) business is thriving, leading the way with strong top and bottom-line growth.  We are focusing our operating plan for 2013 to take advantage of such stable growth. We have initiated strategic channel programmes during the first half at ALD to take advantage of opportunities with insurance and restoration customers. We expect these programmes to start producing results during the second half of the year.  We are also pleased with the successful testing of Domestic Reporter with Thames Water in June 2012.  We are enthusiastic that businesses providing solutions with respect to scarce natural resources, especially water, face favourable market trends at both product and services segments.

 

We noted in our 2011 Annual Report that we believed we had the balance right for our operating plan during 2011.  Revenue grew 12% during 2011; operating profits returned with our first full year of operations; loss before tax narrowed significantly as we completed the integration of Qonnectis; we delivered a larger order of Leakfrogs to Thames Water compared with 2010 and we anticipated commercialisation of our next generation of products during the second half of 2012.  We indicated that because the investments in the UK product business had largely been completed, we would focus on driving our growing franchise services business.  We have done that and marched forward during the first half of 2012

 

I am now pleased to report that we have achieved stronger results during 2012 across our operations. Although revenues for the six month period ended 30 June 2012 were $3.26 million compared with $3.37 million for the same period a year earlier, this excludes the $400,000 Leakfrog firm order received from Thames in May 2012, deliveries of which commenced in August 2012.  The final delivery is expected to be completed in October 2012.  Following the fulfilment of this order, Leakfrog sales will have almost doubled in 2012 compared to 2011. If the Thames order had been delivered in 1H, revenue would have been 9% higher than the comparable period, at approximately $3.66 million. In addition to these higher Leakfrog sales, franchise royalties and corporate-operated store revenue segments in the period ended 30 June 2012 increased 8% to $2.99 million from $2.76 million in the comparable 2011 period.  Importantly, the margin from our activities increased which translated to the bottom-line. Earnings before interest and taxes (EBIT) increased 94% to $573,620 from $296,215.  Profit before tax increased 219% to $456,482 from $143,473 translating to an increase of approximately 83% in earnings per share when compared to the same period in 2011. 

 

Strategically, in June 2012 we completed a successful round of testing of our Domestic Reporter units with Thames Water.  We have now moved to the next phase of the product cycle in preparing production-ready units.  We are still hopeful on selling Domestic Reporters before the year-end and are working with UK water utilities to achieve this result. As profits have increased and our capital expenditure requirements for Domestic Reporter are complete, we are sticking to the operating plan and now re-investing in our franchise business to reinforce its strong performance for the second half and beyond.    

 

Our balance sheet remains robust enabling us to plan for reinvestment to boost sustainable shareholder value.  As noted above, earnings are up; meanwhile, the level of borrowing has been reduced.  As of 30 June 2012, borrowings were steadily reduced in line with our bank amortisation schedule from $3.46 million at 30 June 2011 to $3.06 million at 30 June 2012.  Net of cash, borrowings were reduced from $2.98 million at 30 June 2011 to $2.70 million at 30 June 2012.

 

We are now well positioned to achieve sustainable growth.  As we develop our operating plan for 2013-14, we will be allocating resources between our product and services business lines not only to drive shareholder value but also to manage risk given global macroeconomic conditions.  On the water leak detection services side, we have continued our growth and have positioned sales channels and reinvestment monies to accelerate that trend.  Because of our core royalty-based franchise, with its distribution footprint across the U.S., we believe that sustainable growth carries less risk.  The management team of American Leak and our franchisees are committed to exceed earnings plans with the right level of re-investment.  Meanwhile, on the smart metering product side, we are pleased with the increasing size of the Leakfrog orders. And we believe that we now have exciting new products ready for the market led by Domestic Reporter that are expected to add scale to the Group's revenue and earnings.  Like any product business line, we recognise that the opportunity cost and risk is relatively high reflecting the uncertain timing of technology adoption.  We believe, however, that the potential for rapidly scaling the business supports the investment we have made. 

 

Our focus for the second half of the year will be to build on the progress made in 1H and for the 2012 revenues to exceed those achieved in 2011.  We believe we are now well on our way to building the business to generate shareholder value.  We also believe that the strong and global market demand for complete solutions to monitoring, detecting and remediating water loss reinforces both our current and future operating plans. Our long-term macro-view with respect to the importance of water enables us to have confidence in building shareholder value irrespective of the economics affecting other industrial sectors.

 

 

Patrick De Souza

Executive Chairman

 

27 September 2012

 

 

Cautionary Statement

 

This interim financial information has been prepared for the shareholders of Water Intelligence, as a whole, and its sole purpose and use is to assist shareholders to exercise their governance rights. Water Intelligence and its Directors and employees are not responsible for any other purpose or use or to any other person in relation to this announcement.

 

The report contains indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. These and other factors could adversely affect the Group's results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ. No obligation is assumed to update any forward-looking statements, whether as a result of new information, future events or otherwise.



 

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

 

 



Six months

ended

30 June

 2012

Six months

ended

30 June

 2011

Year Ended

 31 December 2011


Notes

$

$

$



Unaudited

Unaudited

Audited

Revenue

4

3,262,168

3,374,463

6,358,272






Cost of sales


(238,796)

(365,412)

(498,704)






Gross profit


3,023,372

3,009,051

5,859,568

Administrative expenses





-       Share-based payments


 

(15,240)

 

(12,561)

 

(36,643)

-       Impairment of Goodwill


 

-

 

-

 

(75,000)

-       Amortisation of intangibles


 

(131,732)

 

(130,030)

 

(264,062)

-       Other administrative costs


 

(2,302,780)

 

(2,570,245)

 

(5,385,136)

Total administrative expenses


(2,449,752)

(2,712,836)

(5,760,841)











Operating profit


573,620

296,215

98,727






Finance income


13,527

9,522

22,808

Finance expense


(130,685)

(162,264)

(318,578)






Profit/(Loss) before tax


456,462

143,473

(197,043)






Taxation (expense)/credit


(168,128)

5,932

(264,145)






Profit/(Loss) for the period


 

288,334

 

149,405

 

(461,188)






Other comprehensive income





Exchange differences arising on translation of foreign operations


 

 

(13,196)

 

 

1,596

 

 

34,031

Total comprehensive profit/(loss) for the period


 

275,138

 

151,001

 

(427,157)






Earnings/(loss) per share


Cents

Cents

Cents

Basic

5

2.86

1.56

(4.5)

Diluted

5

2.78

1.51

(4.5)

 

 

 

 

 

Interim Consolidated Statement of Financial Position as at 30 June 2012

 

 

 


At

30 June

2012

At

30 June

2011

At

31 December 2011



$

$

$



Unaudited

Unaudited

Audited

ASSETS





Non-current assets





Goodwill


2,294,940

2,369,940

2,294,940

Other intangible assets


3,734,423

3,841,091

3,709,060

Property, plant and equipment


26,565

47,526

35,692

Deferred tax asset


-

198,927

55,218

Trade and other receivables


57,494

62,424

44,839



6,113,422

6,519,908

6,139,749






Current assets





Inventories


110,591

104,277

91,270

Deferred tax asset


-

80,461

779,840

Trade and other receivables


1,433,281

986,380

62,724

Cash and cash equivalents


365,610

478,355

364,099



1,909,482

1,649,473

1,297,933

TOTAL ASSETS


8,022,904

8,169,381

7,437,682






EQUITY AND LIABILITIES





Equity attributable to holders of the parent





Share capital


12,716,863

12,716,863

12,716,863

Share premium


4,203,812

4,203,812

4,203,812

Capital redemption reserve


6,517,644

6,517,644

6,517,644

Merger reserve


8,501,150

8,501,150

8,501,150

Other reserves


71,969

14,758

69,925

Reverse acquisition reserve


(27,758,088)

(27,758,088)

(27,758,088)

Retained loss


(879,031)

(556,772)

(1,167,365)



3,374,319

3,639,367

3,083,941






Non-current liabilities





Borrowings


2,273,084

2,879,724

2,582,964

Provision of onerous contracts


64,436

159,022

72,359



2,337,520

3,038,746

2,655,323






Current liabilities





Trade and other payables


1,339,117

772,527

970,984

Deferred tax


89,196

-

-

Borrowings


791,521

576,648

600,521

Promissory notes


-

58,858

7,272

Provision of onerous contracts


91,231

83,235

119,641



2,311,065

1,491,268

1,698,418

TOTAL EQUITY AND LIABILITIES


 

8,022,904

 

8,169,381

 

7,437,682

 



 

Interim Consolidated Statement of Changes in Equity

For the six months ended 30 June 2012

 

 


Share

Capital

Share

Premium

Capital Redemption Reserve

Reverse Acquisition Reserve

Merger

Reserve

Other

Reserves

Retained

Profit/

(Loss)

Total

Equity


$

$

$

$

$

$

$

$

As at 1 January 2011

 

12,716,863

 

4,203,812

 

6,517,644

 

(27,758,088)

 

8,501,150

 

601

 

(706,177)

 

3,475,805

Share based payment expense

 

-

 

-

 

-

 

-

 

-

 

12,561

 

-

 

12,561

Total Comprehensive Income

 

-

 

-

 

-

 

-

 

-

 

1,596

 

149,405

 

151,001

As at 30 June 2011

(unaudited)

 

12,716,863

 

4,203,812

 

6,517,644

 

(27,758,088)

 

8,501,150

 

14,758

 

(556,772)

 

3,639,367

Share based payment expense

 

-

 

-

 

-

 

-

 

-

 

24,082

 

-

 

24,082

Foreign exchange

-

-

-

-

-

(1,350)

-

(1,350)

Total comprehensive loss

 

-

 

-

 

-

 

-

 

-

 

32,435

 

(610,593)

 

(578,158)

As at 31 December 2011 (audited)

 

12,716,863

 

4,203,812

 

6,517,644

 

(27,758,088)

 

8,501,150

 

69,925

 

(1,167,365)

 

3,083,941

Share based payment expense

 

-

 

-

 

-

 

-

 

-

 

15,240

 

-

 

15,240

Total comprehensive profit

 

-

 

-

 

-

 

-

 

-

 

(13,196)

 

288,334

 

275,138

As at 30 June 2012

(unaudited)

 

12,716,863

 

4,203,812

 

6,517,644

 

(27,758,088)

 

8,501,150

 

71,969

 

(879,031)

 

3,374,319

 



 

Interim Consolidated Statement of Cash Flows

For the six months ended 30 June 2012

 



Six months ended

30 June 2012

Six months ended

30 June 2011

Year ended 31 December 2011


Notes

$

$

$



Unaudited

Unaudited

Audited






Net cash generated from operating activities

 

6

 

 

415,111

 

 

322,740

 

 

653,231






Cash flows from investing activities





Interest received


13,527

9,522

22,808

Interest paid


(127,386)

(152,729)

(318,578)

Purchase of plant and equipment


-

-

(3,883)

Purchase of intangible assets


(157,095)

-

-

Sale of fixed assets


-

-

300

Net cash used in investing activities


 

 

(270,954)

 

 

(143,207)

 

 

(299,353)






Cash flows from financing activities





Proceeds from borrowings


162,380

-

-

Principal payments on long term debt


 

(284,558)

 

(272,010)

 

(630,192)

Repayment of loan note funding


(7,272)

(43,244)

-

Net cash used in financing activities


 

(129,450)

 

(315,254)

 

(630,192)






Net increase/(decrease) in cash and cash equivalents


 

14,707

 

(135,721)

 

(276,314)

Cash and cash equivalents at the beginning of period


 

364,099

 

606,382

 

606,382

Effect of foreign exchange rate changes


 

(13,196)

 

7,694

 

34,031

Cash and cash equivalents at end of period


 

365,610

 

478,355

 

364,099

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Interim Consolidated Financial Information

for the six months ended 30 June 2012

 

1   General information

 

The Group is a leading provider of water monitoring products, leak detection equipment and remediation services. The Group's strategy is to focus on providing a critical mass of water management products and services and to be a "one-stop" shop for leak alerts, precision, non-invasive leak detection and remediation.

 

The Company is a public limited company domiciled in the United Kingdom and incorporated under registered number 03923150 in England and Wales. The Company's registered office is Hexagon Business Centre, Hexagon House, Station Lane, Witney, Oxfordshire, OX28 4BN.

 

2   Adoption of new and revised International Financial Reporting Standards

 

No new IFRS standards, amendments or interpretations became effective in the six months to 30 June 2012 which had a material effect on this interim consolidated financial information.

 

3   Significant accounting policies

 

Basis of preparation

The accounting policies adopted are consistent with those of the previous financial year.

 

This interim consolidated financial information for the six months ended 30 June 2012 has been prepared in accordance with IAS 34, 'Interim financial reporting'. This interim consolidated financial information is not the group's statutory financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and have been delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

 

The interim consolidated financial information for the six months ended 30 June 2012 is unaudited. In the opinion of the Directors, the interim consolidated financial information presents fairly the financial position, and results from operations and cash flows for the period. Comparative numbers for the six months ended 30 June 2011 are unaudited.

 

This interim consolidated financial information is presented in US Dollars ($), rounded to the nearest dollar.

 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

 

Foreign currencies

(i) Functional and presentational currency

Items included in this interim consolidated financial information are measured using the currency of the primary economic environment in which each entity operates ("the functional currency") which is considered by the Directors to be the Pounds Sterling (£) for the Parent Company and US Dollars ($) for American Leak Detection Holding Corp. This interim consolidated financial information has been presented in US Dollars which represents the dominant economic environment in which the Group operates and is considered to be the functional currency of the group. The effective exchange rate at 30 June 2012 was £1 = US$1.57095 (30 June 2011: £1 = US$ 1.6018).



 

Critical accounting estimates and judgments

The preparation of interim consolidated financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, the resulting accounting estimates will, by definition, seldom equal the related actual results. 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 discussed in the relevant notes.

 

In preparing this interim consolidated financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2011.

 

4   Revenues

 

In the opinion of the Directors, the operations of the Group currently comprise four operating segments, being the franchises, corporate owned stores and otheractivities including product and equipment sales and head office costs.

 

The Group mainly operates in the US, with operations in the UK and certain other countries. In the six months to 30 June 2012, 96% of its revenue came from the US based operations, the remaining 4% of its revenue came from either UK or overseas based operations.

 

No single customer accounts for more than 10% of the Group's total external revenue.

 

Segment information

The Group adopted IFRS 8 Operating Segments with effect from 1 July 2008. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group.

 

Information reported to the Group's Chief Operating Decision Maker (being the Executive Chairman), for the purpose of resource allocation and assessment of division performance is separated into three segments

-       Franchisor royalties

-       Corporate-operated stores

-       Other activities including product and equipment sales

 

The following is an analysis of the Group's revenues, results from operations and assets:

 

Revenue

 


   Six months ended

30 June 2012

   Six months ended

30 June 2011

Year ended 31 December 2011



$

$

$



Unaudited

Unaudited

Audited

Royalties from franchisees


2,270,088

2,103,582

4,131,459

Corporate-operated Stores


716,640

660,182

1,367,645

Other activities


275,440

610,699

859,168

Total


3,262,168

3,374,463

6,358,272

 



 

Profit/(Loss) before tax


   Six months ended

30 June 2012

   Six months ended

30 June 2011

Year ended 31 December 2011

 



$

$

$

 



Unaudited

Unaudited

Audited

 

Royalties from franchisees


870,836

829,661

883,051

 

Corporate-operated Stores


37,217

(33,193)

(105,164)

 

Other activities


(140,055)

(430,877)

(243,785)

 

Unallocated head office costs


(311,516)

(222,118)

(731,145)

 

Total


456,482

143,473

(197,043)

 






Assets


   Six months ended

30 June 2012

   Six months ended

30 June 2011

Year ended 31 December 2011



$

$

$



Unaudited

Unaudited

Audited

Royalties from franchisees


6,111,300

5,484,173

5,157,602

Corporate-operated Stores


264,793

378,245

300,424

Other activities


1,646,811

2,306,963

1,979,656

Total


8,022,904

8,169,381

7,437,682

 

For the purpose of monitoring segmental performance, no liabilities are reported to the Group's Chief Operating Decision Maker.

 

Geographic information

 

Total revenue

Total revenue from activities by geographical area is detailed below:

 

Revenue by geography

 


   Six months ended

30 June 2011

   Six months ended

30 June 2011

Year ended 31 December 2011



$

$

$



Unaudited

Unaudited

Audited

US


3,138,251

2,993,461

5,856,369

International


123,917

381,002

501,903

Total


3,262,168

3,374,463

6,358,272

 



Revenue from franchisor activities by geographical area is detailed below.

 

 

Royalties from franchisees

 


   Six months ended

30 June 2011

   Six months ended

30 June 2011

Year ended 31 December 2010



$

$

$



Unaudited

Unaudited

Audited

US


2,152,564

1,990,861

3,882,459

International


117,524

112,721

249,000

Total


2,270,088

2,103,582

4,131,459

 

 

5   Earnings per share

 

The earnings per share has been calculated using the profit for the period and the weighted average number of ordinary shares outstanding during the period, as follows:

 

 

 


   Six months ended

30 June 2011

   Six months ended

30 June 2011

Year ended 31 December 2011



$

$

$



Unaudited

Unaudited

Audited

Earnings/(loss) attributable to shareholders of the Company ($)


 

 

275,138

 

 

149,405

 

 

(427,158)

Weighted average number of ordinary shares


 

9,604,417

 

9,604,417

 

9,604,417

Earnings/(loss) per share (cents)


 

2.86

 

1.56

 

(4.5)

Diluted earnings/(loss) per share (cents)


 

2.78

 

1.51

 

(4.5)

 

The Company issued no share options in the six months to 30 June 2012 (six months to 30 June 2011: nil).  For the purposes of the diluted loss per share the weighted average number of shares in issue and to be issued, allowing for the exercise of the share options is 9,898,085.  The diluted loss per share has been kept the same as the basic loss per share as the conversion of share options decreases the basic loss per share, thus being anti-dilutive.



 

6   Notes to the statement of cash flows

 



   Six months ended

30 June 2011

   Six months ended

30 June 2011

Year ended

31 December 2010



$

$

$



Unaudited

Unaudited

Audited

Cash flows from operating activities










Profit/(Loss) before interest and taxation


 

573,620

 

296,215

 

98,727

Adjustments for:





Depreciation of plant and equipment


 

9,884

 

29,983

 

45,414

Amortisation of intangible assets


131,732

132,031

264,061

Impairment


-


75,000

Gain on disposal of fixed asset


-

-

(300)

Share based payments


15,240

12,561

36,643






Operating cash flows before movements in working capital


730,476

470,790

519,545

(Increase)/Decrease in inventories


(19,321)

137,772

150,779

(Increase)/Decrease in trade and other receivables


 

(627,843)

 

(135,543)

 

59,594

Increase/(Decrease) in trade and other payables


 

331,799

 

(150,279)

 

(2,978)






Cash generated by operations


415,111

322,740

726,940

Income taxes


-

-

(73,709)

Net cash generated from operating activities


415,111

322,740

653,231

 

 

7   Publication of announcement and the Interim Results

 

A copy of this announcement will be available at the Company's registered office (Hexagon Business Centre, Hexagon House, Station Lane, Witney, Oxfordshire, OX28 4BN) 14 days from the date of this announcement and on its website - www.waterintelligence.co.uk.

 

This announcement is not being sent to shareholders. The Interim Results will be posted to shareholders shortly and will be made available on the website.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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