Interim Results

RNS Number : 8304Y
Water Intelligence PLC
14 September 2015
 

 

Water Intelligence plc (AIM: WATR.L)

 

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

 

Interim Results for the six months ended 30 June 2015

 

Water Intelligence, a leading provider of non-invasive, leak detection and remediation services, is pleased to present its interim results for the period ended 30 June 2015.

 

Results Highlights

 

·      Revenue growth of 25.2% to $4.4 million (2014: $3.5 million)

·      Royalty Income component growth of 6.6% to $2.72 million (2014: $2.55 million)

·      Corporate owned stores component growth of 60.3% to $1.12 million (2014: $0.70 million)

·      "Other" component (eg. equipment) growth of 110.5% to $0.56 million (2014: $0.26 million)

·      Profit before tax up 48.6% to $0.91 million (2014: $0.61 million)

·      Successful reacquisition of franchise territories in New York, Miami and Detroit

 

Patrick DeSouza, Executive Chairman of Water Intelligence, commented: "We are pleased that the strategic choices we have made to grow our brand - national sales channels and reinvigorated corporate presence via selective franchise re-acquisition - are bearing fruit. Our entire franchise system is unified behind our direction and reinvesting for future growth."

 

Water Intelligence plc


Patrick DeSouza (Executive Chairman)

 

Tel: +1 203 654 5426

WH Ireland Limited


Adrian Hadden / James Bavister

 

Tel: 020 7220 1666

 

Executive Chairman's Statement

 

In the 2014 Annual Report, I noted that we had begun to see, at the start of 2015, strong positive effects of investment decisions that we had made during the second half of 2014. Our key components - royalty income, corporate store sales and "Other" sales (which include product and equipment sales) - have all shown positive growth.

 

We are pleased to report after our first half results that we have confidence regarding our full year path. Our 1H 2015 numbers compared with 1H 2014 have shown marked improvement. Revenue is up 25.2% to $4.4 million. Profit before tax is up 48.6% to $0.91 million. Adjusted operating profit (earnings before interest, taxes and depreciation) is up 33.3% to a little over $1.1 million. Moreover, we are pleased that during the first half, we were able to successfully balance our profit objective and with our reinvestment objective. During the first half, administrative costs increased by 20% to $2.9 million as we hired more people to execute upon our corporate store growth plan and opened a regional corporate office and warehouse in Miami to improve on our nation-wide US execution reach.  While revenue growth should remain strong for the full year and exceed analyst expectations, we expect that adjusted operating profits will remain in-line with analyst expectations for full year because of planned increased spending for the second half outlined below that will feed future growth. This has proved to be a winning formula over the last two years in achieving our current trajectory.

 

Each of our key components show the same trend for both sales and profit before tax. First, royalty income grew 6.6% to $2.72 million. Profits on royalty income grew 20% to $0.97 million. Hence our franchise system remains healthy and we seek to push past $70 million in total system-wide sales. Corporate store sales grew 60.3% to $1.12 million. Profits on corporate store sales grew 54% to $67 thousand. Such accelerated growth is in line with our overall business strategy of selectively re-acquiring a portion of the existing $70 million in system-wide sales. Finally, sales in our category of "Other", which includes equipment sales, more than doubled to $0.56 million. Profits for this category have now turned from negative to positive at $50 thousand. We are pleased with growth in this category because it indicates that our franchisees are also re-investing for growth through equipment purchases.

 

Beyond the observation of 60% growth in corporate store sales with accompanying profits, we should also acknowledge the transformational value of the launch of our corporate store strategy. The franchise system sales and royalty income continue to grow steadily as we develop our national sales channels with insurance companies. However, from our existing base of $70 million in system-wide sales, during the first half of 2015, we began to harvest shareholder value in different ways. We acquired corporate revenue and earnings with our reacquisition of the Detroit franchise and we gained "greenfield" territory from which we were receiving little royalty income by reacquiring the New York franchise and a significant portion of the Miami franchise. In New York and Miami, we have already achieved strong accretive sales. We have also made some operational changes that have produced accelerated organic growth in our Palm Springs corporate location. Hence, as evidenced by our franchise reacquisition strategy, shareholders should continue to benefit from the various ways that we plan to unlock revenue and earnings while still growing royalty income. Such a reacquisition strategy is also complementary with our franchisees incentive to exit profitably after having built a great business over a career. Our company's critical mass is effectively much bigger than reflected in our simple profit and loss statement and we will continue to optimize the balance between franchise sales and corporate store sales unlocking more revenue and earnings in 2016 and beyond.

 

As stated in the Company's 2014 annual report, if all continues as expected, the board will revisit our dividend policy because increasing profits before taxes are accompanying sales growth as outlined above in the segmental analysis. Such leverage on incremental sales growth provides us with decision-making flexibility with respect to our operating plan. Our priority, however, remains sales growth and increasing market share because our existing nationwide sales footprint in the U.S. is a competitive barrier to entry that only makes our franchise and brand more valuable for the future.

 

The board recognizes that we are only at the beginning of building a strong, world-wide growth brand. The addressable market for solutions to reduce water loss is significant and the issue is salient as water becomes more expensive. To more effectively achieve this objective, we need to reinvest in reaching a greater critical mass. First, we need to continue to invest in training and recruitment to put more skilled service technicians in the field because demand for our solutions is strong. Second, we need to reinvest to expand our sales footprint geographically. As noted in the Chairman's Statement of the 2014 Annual Report, we have opportunities to grow outside of the United States which we are in the process of exploring. We have existing growing franchises in Australia and Canada to build upon and corporate launch points in the southern US to expand into Mexico. We continue to look for openings with water utilities in the UK. Third, to improve execution, we need to invest in some more regional corporate locations as we did in Miami, Florida during the first half of 2015. Finally, since our franchise re-acquisition program is off to a good start, we plan to selectively continue this program during 2016. Hence, much like the second half of 2014, we plan to increase reinvestment during the second half of 2015. With this prudent approach to building a valuable company, our board will revisit the dividend matter as we approach year-end and can properly balance our level of profit with long-run strong growth.

 

 

 

 

 

 

 

 

 

 

 

 

 

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2015

 

 



Six months

ended

30 June

 2015

Six months

ended

30 June

 2014

Year ended

 31 December 2014


Notes

$

$

$



Unaudited

Unaudited

Audited

Revenue

4

4,397,601

3,513,737

7,215,097






Cost of sales


(384,001)

(260,613)

(525,055)






Gross profit


4,013,600

3,253,124

6,690,042

Administrative expenses





Share-based payments


 

-

 

(6,592)

 

-

-       Amortisation of intangibles


 

(130,846)

 

(149,621)

 

(341,870)

-       Other administrative costs


 

(2,907,399)

 

(2,416,510)

 

(5,639,319)






Total administrative expenses


(3,038,245)

(2,572,723)

(5,981,189)






Operating profit


975,355

680,401

708,853






Finance income


7,134

8,443

18,154

Finance expense


(72,660)

(76,464)

(141,837)






Profit before tax


909,829

612,380

585,170






Taxation expense


(325,139)

(270,521)

(209,118)






Profit for the period


584,690

341,859

376,052






Other comprehensive income





Exchange differences arising on translation of foreign operations


 

 

(72,854)

 

 

(30,856)

 

 

(50,622)

Total comprehensive profit for the period


 

512,106

 

311,003

 

325,430






Earnings per share


Cents

Cents

Cents

Basic

5

5.5

3.2

3.6

Diluted

5

5.5

3.1

3.6

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Position as at 30 June 2015

 

 

 

 


At

30 June

2015

At

30 June

2014

At

31 December

2014



$

$

$



Unaudited

Unaudited

Audited

ASSETS





Non-current assets





Goodwill


941,211

899,868

801,211

Other intangible assets


3,345,030

3,110,529

3,003,215

Property, plant and equipment


171,135

55,601

57,948

Trade and other receivables


56,708

23,053

29,076



4,514,084

4,089,051

3,891,450






Current assets





Inventories


286,647

155,536

205,477

Trade and other receivables


1,339,960

889,565

830,272

Cash and cash equivalents


1,157,530

1,909,954

1,756,014



2,784,137

2,955,055

2,791,763

TOTAL ASSETS


7,298,221

7,044,106

6,683,213






EQUITY AND LIABILITIES





Equity attributable to holders of the parent





Share capital


12,733,307

12,732,564

12,732,564

Share premium


4,828,116

4,800,610

4,800,610

Shares to be issued


-

-

29,510

Capital redemption reserve


6,517,644

6,517,644

6,517,644

Merger reserve


8,501,150

8,501,150

8,501,150

Share based payment reserve


-

117,272

-

Other reserves


(183,920)

(91,300)

(111,066)

Reverse acquisition reserve


(27,758,088)

(27,758,088)

(27,758,088)

Retained loss


(870,085)

(1,599,648)

(1,454,775)



3,768,124

3,220,204

3,257,549






Non-current liabilities





Borrowings


1,789,435

2,303,897

2,048,472

Deferred consideration


320,000

-

-

Deferred tax liability


350,953

410,235

195,319



2,460,028

2,714,132

2,243,791






Current liabilities





Trade and other payables


475,568

622,564

667,997

Borrowings


514,501

446,103

502,029

Deferred consideration


80,000

-

-

Provision of onerous contracts


-

41,103

11,847



1,070,069

1,109,770

1,181,873

TOTAL EQUITY AND LIABILITIES


 

7,298,221

 

7,044,106

 

6,683,213

               

 

 

 


Interim Consolidated Statement of Changes in Equity

For the six months ended 30 June 2015


Share

Capital

Share

Premium

Capital Redemption Reserve

Reverse Acquisition Reserve

Merger

Reserve

Share based payment reserve

Other

Reserves

Retained

 Losses

Total

Equity


$

$

$

$

$

$

$

$

$

As at 1 January 2014

 

12,732,564

 

4,800,610

 

6,517,644

 

(27,758,088)

 

8,501,150

 

110,680

 

(60,444)

 

(1,941,507)

 

2,902,609

Share based payment expense

 

-

 

-

 

-

 

-

 

-

 

6,592

 

-

 

-

 

6,592

Total Comprehensive Income

 

-

 

-

 

-

 

-

 

-

 

-

 

(30,856)

 

341,859

 

311,003

As at 30 June 2014

(unaudited)

 

12,732,564

 

4,800,610

 

6,517,644

 

(27,758,088)

 

8,501,150

 

117,272

 

(91,300)

 

(1,599,648)

 

3,220,204

Issue of ordinary shares

-

-

-

-

-

-

-

-

-

Shares to be issued

29,510

-

-

-

-

-

-

-

29,510

Release of share-based payment reserve

-

-

-

-

-

(117,272)

-

117,272

-

Profit for the period

Other comprehensive loss

-

-

-

-

-

-

-

-

-

-

-

-

-

(19,766)

27,601

-

27,601

(19,766)











As at 31 December 2014 (audited)

12,762,074

 

4,800,610

 

6,517,644

(27,758,088)

8,501,150

-

 

(111,066)

 

(1,454,775)

 

3,257,549

 

Shares to be issued

(29,510)

-

-

-

-

-

-

-

(29,510)

Issue of ordinary shares

743

27,506

-

-

-

-

-

-

28,249

Profit for the period

 

-

 

-

 

-

 

-

 

-

 

 

 

-

 

584,690

 

584,690

Other comprehensive loss

 

-

 

-

 

-

 

-

 

-

 

-

 

(72,854)

 

-

 

(72,854)

As at June 2015 (unaudited)

12,733,307

4,828,116

6,517,644

(27,758,088)

8,501,150

-

(183,920)

 

(870,085)

 

3,768,124

 

 

 

 

 

 

 


Interim Consolidated Statement of Cash Flows

For the six months ended 30 June 2015

 



Six months ended

30 June 2015

Six months ended

30 June 2014

Year ended 31 December 2014


Notes

$

$

$



Unaudited

Unaudited

Audited






Net cash generated from operating activities

 

6

 

 

514,013

 

 

582,702

 

 

673,328






Cash flows from investing activities





Purchase of plant and equipment


(113,631)

(46,000)

(56,589)

Purchase of intangible assets


(472,660)

-

(58,490)

Additional goodwill


(140,000)

(98,657)

-

 

Net cash used in investing activities


 

 

(726,291)

 

 

(144,657)

 

 

(115,079)






Cash flows from financing activities





Issue of share capital


743

-

-

Share premium from issue of share capital


27,506

-

-

Shares to be issued


(29,510)

-

-

Interest received


7,134

8,443

18,154

Interest paid


(72,660)

(76,464)

(141,837)

Proceeds from borrowings


-

1,040,786

1,000,000

Principal payments on long term debt


(246,565)

 (260,497)

 (419,209)

Net cash used in financing activities


 

(313,352)

 

712,268

 

457,108






Net (decrease)/increase in cash and cash equivalents


 

(525,630)

 

1,150,313

 

1,015,357

Cash and cash equivalents at the beginning of period


 

1,756,014

 

792,468

 

792,468

Effect of foreign exchange rate changes


 

(72,854)

 

(32,827)

 

(51,811)

Cash and cash equivalents at end of period


 

1,157,530

 

1,909,954

 

1,756,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Interim Consolidated Financial Information

for the six months ended 30 June 2015

 

1    General information

 

The Group is a leading provider of non-invasive, leak detection and remediation services. The Group's strategy is to be a "one-stop shop" of water leak solutions (including products) for residential, commercial and municipal customers.

 

The Company is a public limited company domiciled in the United Kingdom and incorporated under registered number 03923150 in England and Wales. The Company's registered office is 201 Temple Chambers, 3-7 Temple Avenue, EC4Y 0DT.

 

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 2015 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 2015 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 2014, 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 2015 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 2014 are unaudited.

 

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

 

Foreign currencies

(i) Functional and presentational currency

Items included in this interim consolidated financial information are measured using the currency of the primary economic environment in which each entity operates ("the functional currency") which is considered by the Directors to be the Pounds Sterling (£) for the Parent Company and US Dollars ($) for American Leak Detection Holding Corp. This interim consolidated financial information has been presented in US Dollars which represents the dominant economic environment in which the Group operates and is considered to be the functional currency of the Group. The effective exchange rate at 30 June 2015 was £1 = US$ 1.5717 (30 June 2014: £1 = US$ 1.7028).

 

Critical accounting estimates and judgments

 

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

 

In preparing this interim consolidated financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2014.

 

4    Revenues

 

In the opinion of the Directors, the operations of the Group currently comprise four operating segments, being the franchises, corporate owned stores, other activities 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 2015, 99.6% (2014: 100%) of its revenue came from the US based operations; the remaining 0.4% (2014: Nil) 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; and

-       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 2015

 Six months ended

30 June 2014

Year ended

31 December

2014



$

$

$



Unaudited

Unaudited

Audited

Royalties from franchisees


2,715,151

2,547,269

4,916,984

Corporate-operated Stores


1,122,690

700,541

1,460,895

Other activities


559,760

265,927

837,218

Total


4,397,601

3,513,737

7,215,097

 

 

Profit before tax


 Six months

ended

30 June 2015

 Six months

ended

30 June 2014

Year ended

31 December

2014

 



$

$

$

 



Unaudited

Unaudited

Audited

 

Royalties from franchisees


983,379

818,664

826,265

 

Corporate-operated Stores


67,134

43,606

(45,991)

 

Other activities


51,323

(2,862)

275,843

 

Unallocated head office costs


(192,007)

(247,028)

(470,947)

 

Total


909,829

612,380

585,170

 






Assets


 Six months

ended

30 June 2015

 Six months ended

30 June 2014

Year ended

31 December

2014



$

$

$



Unaudited

Unaudited

Audited

Royalties from franchisees


6,772,251

6,875,730

6,790,773

Corporate-operated Stores


1,272,057

385,921

422,193

Other activities


(746,087)

(217,545)

(529,753)

Total


7,298,221

7,044,106

6,683,213

 

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 2015

 Six months

ended

30 June 2014

Year ended

31 December

2014



$

$

$



Unaudited

Unaudited

Audited

US


4,269,450

3,393,737

6,452,396

International


128,151

120,000

363,612

Total


4,397,601

3,513,737

6,816,008

 

Revenue from franchisor activities by geographical area is detailed below.

 

 

Royalties from franchisees

 


 Six months ended

30 June 2015

 Six months ended

30 June 2014

Year ended

31 December 2014



$

$

$



Unaudited

Unaudited

Audited

US


2,604,151

2,427,269

4,357,523

International


111,000

120,000

252,840

Total


2,715,151

2,547,269

4,610,363

 

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 2015

 Six months

ended

30 June 2014

Year ended

31 December

2014








Unaudited

Unaudited

Audited

Earnings attributable to shareholders of the Company ($)


 

 

584,690

 

 

341,859

 

 

376,052

Weighted average number of ordinary shares


 

10,593,064

 

10,567,650

 

10,567,650

Diluted weighted average number of ordinary shares


 

10,593,064

 

10,909,511

 

10,567,650

Earnings per share (cents)


 

5.5

 

3.2

 

3.6

Diluted earnings per share (cents)


5.5

3.1

 

3.6

 

The Company issued nil share options in the six months to 30 June 2015 (six months to 30 June 2014: nil).

 

6      Notes to the statement of cash flows

 



 Six months ended

30 June 2015

 Six months ended

30 June 2014

Year ended

31 December 2014



$

$

$



Unaudited

Unaudited

Audited

Cash flows from operating activities










Profit/(Loss) before interest and taxation


 

975,354

 

680,401

 

708,853

Adjustments for:





Depreciation of plant and equipment


 

444

 

1,717

 

12,161

Amortisation of intangible assets


130,846

149,621

341,870

Gain on disposal of fixed asset


-

-

-

Share based payments


-

6,592

-






Operating cash flows before movements in working capital


 

1,106,644

 

838,331

 

1,062,884

(Increase)/Decrease in inventories


(81,170)

(10,243)

(60,184)

(Increase)/Decrease in trade and other receivables


 

(537,321)

 

(143,540)

 

(90,269)

Increase/(Decrease) in trade and other payables


 

350,999

 

(46,161)

 

(29,985)






Cash generated by operations


839,152

638,387

882,446

Income taxes


(325,139)

(55,605)

(209,118)

Net cash generated from operating activities


514,013

582,782

673,328

                                                                                                                                           

7      Reacquisition of franchisee's territories

 

On 17 February 2015, the Group reacquired a significant amount of territory from its Miami franchisee, through its wholly owned subsidiary, ALD.

 

On 25 March 2015, the Group announced the completion of its reacquisition of its New York franchisee, also through ALD, with the issuance of 50,000 ordinary shares of 1p each in the Group to the former owner. The 50,000 shares were admitted to AIM on the 30 March 2015, with a total of 10,617,500 shares in issue following admission.

 

On 6 May 2015, the Group reacquired its Detroit/Eastern Michigan franchisee through its wholly-owned subsidiary ALD. Provisional fair values have been included in the consolidated financial statements.

 

8    Publication of announcement and the Interim Results

 

A copy of this announcement will be available at the Company's registered office (201 Temple Chambers, 3-7 Temple Avenue, EC4Y 0DT) from the date of this announcement and on its website - www.waterintelligence.co.uk. This announcement is not being sent to shareholders.


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