Water Intel. Regulatory News (WATR)

Water Intelligence Plc

First Half Trading Update

Water Intelligence plc (AIM: WATR.L) (the "Group" or "Water Intelligence"), a leading multinational provider of precision, minimally-invasive leak detection and remediation solutions for both potable and non-potable water is pleased to provide a trading update for 1H 2018. Unaudited financial statements are expected to be released during the week of 10 September.

Strong Trading Growth; Significant Profits Growth

The Group had a very productive first half. Our business model continues to scale strongly at both top and bottom lines. Sales grew approximately 39% half year over half year reaching $11.8 million (1H 2017: $8.5 million). Profits before taxes grew approximately 48% half year over half year reaching $1.25 million 1H 2017: $0.85 million). Both top and bottom lines are comfortably in-line within expectations for full year 2018. We are on track to meet the goals set forth in the Chairman's Statement for the 2017 Annual Report released earlier this year: passing $20 million in annual sales during 2018 and passing $25 million in annualized sales in the near-term.

Beyond this core financial guidance, two operating points regarding first half execution are important for this update because they underscore our focus on creating a sustainable growth trajectory. Each is discussed below. First, both US and UK operating subsidiaries share in the strong growth trajectory and continue to deliver on our stated mission of building a world-class multinational growth company. The addressable market regarding problems of water loss from leakage and poor infrastructure is global. The collaborative evolution of our organizational structure on both sides of the Atlantic, through American Leak Detection and Water Intelligence International, puts us in a better position to sustain a multinational growth strategy. Second, in addition to strong operating performance during the first half, we also executed corporate development transactions ranging from a significant financing to investments in cutting edge technologies. These transactions will fuel our competitive strategy.

Growth in US and UK Subsidiaries At Both Top and Bottom Lines

Our core American Leak Detection business (ALD) grew across each operating line when comparing 1H 2018 to 1H 2017. Overall, sales reached $10.3 million which represented an increase of 37% (1H 2017: $7.5 million). Meanwhile, profits before tax reached $1.6 million which represented an increase of 23% (1H 2017: $1.3 million). Within the total sales number, each operating line progressed. Royalty income from franchisees reached $3.31 million which represented an increase of approximately 4% (1H 2017: $3.17 million). Corporate operated locations reached $4.5 million which represented an increase of approximately 61% (1H 2017: $2.8 million). Our insurance channel continued to scale, more than doubling to $2.1 million (1H 2017: $1 million). Parts and equipment sales in support of these operating lines did lag in the first half reaching $0.4 million (1H 2017: $0.5 million).

Our newly formed Water Intelligence International (WII) business, based in the UK, also grew strongly. To date, WII has focused on municipal sales in the UK, US and Australia; however, during 1H it has also broadened execution with contracts in Ireland and Romania. WII sales reached approximately $1.5 million which represented an increase of approximately 48% (1H 2017: $1 million). WII profits before tax turned positive after first-year losses due to additional expenses needed to launch the operation. (1H 2018: $0.06 million vs. 1H 2017: ($0.04 million)).

1H Corporate Development to Sustain Growth

We are sustaining our growth trajectory with corporate development activities. We increased our capability to deploy resources with our March financing which had both equity and debt components. We increased our overall cash availability by approximately $7.5 million. Approximately $5.8 million of the total came from an oversubscribed equity round. We were able to enhance our investor base through the inclusion of four high quality institutional investors from both sides of the Atlantic. In addition, because of the stable growth of our royalty income, we were able to increase our working capital lines of credit by $1.75 million. Such increase represents not only non-dilutive financing that benefits our shareholders but also good corporate finance that produces a more attractive blended cost of capital for our valuation metrics.

During 1H we have put capital to work with franchise reacquisitions in Louisville, Kentucky, our largest reacquisition to date, and Bakersfield, California. Each has strengthened our ALD corporate operations across the US in support of our franchise system and national insurance channel. Moreover, each of these acquisitions is strategically located close to other corporate-run locations, providing for additional economies of scale.

Furthermore, in 1H we used capital to add technology solutions to fuel our growth and enhance our brand. In support of ALD, we created partnerships with Flo Technologies and Tagasuaris. Both companies use artificial intelligence and their respective solutions can unlock value for our residential and commercial customers. Flo's product monitors water use in the home using algorithms to learn from consumption patterns and to alert homeowners and ALD operations to the presence of leaks. After training on the product during 1H, we anticipate the initiation of sales of the Flo device by ALD to our customers during 2H. Meanwhile, Tagasauris's solutions focus on video search and enabling e-commerce. We plan to launch ALD TV and use Tagasauris technology to sell water-related products. Finally, in support of WII, we created a partnership with UK-based Reece Innovations. The partnership will deploy a WII-branded acoustic device that analyses blockages in municipal sewer pipes. The device can also be combined with Tagasauris video technology. This new product will supplement WII's municipal offerings for potable and non-potable water to include the analysis of "gray" water problems.

Conclusion

The Group is advancing the Water Intelligence brand, with an emphasis on Intelligence, in bringing high technology solutions to the global water and wastewater infrastructure market. Strong demand exists worldwide for the Group's products and services and the Group seeks to attack the international market with a scalable business model. The Group's first half performance continues its upward growth path with the delivery of strong trading results and the execution of corporate development transactions to sustain such trading results into the future.

Patrick DeSouza, Executive Chairman of Water Intelligence, commented: "We are pleased with first half execution. Our growth strategy and brand development rest on sound fundamentals. Our firm culture, embodying both franchise and corporate operations, is being shaped with additional hires for the pursuit of excellence. We will continue to attack the market opportunity relentlessly and look forward to reinforcing our trajectory."

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The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014