Water Intel. Regulatory News (WATR)

Water Intelligence plc (AIM: WATR.L)

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

Interim Results for the six months ended 30 June 2014

Water Intelligence, a leading provider of smart water monitoring products and non-invasive leak detection and remediation services, is pleased to present its interim results for the period ended 30 June 2014.

Results Highlights

· Revenue of $3.51 million in line with the prior period (2013: $3.54 million)

· More significantly, royalty Income component growth of 6.6% to $2.55 million (2013: $2.39 million)

· Strong cash balance of $1.9 million (2013: $769,518)

· Net Debt as of 30 June 2014 $0.84 million, down over 50% from 30 June 2013 (2013: $1.77 million)

· Refinanced existing credit facility with Liberty Bank

· Team in place to execute growth plan for insurance sales channel

Patrick DeSouza, Executive Chairman of Water Intelligence, commented:

"We are pleased with the progress in our core franchise services business and remain confident in our ability to sustain the progress achieved in the first 6 months of this year while also taking further advantage of favourable market demand for water infrastructure solutions."

Executive Chairman's Statement

During the first half of 2014, we achieved two objectives that reinforce our strategic growth plan. First of all, we built a strong balance sheet that enables us to make investments for long-term sustainable growth. As noted in our annual report as a subsequent event, on 27 June 2014, we refinanced our existing credit facility with Liberty Bank. As of 30 June 2014 we had $1.91 million in cash. Net debt was reduced by more than 50% from $1.77 million at 30 June 2013 to $0.84 million at 30 June 2014. Furthermore, our term loan has been reset for another five years and our monthly amortisation cost has been reduced approximately 30% freeing up cash on a monthly basis for additional investments. Secondly, we maintained strong growth in our core American Leak franchise business. Royalty income growth accelerated to 6.6% when comparing 1H 2014 to 1H 2013. This growth compares favourably to overall 2013 royalty growth of 6% and growth of 5% when comparing 1H 2013 to 1H 2012. With our balance sheet and organic franchise royalty growth, we have a solid foundation to grow our business.

In operational terms, the first half of this year reflected certain positive changes in the composition of execution priorities with revenue and profits for the period remaining stable. Revenue remained at $3.51 million compared with $3.54 million for 1H 2013. Profits before tax adjusted for non-cash amortisation expense remained at $762,001 for 1H compared with $761,587 for 1H 2013. Between our top and bottom lines, we actually increased operating expense 5.8% to $2.42 million, reflecting additional headcount for executing our growth plan with respect to exploiting an insurance sales channel. Increased spending on business development, however, was offset by a 29.7% drop in financing expense. With increased headcount for growing our core franchise services business, we are hopeful that revenue growth will increase over the next twelve months.

Moreover, while we focused on fuelling franchise services royalty growth, we recognise that product and equipment sales also need support. Product and equipment sales during 1H lagged at $265,927 compared with $451,835 during 1H 2013. This drop in product and equipment sales was mostly offset by the increase in franchise royalty income noted above. As stated in the 2013 annual report, UK product sales to water utilities have been slow and we have moved to cut expenses in this business line. Such reductions will take effect during 2H. Meanwhile, we recognise that 1H 2013 product sales were carried by the US-developed Leakfinder product. With our US-based franchise business growing, we plan to invest in additional inventory of Leakfinders and US product and equipment to generate sales to complement our core services business. We note that with our balance sheet, we do have flexibility going forward to recast our UK product business in ways geared for sales to residential and commercial users as opposed to utilities.

As articulated in our 2013 annual report, demand for water management services remains strong in the US and around the world. We now have the ability to fuel growth as a result of our balance sheet progress in 1H. As set forth in our annual report, we are focussed on three areas: franchise system royalty; corporate store sales; and other activities, especially product and equipment sales. We are pleased with our progress on our core franchise services business. With our balance sheet, we plan to add resources to support our other two business lines - corporate stores and product and equipment sales and further capture market demand for our value proposition.

Interim Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2014

Consolidated Statement of Financial Position as at 30 June 2014

Interim Consolidated Statement of Changes in Equity

For the six months ended 30 June 2014

Interim Consolidated Statement of Cash Flows

For the six months ended 30 June 2014

Notes to the Interim Consolidated Financial Information

for the six months ended 30 June 2014

1 General information

The Group is a leading provider of water monitoring products and non-invasive, leak detection and remediation services. The Group's strategy is to be a "one-stop shop" of water leak solutions 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 2014 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 2014 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 2013, 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 2014 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 2013 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 ($) for American Leak Detection Holding Corp. This interim consolidated financial information has been presented in US Dollars which represents the dominant economic environment in which the Group operates and is considered to be the functional currency of the Group. The effective exchange rate at 30 June 2014 was £1 = US$ 1.70280 (30 June 2013: £1 = US$ 1.52084).

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 2013.

4 Revenues

In the opinion of the Directors, the operations of the Group currently comprise three operating segments, being the franchises, corporate owned stores and other activities including product and equipment sales.

The Group mainly operates in the US, with operations in the UK and certain other countries. In the six months to 30 June 2014, 97% of its revenue came from the US based operations; the remaining 3% 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:

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 from franchisor activities by geographical area is detailed below.

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:

The Company issued nil share options in the six months to 30 June 2014 (six months to 30 June 2013: nil).

6 Notes to the statement of cash flows

7 Refinancing

On June 27, 2014, the Group finalised the refinancing of its term loan agreement with Liberty Bank. The borrowing has been increased to $2,750,000 or approximately $1,000,000 of new cash. The term of the loan has been reset for 5 years to 2019. Interest on the loan shall be fixed for the first three years at 5.75%. Amortisation shall be approximately $53,000 monthly. Through Q1 2014, amortisation was approximately $70,000 monthly. The Group has also renewed its commercial line of credit with Liberty Bank. The line is equal to $250,000 and carries with it an interest rate equal to the Wall Street Journal Prime, plus two and three quarter percent. The Group is not drawing on the line of credit at this time.

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.