Final Results

RNS Number : 0793I

Water Intelligence PLC

28 June 2013

 



Water Intelligence plc (AIM: WATR.L)

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

Results for the year ended 31 December 2012

Water Intelligence is a leading provider of smart water monitoring products and non-invasive leak detection and remediation services.

Highlights

·              Revenue Growth 6% to $6.74m; Growth in all business segments

·              Royalty Income component 5% to $4.35m (2011: $4.13m)

·              Operating profit of $762,093 (2011: $98,727)

·              Profit before tax of $530,515 (2011: loss $(197,043))

·              EPS 2.8 cents (2011 (4.8 cents))

·              Positive operating cash flow of $823,760 (2011: $653,231)

·              Positive start to 2013

Patrick DeSouza, Executive Chairman of Water Intelligence, comments:

"We are pleased with the growth of the business and strong profitability results. We are excited about the future and look forward to capturing a greater share of customer demand in this growing world-wide market for products and services that address water loss issues."

Water Intelligence plc (www.waterintelligence.co.uk)
Patrick DeSouza, Executive Chairman	Tel: [phone]
Sanlam Securities UK Limited
David Worlidge	Tel: [phone]

Chairman's Statement

Overview

During 2012 we followed a consistent course towards building sustainable shareholder value. Prudence was the watchword. As I indicated in the Outlook section to last year's Chairman's Statement, increasing profitability was the prerequisite so that we would not be held captive to market volatility.  We would manage working capital expenses in a risk-adjusted way so that we could advance the Company from a position of strength. Our operating goal was to increase profitability while maintaining sales growth; we would do this by increasing the revenue yield on each dollar of incremental spend, not simply cutting costs.  In this way, we could have the flexibility for the long-term to either reinvest the cushion of operating profits for faster growth or to provide dividends for shareholders.

I am pleased to report that we were successful in achieving this operating goal and today the Directors are more confident about proceeding in 2013 and 2014 from a position of operating strength. Operating profits for 2012 jumped to $762,093 from $98,727 in 2011. Profit before tax turned positive to $530,515 from a loss of ($197,043) in 2011. Earnings per share were 2.8 cents from a loss per share in 2011 of 4.8 cents. Operating cash flow in 2012 grew to $823,760 from $653,231 in 2011.  Our operating success also translated into a stronger balance sheet.  Net debt was steadily reduced to $2.54 million at 31 December 2012 from $2.83 million at 31 December 2011.  In 2013, we have continued to reduce our debt through monthly repayments and in May 2013, the revolving credit facility was repaid. We are now in position to take advantage of a favourable interest rate environment and free-up additional cash for reinvestment in growth by looking into refinancing our credit facilities during 2013.  And to reiterate, we achieved these profitability results while maintaining overall sales growth at 6% to $6.74 million.

Operations

Our focus on building from a position of operating strength has led us to prioritize our American Leak Detection ("ALD") business.  In all key operational areas, ALD has continued to grow in terms of both revenue and earnings.  We are investing in the growth of ALD by developing an insurance and loss adjuster sales channel that adds recurring revenue and leverages our competitive advantage of having an established nationwide brand. Meanwhile, UK water utilities continue to test Domestic Reporter and Commercial Reporter and we were pleased with $450,849 of Leakfrog sales during 2012.  We recognize that the UK product business has proceeded more slowly than we would have hoped, but we chose not to sacrifice ALD growth to push the matter. Our choice of operating priorities for 2012 now provide us the flexibility to continue to add spend to our profitable ALD business and to revamp our UK product sales and marketing effort. In the latter case, our priority will be to adapt the UK products for the US market so that we are building onto a strong ALD distribution network.

American Leak Detection

Our franchise system continues to grow as public and private concern over water loss strengthens demand for our services. During March 2013, the US Environmental Protection Agency (EPA) expanded its Fifth Annual "Fix a Leak Week" to create Water Sense public-private partnerships in local communities across the U.S.. This would enable homeowners to appreciate how much water they were using and how to reduce inefficiencies. The EPA has communicated the stark reality that American families use approximately 300 gallons of water per day at home and that approximately 14% of usage is lost through leakage.  The EPA's community focus is an ideal fit for our nation-wide franchise business given our capability to touch over 100,000 homes annually across the U.S.  This residential focus is also interesting for the adaptability of our UK products.  While our focus during 2012 has been on selling to UK water utilities, now that we have increased operating profits, we will begin to look for ways to adapt the UK products business for the US.  Domestic Reporter is particularly attractive for the Water Sense program. 

ALD is well-positioned to take advantage of today's demand in the U.S.  System-wide sales are above $50 million reflecting critical mass. Royalty income from system-wide sales grew by 5% to $4.35 million. ALD grew in all regions of the U.S. Our international territories, especially Australia, also experienced sales growth.  During 2012 we began to focus budgetary spend on developing a nationwide sales channel with insurance companies and loss adjusters that leverages our ALD brand. Our most successful franchises already draw a significant part of their sales from insurance loss adjusters.  We have stepped-up this effort in 2013 with the hire of a manager with significant experience in this area. In addition to growth via our franchise system, corporate store sales grew at 6% to $1.45 million.  Importantly, we returned corporate stores to profitability at $65,000 or a 4.5% margin.  We should note that while our UK product business has taken longer to develop, during 2012 we created a product in the U.S. - Leakfinder - that we have begun to sell to our franchisees at the end of 2012 to enhance their competitive advantage in pin-pointing leaks.  While we do not intend to sell Leakfinder to third-parties, because of its success, there will be more products originated in the US for our franchisees and for both direct sales and distribution through our nationwide system.

Qonnectis

Our UK products business is housed in our wholly-owned subsidiary Qonnectis Networks Limited.  In 2012 turnover increased to $450,849 from $252,903 in 2011.  We have also taken action to reduce costs in the UK.  Our product business losses were reduced to $125,746 from $218,491 in 2011. While this is a positive direction in balancing the books, the pace of the product business is an opportunity that we continue to assess. Water utilities continue to test our products gathering data with respect to various deployments. During the second half of 2013, we will consider various ways to maximise our position.

Outlook

We are fortunate that the addressable market for our products and services is world-wide and growing. Our company achieved its 2012 operating goal of increasing profitability while increasing sales. We plan to continue this direction for 2013 and we believe there is still room to improve our earnings margins given that PLC costs are still too high. We will continue to lower overheads and finance costs.  As noted above, our stronger balance sheet will enable us to look into refinancing our credit facilities.  We expect incremental sales growth from the development of our insurance channel, enabling growth to proceed while we are increasing profitability. Now that we have returned to profitability at our corporate stores, we can focus on opening new locations to further add to top-line growth. 

All of the above lines of growth are achievable apart from the pace of our UK products business. We are encouraged with our anticipated sales of Leakfinder and believe that the strategy of developing products to complement our services business adds value to the company, whether we use them internally for a competitive edge or whether we sell them to third parties. We believe in the value proposition of Domestic Reporter and Commercial Reporter and look forward to revamping our sales approach for the second half of 2013 now that we have achieved a measure of operating strength.  Increasing overall corporate profitability and growing our $50+ million franchise system will continue to dominate our mind-set.  As we communicate this to the market, we believe that it will reflect well on shareholder value as growing royalty income differentiates us from various other companies.

Dr. Patrick DeSouza

Executive Chairman

27 June 2013

Consolidated Statement of Comprehensive Income for the year ended 31 December 2012

	Notes	Year ended 31 December 2012	Year ended 31 December 2011
		$	$
Revenue	3	6,740,567	6,358,272
Cost of sales		(611,084)	(498,704)
Gross profit		6,129,483	5,859,568
Administrative expenses
-       Share-based payments		(30,632)	(36,643)
-       Impairment of goodwill		-	(75,000)
-       Amortisation of intangibles		(279,313)	(264,062)
-       Other administrative costs		(5,057,445)	(5,385,136)
Total administrative expenses		(5,367,390)	(5,760,841)
Operating profit		762,093	98,727
Finance income		28,093	22,808
Finance expense		(259,671)	(318,578)
Profit/(loss) before tax		530,515	(197,043)
Taxation expense	5	(265,039)	(264,145)
Profit/(loss) for the year		265,476	(461,188)
Other Comprehensive Income
Exchange differences arising on translation of foreign operations		(52,716)	34,031
Total comprehensive profit/(loss) for the year		212,760	(427,157)
Profit/(loss) per share		Cents	Cents
Basic	6	2.8	(4.8)
Diluted	6	2.7	(4.8)

The results reflected above relate to continuing activities. The profit for the current and prior year and the total comprehensive profit for the current and total comprehensive loss for the prior year are wholly attributable to equity holders of the Parent Company, Water Intelligence plc.

Consolidated Statement of Financial Position as at 31 December 2012

	Notes	2012	2011	2010
		$	$	$
ASSETS			(Restated)	(Restated)
Non-current assets
Goodwill	7	801,211	801,211	876,211
Other intangible assets		3,590,976	3,709,060	3,973,122
Property, plant and equipment		16,896	35,692	76,729
Deferred tax asset		-	55,218	279,388
Trade and other receivables	8	39,640	44,839	52,439
		4,448,723	4,646,020	5,257,889
Current assets
Inventories		194,007	91,270	242,049
Trade and other receivables	8	812,445	779,840	825,487
Corporation tax		29,433	62,724	35,335
Cash and cash equivalents		382,525	364,099	606,382
		1,418,410	1,297,933	1,709,253
TOTAL ASSETS		5,867,133	5,943,953	6,967,142
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
Share based payment reserve		89,493	54,728	19,435
Other reserves		(41,652)	15,197	(18,834)
Reverse acquisition reserve		(27,758,088)	(27,758,088)	(27,758,088)
Retained loss		(2,395,618)	(2,661,094)	(2,199,906)
		1,833,604	1,590,212	1,982,076
Non-current liabilities
Borrowings	9	1,950,489	2,582,964	3,086,408
Promissory notes	9	-	-	85,222
Provision for onerous contracts		58,655	72,359	193,218
Deferred tax liability		149,794	-	-
		2,158,938	2,655,323	3,364,848
Current liabilities
Trade and other payables	10	908,224	970,984	884,264
Borrowings	9	900,275	600,521	632,439
Promissory notes	9	-	7,272	16,880
Provision for onerous contracts		66,092	119,641	86,635
		1,874,591	1,698,418	1,620,218
TOTAL EQUITY AND LIABILITIES		5,867,133	5,943,953	6,967,142

Consolidated statement of changes in equity for the year ended 31 December 2012

	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 2011 as previously reported		12,716,863	4,203,812	6,517,644	(27,758,088)	8,501,150	19,435	(18,834)	(706,177)	3,475,805
Prior period adjustment*		-	-	-	-	-	-	-	(1,493,729)	(1,493,729)
As at 1 January 2011 as restated		12,716,863	4,203,812	6,517,644	(27,758,088)	8,501,150	19,435	(18,834)	(2,199,906)	1,982,076
Share-based payment expense		-	-	-	-	-	36,643	-	-	36,643
Foreign exchange		-	-	-	-	-	(1,350)	-	-	(1,350)-
Total comprehensive profit/(loss)		-	-	-	-	-	-	34,031	(461,188)	(427,157)
As at 31 December 2011		12,716,863	4,203,812	6,517,644	(27,758,088)	8,501,150	54,728	15,197	(2,661,094)	1,590,212
As at 1 January 2012 as previously reported		12,716,863	4,203,812	6,517,644	(27,758,088)	8,501,150	54,728	15,197	(1,167,365)	3,083,941
Prior period adjustment*		-	-	-	-	-	-	-	(1,493,729)	(1,493,729)
As at 1 January 2012 as restated		12,716,863	4,203,812	6,517,644	(27,758,088)	8,501,150	54,728	15,197	(2,661,094)	1,590,212
Share-based payment expense		-	-	-	-	-	30,632	-	-	30,632
Foreign exchange		-	-	-	-	-	4,133	(4,133)	-	-
Total comprehensive  profit/( loss)		-	-	-	-	-	-	(52,716)	265,476	212,760
As at 31 December 2012		12,716,863	4,203,812	6,517,644	(27,758,088)	8,501.150	89,493	(41,652)	(2,395,618)	1,833,604

* Prior year adjustment see note 4

The following describes the nature and purpose of each reserve within owners' equity:

Share capital	Amount subscribed for share capital at nominal value.
Share premium	Amount subscribed for share capital in excess of nominal value.
Capital redemption	Non-distributable reserve in relation to cancellation of deferred shares
Retained losses	Cumulative net losses recognised in the Financial Statements
Reverse acquisition	Non-distributable amount arising on the reverse acquisition.
Other reserves	Amounts recognised for the fair value of share options granted in accordance with IFRS 2 and exchange differences on translating foreign operations.
Merger reserve	Non-distributable reserve arising on reverse acquisition

Consolidated statement of cash flows for the year ended 31 December 2012

		Year ended 31 December 2012	Year ended 31 December 2011
	Notes	$	$
Net cash generated from operating activities		823,760	653,231
Cash flows from investing activities
Interest received		28,093	22,808
Interest paid		(259,671)	(318,578)
Purchase of plant and equipment		(750)	(3,883)
Purchase of intangible assets		(157,095)	-
Sale of fixed assets		-	300
Net cash used in investing activities		(389,423)	(299,353)
Cash flows from financing activities
Proceeds from borrowings		412,380	-
Principal payments on long term debt and promissory notes		(771,442)	(630,192)
Net cash used in financing activities		(359,062)	(630,192)
Net increase/(decrease) in cash and cash equivalents		75,275	(276,314)
Cash and cash equivalents at the beginning of year		364,099	606,382
Effect of foreign exchange rate changes		(56,849)	34,031
Cash and cash equivalents at end of year		382,525	364,099

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.

The Company is listed on AIM of the London Stock Exchange. These Financial Statements were authorised for issue by the Board of Directors on 27 June 2013.

2.         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 (with the exception of share based payments and goodwill) and in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations issued by the International Accounting Standards Board (IASB) and adopted by the European Union, in accordance with the Companies Act 2006. The Parent Company's Financial Statements have also been prepared in accordance with IFRS and 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

The Group's business activities, together with factors likely to affect its future development, performance and position are set out in the Directors' Report and the Chairman's Statement.

The Directors have prepared a business plan and cash flow forecast for the period to June 2014. The forecast contains certain assumptions about the level of future sales and the level of gross 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 is funded entirely on cash generation by its profitable US-based franchise business, ALD. The achievement of a successful product development and subsequent sales initiative will require additional working capital finance to be put in place. The Directors believe that the funding will be able to be made available on a case by case basis such that the Group will have adequate cash resources.

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 2012.  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 Company (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 minority 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 prior year acquisition of ALDHC was, under IFRS3, accounted for as a reverse acquisition. The assets and liabilities revalued at their fair value on acquisition therefore related to the Company. A reverse acquisition reserve was 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.

3.   Segment information

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 2012 89% (2011 96%) of its revenue came from the US based operations, the remaining 11% (2011 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.

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 revenue less US head office costs

-       Corporate-operated stores revenues less direct stores costs

-       Other activities including product and equipment sales

Items that do not fall into the three segments have been categorised as unallocated head office costs.

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

Revenue		Year ended 31 December 2012	Year ended 31 December 2011
		$	$
Royalties from franchisees		4,345,615	4,131,459
Corporate-operated Stores		1,453,188	1,367,645
Other activities		941,764	859,168
Total		6,740,567	6,358,272

Profit/(Loss) before tax		Year ended 31 December 2012	Year ended 31 December 2011
		$	$
Royalties from franchisees		1,113,604	883,051
Corporate-operated Stores		65,527	(105,164)
Other activities		(136,101)	(243,785)
Unallocated head office costs		(512,833)	(731,145)
Total		530,515	(197,043)

Assets		Year ended 31 December 2012	Year ended 31 December 2011 restated
		$	$
Royalties from franchisees		5,659,959	5,157,602
Corporate-operated Stores		301,355	300,424
Other activities		(243,926)	485,927
Total		5,,717,388	5,943,953

Amortisation/impairment		Year ended 31 December 2012	Year ended 31 December 2011 restated
		$	$
Royalties from franchisees		263,464	264,062
Corporate-operated Stores		-	75,000
Other activities		15,849	-
Total		279,313	339,062

Depreciation		Year ended 31 December 2012	Year ended 31 December 2011 restated
		$	$
Royalties from franchisees		17,225	28,811
Other activities		2,136	16,603
Total		19,361	45,414

Finance Expense		Year ended 31 December 2012	Year ended 31 December 2011 restated
		$	$
Royalties from franchisees		249,846	318,578
Other activities		9,825	-
Total		259,671	318,578

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		Year ended 31 December 2012	Year ended 31 December 2011
		$	$
US		6,007,175	5,856,369
International		733,392	501,903
Total		6,740,567	6,358,272

Revenue from franchisor activities by geographical area is detailed below.

		Year ended 31 December 2012	Year ended 31 December 2011
		$	$
US		4,085,147	3,882,459
International		260,468	249,000
Total		4,345,615	4,131,459

4.         Prior year adjustment

On 29 July 2010 the controlling interest in the parent Company was exchanged for 91.57% of the issued share capital of ALDHC a Company registered in the United States of America, under the rules of a reverse acquisition and prescribed by IFRS 3 Business Combinations. On 27 August 2010 the Company acquired the remaining issued share capital of ALDHC as part of the same transaction.

Under IFRS3, and for accounting purposes, the subsidiary ALDHC (the legal parent) has been deemed to have acquired the parent, Water Intelligence plc (formerly Qonnectis plc). The net assets of Water Intelligence plc have been recognised at their pre-acquisition carrying amounts and the goodwill arising has been recognised.

The net assets of the acquired company and the goodwill were as follows:

		$
Purchase consideration as fair value of the shares issued		534,527
Fair value of the liabilities acquired		959,202
Goodwill acquired		1,493,729

The fair value of assets and liabilities as of 29 July 2010 arising from the acquisition are as follows:

		Book and Fair value
		$
Property, plant and equipment		20,891
Trade and other receivables		718,574
Cash and cash equivalents		83,348
Trade and other payables		(936,672)
Provision for onerous contracts		(323,240)
Borrowings		(522,103)
Net liabilities acquired		(959,202)

The Board previously erroneously recognised and supported the non-impairment of goodwill of $1,493,729, arising on the reverse acquisition as it was believed to be assessed as part of the cash generating unit of the US Business (American Leak Detection Holding Corp and its trading subsidiary American Leak Detection Inc).  In this year the Board has reviewed this transaction and recognised that the goodwill arose on the UK business (principally Water Intelligence Plc (then Qonnectis Plc) and its wholly owned trading subsidiary Qonnectis Networks Limited), which was recognised in 2010 as having no ongoing value.  Accordingly, the goodwill arising on the reverse acquisition should have been impaired in the statement of comprehensive income at the time in which it arose, as no lasting economic benefits could be attributed to the goodwill.  This position is supported by the above net liabilities in 2010 together with the fact that the UK business was loss making and had negligible trading activity at the time at which the reverse acquisition arose.  A prior year adjustment has been made to amend this error and reflect that a charge for the impairment of this goodwill of $1,493,729 should have been made in the consolidated income statement for the year ended 31 December 2010.  This would have resulted in an amended basic and diluted loss per share for the year ended 31 December 2010 of 59.6 cents, previously reported as basic and diluted loss per share of 21.9 cents.

5.         Taxation

		Year ended 31 December 2012	Year ended 31 December 2011
Group		$	$
Current tax:
Current tax on profits in the year		60,386	39,975
Prior year over provision		(359)	-
Total current tax		60,027	39,975
Deferred tax current year		260,551	281,821
Deferred tax prior year		(55,539)	(57,651)
Deferred tax charge		205,012	224,170
Income tax expense		265,039	264,145
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/(Loss) before tax on ordinary activities		530,515	(197,043)
Tax calculated at domestic rate applicable profits in respective countries		242,421	4,228
Tax effects of:
Non-deductible expenses		22,404	111,837
State taxes net of federal benefit		77,229	44,931
Depreciation less than capital allowances		(12,072)	(152,465)
Short term timing differences		4,433	-
Other differences		2,372	-
Addition for research and development		-	2,339
Tax losses (relieved)/unrelieved		(15,850)	195,624
Prior year taxation		(55,898)	57,651
Taxation expense recognised in income statement		265,039	264,145

The Group is subject to income taxes in two jurisdictions. Significant judgement 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. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

6.         Earnings per share

The profit/(loss) per share has been calculated using the loss for the year and the weighted average number of ordinary shares outstanding during the year, as follows:

Basic		Year ended 31 December 2012	Year ended 31 December 2011
Profit/(loss) attributable to shareholders of the Company ($)		265,476	(461,188)
Weighted average number of ordinary shares		9,604,417	9,604,417
Diluted weighted average number of ordinary shares		9,890,922	-
Profit/(loss) per share (cents)		2.8	(4.8)
Diluted profit/(loss) per share (cents)		2.7	(4.8)

The diluted loss per share for 2011 is the same as the basic loss per share as the conversion of share options decreases the basis loss per share, thus being anti-dilutive.

7.         Goodwill                                                                                                                   

		Goodwill	Owned and Operated stores	Franchisor activities	Totals
		$	$	$	$
Cost
At 1 January 2011		1,493,729	239,500	636,711	2,369,940
Additions		-	-	-	-
At 31 December 2011		1,493,729	239,500	636,711	2,369,940
Additions		-	-	-	-
At 31 December 2012		1,493,729	239,500	636,711	2,369,940
Impairment
At 1 January 2011 as previously reported		-	-	-	-
Prior year adjustment		1,493,729	-		1,493,729
At 1 January 2011 as restated		1,493,729	-	-	1,493,729
Impairment in year		-	75,000	-	75,000
At 31 December 2011 as restated		1,493,729	75,000	-	1,568,729
Impairment in year		-	-	-	-
At 31 December 2012		1,493,729	75,000	-	1,568,729
Carrying amount
At 31 December 2011 as restated		-	164,500	636,711	801,211
At 31 December 2012		-	164,500	636,711	801,211

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 is allocated to each of the three cash generating units expected to benefit from the synergies of the combination, the Group goodwill, corporate owned and operated stores and franchisor activities.   The cash generating units to which goodwill has 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. As noted in note 5, prior year adjustment, the Group goodwill has been written off at the time of the reverse acquisition.

Calculation of the corporate owned and operated stores and the franchisor activities cash generating unit's recoverable amount requires the use of estimates, with regards to forecast cash flows and discount rates.

The assumptions used for the corporate owned and operated stores are based on the forecast cash flows for 2013 and that cash flows thereafter are assumed to increase by 2% per annum and a discount rate of 10% has been used to value the future cash flows. A terminal value has been estimated after 5 years of discounted cash flows. This has resulted in no impairment charge being required in 2012 (2011: $75,000).

The assumptions used for the franchisor activities are based on the forecast cash flows for 2013 and that cash flows thereafter are assumed to increase by 2% per annum and a discount rate of 10% has been used to value the future cash flows. A terminal value has been estimated after 5 years of discounted cash flows. This has resulted in no impairment charge being required in 2012 or in prior years.

Had the estimated cost of capital used in determining the discount rate used in these calculations been 5% higher than management's estimates, the Group would still not have incurred any impairment for either the corporate owned and operated stores or the franchisor activities.

Had the estimated revenues used in these calculations been 5% lower than management's estimates, the Group would still not have incurred any impairment for either the corporate owned and operated stores or the franchisor activities.

8.  Trade and other receivables

Non-current
	31 December 2012	31 December 2011
	$	$
Trade notes receivable	39,640	44,839

All non-current receivables are due within five years from the end of the reporting period.

Current	31 December 2012	31 December 2011
	$	$
Trade receivables	69,926	165,127
Prepayments	422,200	104,192
Accrued royalties receivable	125,595	305,282
Trade notes receivable	49,185	44,896
Other receivables
Due from related party	131,913	138,806
VAT debtor	13,626	21,537
Current portion	812,445	779,840

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.

The average credit period taken on sales is 38 days (2011: 39 days).

As at the 31 December 2012, trade receivables of $36,270 (2011: $19,328) were past due but not impaired.  These relate to a number of 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 31 December 2012	Year ended 31 December 2011
		$	$
60-90 days		19,390	8,343
90+ days		16,880	10,984
		36,270	19,327

Average age (days)

105

141

The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:

		Year ended 31 December 2012	Year ended 31 December 2011
		$	$
US Dollar		763,837	695,097
UK Pound		48,608	84,743
		812,445	779,840

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above.  The Group does not hold any collateral as security.

9.         Borrowings

Bank Loan

On 16 July 2010 ALDHC drew down a six-year term loan at an initial rate of 8% per annum of US$4.0 million from the Bank of Southern Connecticut.

The Bank Loan is repayable in full on or before 16 July 2016 with monthly repayments of principal and interest at 8% per annum until the principal balance is reduced to US$2.0 million when the interest rate becomes 2% above "Wall Street Journal Prime" adjusted annually. At that point, the Group has the option of pre-payment without penalty.

The Bank Loan is secured by substantially all of the assets of ALDHC and its principal operating subsidiary ALD and guaranteed by PSS plus one significant shareholder, being the Executive Chairman.

On 25 July 2012, the ALDH entered into a $250,000 revolving line of credit agreement (Revolver) with the Bank of Southern Connecticut. The line bears interest at a rate equal to the greater of 5.25% per annum, or the Wall Street Journal Prime Rate (as defined) plus 2.75% (6.0% at December 31, 2012). Commencing August 1, 2012, the ALDH began making monthly interest only payments and will be required to pay the entire principal balance and all accrued and unpaid interest in full on June 30, 2013. The Revolver is secured by substantially all of the assets of the Group. At December 31, 2012, $248,548 was outstanding. The full amount was repaid on 24 April 2013 and the Revolver was drawn down on 21 June 2013.

Promissory Notes

In addition to the Bank Loan, there is a Promissory Note in place at 31 December 2011 to finance the acquisition of trade assets. The Promissory was repaid in full on 29 March 2012.

	Year ended 31 December 2012	Year ended 31 December 2011	Year ended 31 December 2012	Year ended 31 December 2011
	Current		Non-current
Financial Instruments	$	$	$	$
Term loan	651,727	600,521	1,950,849	2,582,964
Revolving credit facility	248,548	-
Promissory notes	-	7,272	-	-
Total current liabilities	900,275	607,793	1,950,849	2,582,964

10.        Trade and other payables

	31 December 2012	31 December 2011
	$	$
Trade payables	331,520	461,342
Other payables	33,046	4,074
Accruals	543,658	468,787
Deferred Income	-	36,781
	908,224	970,984

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 71 days (2011: 41 days).

The Directors consider that the carrying amount of trade payables approximates to their fair value.

11.        Status of financial information

The financial information set out above does not comprise the Company's statutory accounts for the periods ended 31 December 2012 or 31 December 2011. Statutory accounts for 31 December 2011 have been delivered to the Registrar of Companies and those for 31 December 2012 will be delivered in due course. 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 in respect of the accounts for 2012 or for 2011.

12.        Publication of announcement and the report and accounts

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 Annual Report will be posted to shareholders in the near future and will be made available on the website.

 

END

 

 

FR UBRUROSANUUR