TIDMWATR
RNS Number : 5645S
Water Intelligence PLC
12 March 2019
Water Intelligence plc
2018 Full Year Trading Results
Confirmation of Board Appointment
Water Intelligence plc (AIM: WATR.L) (the "Company" 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 unaudited
Trading Results for full year 2018. Audited 2018 results are
expected during early May as traditionally released. The Company
had a very strong 2018 as discussed herein.
Highlights
-- Results ahead of market expectations for both revenue and adjusted profits before tax
-- Water Intelligence revenue growth once again strong at 44%
year-over-year reaching $25.3 million (2017: $17.6 million)
o Last three-year CAGR (Compound Annual Growth Rate) exceeds
40%
o Core business units - American Leak Detection (ALD) and Water
Intelligence International (WII) - each grew strongly enabling
broader mix of residential, commercial and municipal offerings, as
well as clean and waste water
o ALD revenue grew 45% to $22.5 million (2017: $15.5
million)
-- Royalty income from franchisees grew in absolute terms by
5.7% to $6.3 million (2017: $5.9 million) despite continued
franchise reacquisitions
-- Selective franchise reacquisitions continue, increasing
corporate presence for national accounts implementation
-- Corporate locations sales grew 70% year-over-year to $10.1
million (2017: $5.9 million)
-- Total sales to customers reaches $100 million (implied gross
sales by franchisees from which royalty reporting is derived plus
direct sales from corporate locations)
o WII revenue grew 38% to $2.9 million for 2018 after launch in
Q4 2016
-- Water Intelligence statutory profits before tax grew strongly
by 58% to $1.8 million (2017: $1.1 million)
o Reinforced yearly profits growth path from 2017 over 2016
which was 48%
o Corporate locations profit margins scaling to 12% in 2018 from
4% in 2017 despite reinvestment to sustain 70% sales growth
-- Water Intelligence profits before tax adjusted for non-core
costs* and non-cash amortization expense at $2.5 million exceeds
market expectations of $2.2 million (48% growth over 2017 at $1.7
million)
-- Water Intelligence Balance Sheet strong
o Net Cash: +$2.6 million (cash less borrowings)
o Total Funding Coverage: +$0.2 million (net cash minus deferred
payments for all franchise reacquisitions)
-- Technology reinvestment
o Public demonstrations of proprietary sewer diagnostic product
at Water and Wastewater Equipment, Treatment and Technology Show in
Indianapolis in February 2019
o E-commerce and video display technology advancing with
demonstrations in Tokyo during week of 18 March with major Japanese
corporation
-- Successful annual franchise convention in Austin, Texas
affirming 2017's five-year growth plan
-- Confirmation of new Board Member, Bobby Knell, who is the
retired owner of the successful Dallas franchise and been Managing
Director in charge of franchise relations for the last five
years
-- 2019 starts fast with franchise reacquisitions in February
(Ontario, Canada) and March (South Atlanta) and announcement of
sale of new franchise territory in Youngstown, Ohio
Commenting on the Group's performance, Executive Chairman, Dr.
Patrick DeSouza remarked: "We have delivered another strong year
growing all business units and exceeding market expectations; the
operative concept is 'sustained growth' which we first articulated
in the Chairman's Statement in 2015 and reiterated during each of
the last three years. And we have delivered just that with 40%+
compounded annual revenue growth since 2016 and back-to-back years
of statutory profits before tax growth averaging above 50%. We
remain ambitious reinvesting in technology to provide solutions to
both clean and waste water problems. Water and infrastructure
solutions are needed globally no matter what the background
macroeconomic or political conditions."
* Non-core costs include items such as legal expenses on
transactions and investments, and certain share based payments
relating to acquisitions
Enquiries:
Water Intelligence plc
Patrick DeSouza, Executive Tel: +1 203 654 5426
Chairman
Adrian Hargrave, VP Corporate
Development +44 (0) 7775 701 838
WH Ireland Limited - NOMAD Tel: +44 (0) 207 220 1666
& Broker
Adrian Hadden
James Sinclair-Ford
Matthew Chan
Trading Overview As stated in our last three Annual Reports, our
mission at Water Intelligence is to build a "world-class
multinational growth-oriented company." And we have delivered at a
strong pace. Communicated in our 2016 Annual Report, we delivered
38% sales growth in 2016 over 2015 reaching $12.2 million.
Communicated in our 2017 Annual Report, we delivered sales growth
in 2017 of 45% over 2016 reaching $17.6 million. Now, for our 2018
results, we report 44% sales growth over 2017 reaching $25.3
million. Importantly, increasing levels of profits have followed
our reinvestment to push market capture. For our 2017 Annual
Report, we delivered statutory profits before tax growth of 48%
over 2016 reaching $1.1 million. Now for our 2018 results, we
report 58% statutory profits before tax growth over 2017 reaching
$1.8 million. We have exceeded market expectations achieving $2.5
million profits in before tax when adjusted for non-core expenses
such as legal costs for transactions and non-cash amortization of
intangibles.
We are working to continue the compounding nature of our
year-to-year performance. As outlined in our January and February
2019 releases, we have started Q1 in strong fashion in every aspect
of our business including now selling new territory for our
franchise system. Consistent with last week's release about the
reacquisition of South Atlanta, "we aim high and deliver".
Business Model and Strategy Before breaking down our operating
results, it is important to underscore that we are pleased that our
business model is evolving nicely according to our stated plan.
This underlying objective is important for scaling the company and
for developing appropriate key performance indicators (KPIs) that
underpin our valuation multiple.
We are currently classified by analysts as "Support Services."
However, three attributes of our business model and ability to
sustain growth need to be distinguished. All three are synergistic.
First, we are really a distribution platform. This platform concept
is a valuable asset sometimes overlooked when thinking about
service-oriented companies. We have a structural advantage given
American Leak Detection's (ALD) national sales footprint across the
United States and ever-growing presence in the UK, Australia and
Canada. None of our leak detection competitors have a comparable
installed base. We have national accounts, such as major insurance
companies, that are providing increasing numbers of jobs with
reduced customer acquisition costs because we are a "One Stop
Shop." We are able to upsell solutions and resell third-party
offerings because of our geographic presence and position at the
front end of the water value chain in finding leaks with minimal
invasion. As important, we can cross-sell Water Intelligence
International (WII) offerings into our ALD base of franchise and
corporate locations, layering in a complementary customer group -
municipalities - onto our base in residential and commercial
areas.
Second, we are really a technology company, not a conventional
support services company. We use infrared and acoustic technologies
(some proprietary) to provide minimally invasive solutions that
support our margins because they convey real value for customers.
We are investing in new technologies not only to provide additional
high margin solutions - for example our sewer diagnostic product -
but also to leverage our distribution platform - for example our
video display technology. Note that companies such as Google and
Amazon are currently transforming the market for "smart home
services" with on-line technologies.
Third, we have financial characteristics that unlock equity
value by optimizing our entire platform. We have recurring royalty
income from our franchise business. Royalty income is an asset
characteristic more typical of technology licensing companies than
it is of support services companies. The perpetuity character of
this stream of income enables us to pursue efficient capital
formation with an optimal mix of equity and non-dilutive debt. It
should be highlighted that royalty income has continued to grow in
absolute terms even as we blend in converted corporate stores
because we continue to grow the "whole pie" with our national
accounts strategy.
ALD and WII Operating Performance Strong execution results at
our two operating subsidiaries have reinforced our business model
transformation to create a "multinational growth company" - one
that can sustain a high value profile in a competitive landscape.
Our platform now has a solid product matrix for residential,
commercial, municipal customers and clean water and waste water
applications.
Our core business, ALD, had a great 2018 growing 45% to $22.5
million (2017: $15.5 million). Execution proceeded smartly with
franchise and corporate operations working together in an
unprecedented fashion culminating with the promotion to the Board
of a leading retired franchise owner. National accounts, especially
insurance, enable ALD to drive its sales and brand recognition.
Sales from the dedicated insurance channel almost doubled
year-over-year to $5.0 million (2017: $2.6 million) with ALD
providing solutions for approximately 200,000 homes.
Royalty income grew 5.7% to $6.3 million (2017: $5.9 million).
Importantly, royalty income grew in absolute terms despite ALD
pursuing a selective franchise-to-corporate conversion strategy
which removed royalty from the franchise system in exchange for
revenue and profits. Corporate locations grew in accelerated
fashion by 70%, reaching $10.1 million (2017: $5.9 million).
Implied gross sales by franchisees (from which royalty income is
derived) and direct sales by corporate locations together amounted
to approximately $100 million of sales to end-users of our
services. With global market demand for water conservation
increasing and the price of water rising, such critical mass of
existing sales will provide us with a significant launch point for
a strong growth trajectory.
Importantly, we are executing well at corporate locations with
increasing profitability while maintaining a growth path of over
70% year-over-year. During 2018, profit margins at corporate
locations improved to 12% from 4% during 2017. These incremental
gains in terms of margin drive our consolidated profits for Water
Intelligence. We still have room for further improvement given that
our franchisees operate at a significantly higher margin.
Separately, two years ago, we launched a UK-based municipal
business to complement ALD's growth. Our objective was to layer in
municipal solutions to respond to an expected increase in global
infrastructure spending for the next decade and to capture new
business in communities where ALD franchisees currently provide
residential and commercial solutions but lack the skills or
bandwidth to add municipal work. We are pleased that Water
Intelligence International (WII) gained traction during 2018
reaching $2.9 million of sales which amounted to 38% growth
year-over-year (2017: $2.1 million). In addition, WII posted a
maiden profit performance, which we expect to grow significantly
over time as we expand WII's reach and improve the technology-led
offering that it provides. During 2018 WII won contracts in the
U.S. and Australia working with our ALD locations and in the UK and
EU as a standalone operation. We anticipate that in the near term
the synergies for cross-selling both ways between our US/UK sister
companies will take hold with ALD offering opportunities for WII
and, in turn, ALD following WII's municipal market penetration to
capture new residential and commercial markets around the
world.
2018 Balance Sheet
During Q1 of 2018, Water Intelligence increased its cash
resources to fuel growth by executing a limited equity issuance and
a non-dilutive bank financing. We put the resources to work by: (i)
continuing our sales efforts in building our national insurance
channel for our franchise system; (ii) enacting selective franchise
reacquisitions to establish regional corporate hubs; and (iii)
reinvesting in technology products to further distinguish our brand
and sustain long-run growth. As of 31 December 2018, cash on hand
was approximately $5.0 million. After one also takes into account
borrowings, net cash is approximately $2.6 million. After one also
takes into account deferred payments for all franchise
reacquisitions spread over the next five years, cash available is
approximately $0.2 million. However, debt amortization is spread
out over five years and covered not only by cash on hand today but
also by ongoing ALD royalty income. Moreover, Water Intelligence
generates additional cash each year that can be reinvested. As a
result, the Company has enough resources to execute its growth plan
and remains prudent in its financing strategy.
First Quarter 2019
We have begun Q1 in strong fashion. We are executing our growth
strategy in the same way that we have proceeded over the last three
years - a period that has produced 40%+ compounded annual revenue
growth and back-to-back years of statutory profits before tax
growth averaging above 50% per year. Our insurance channel is
growing, deepening our sales footprint. We have executed two
franchise reacquisitions - Ontario, Canada and South Atlanta -
advancing our corporate regional hub strategy. We have also sold
new franchise territory. Finally, we are unveiling our technology
investments: (i) our sewer diagnostic device in Indianapolis at the
WWETT show in February and (ii) our video display and ecommerce
application in Tokyo in mid-March with a major Japanese
corporation.
Conclusion
We are excited about the prospects for extending the growth path
that we have accelerated over the last three years. We envision
that Q2 and, ultimately, 2019 will continue the strong pace of
Q1.
Our resource deployment will continue to build on our three
business model attributes in order to create a multinational growth
company: (i) distribution through our installed base of locations
to upsell more solutions along the water value chain; (ii)
technology solutions to take advantage of the emerging smart home
services market; and (iii) the ability to optimize our franchise
system and cross-sell solutions from sister companies.
As we scale with strong execution, we may consider aiming even
higher and putting more resources to work to deliver, even faster,
equity value for our shareholders and a winning, world-class
multinational growth company as is our stated mission.
Board Appointment
As announced on 17 January 2019, the Company is pleased to
confirm that Bobby Knell has now been appointed to the board as a
Director, with immediate effect. Mr. Knell has been serving as a
managing director at Water Intelligence responsible for franchise
relations for the last five years. Prior to this role, Mr. Knell
founded and grew the Dallas franchise of American Leak Detection
into a multimillion dollar operation; an operation now run by his
son.
Robert Richard Knell, aged 68, holds or has held in the past 5
years the following directorships or partnerships:
Current Past
River Mountain Ranch - Wimberley Property American Leak Detection-DFW,
Owners Inc
Robwill Enterprises, Inc.
Waterpure Technologies Corporation
Seascape Property Owners Association,
Inc.
Mr Knell currently owns 20,500 Ordinary Shares, equivalent to
0.13% of the issued voting share capital of the Company. There is
no further information to be disclosed pursuant to Schedule Two,
paragraph (g) of the AIM Rules for Companies.
The information communicated within this announcement is deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
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END
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