TIDMWTL
RNS Number : 3145C
Waterlogic PLC
15 April 2013
15 April 2013
Waterlogic Plc
("Waterlogic", the "Group" or the "Company")
RESULTS ANNOUNCEMENT
FOR THE YEAR ENDED 31 DECEMBER 2012
Waterlogic Plc (AIM: WTL.L), a leading manufacturer and global
distributor of point-of-use ("POU") drinking water purification and
dispensing systems, today announces its results for the year ended
31 December 2012.
2012 2011 Change
Revenue $101.0m $84.9m 19.0%
Gross margin 60.9% 59.2% 3.0%
Adjusted EBITDA(1) $14.7m $13.0m 12.6%
EBITDA $9.9m $10.4m (4.8)%
Adjusted operating
profit(1) $7.3m $7.9m (7.4)%
Operating profit $2.5m $5.3m (51.9)%
Adjusted net income(1) $6.1m $5.2m 16.6%
Net income $1.4m $2.8m (47.5)%
Net assets $90.6m $86.6m 4.6%
Net cash and cash
equivalents (3() $29.8m $50.6m (41.1)%
Group Highlights
-- Board strengthened by appointment of Peter Cohen as CEO of Waterlogic Commercial Division
-- Recurring rental and service revenue increased 44.3 per cent
to $39.0m (38.6 per cent of Group revenues) with organic(2) growth
at 1 per cent
-- Cash generated from operating activities increased 97.9 per cent to $6.9m
-- Solid performance in direct business offset by weakness in the indirect business
-- New consumer distributors in European market and new joint
venture with Eureka Forbes in India
-- Continued commercialisation of our innovative Firewall(TM) UV
technology and progression of its further expansion into new
markets
-- Acquisition of Aqua Service, Prisme, Det Stavangerske
Kaffeselskap (DSK), Taylor Made, AquaPrix and AquaPerfect
businesses
-- Strong net cash position allowing the Company to pursue further acquisition opportunities
-- Since the year end, the Company has continued to pursue its
acquisition pipeline with one transaction already completed
Jeremy Ben-David, Waterlogic Group CEO, commented
"This year has seen many significant achievements, including
growth in both adjusted EBITDA and adjusted net income, plus the
delivery of almost twice the cash generated from operations on
2011.
Operationally, the Group acquired a number of complementary
businesses, invested heavily in R&D and added 75,000 units to
its machines in field base. Although overall trading was weaker
than expected, these achievements place the Group in a strong
position for the future.
We enter 2013 with a $29.8m net cash and cash equivalents
position and have a number of attractive acquisition opportunities.
Our core business is driven by both rental and service income and
contract-based trade sales (38.6 per cent recurring and45.6 per
cent total contractual) and is therefore more resilient to economic
cycles.
Whilst the external commercial environment is expected to remain
challenging in 2013, we believe that we have built strong
foundations that will stand us in good stead. The Directors remain
confident about the Group's Firewall(TM) technology projects,
potential acquisitions, and organic business."
(1) The Directors use adjusted measures to judge the
profitability of the Group to provide them with a consistent basis
for comparison of the Group's results, on a year on year basis.
During the years under review, "Adjusted" measures include
adjustments for the share based incentives expense, capital
reorganisation related costs, acquisition & integration related
costs and corporate reorganisation costs. Further details and
reconciliations to statutory measures are included in note 5 to the
financial information.
(2) Organic growth is measured as the change in revenue year on
year, at constant currency excluding current year revenues from
acquisitions until after the first anniversary of the
acquisition.
(3) Cash and cash equivalents less bank overdrafts.
Enquiries:
Waterlogic Plc Via Redleaf Polhill
Jeremy Ben-David, Group Chief Executive
Officer
Liberum Capital (Nominated Adviser Tel: +44 (0)20 3100 2000
and Broker)
Steve Pearce
Richard Bootle
Redleaf Polhill (PR Adviser) Tel: +44 (0)20 7382 4730
Emma Kane Email: waterlogic@redleafpr.com
Rebecca Sanders-Hewett
David Ison
Website: www.waterlogic.com
CHAIRMAN'S STATEMENT
2012 was a year characterised by significant investment in
growth offset by uneven business conditions in our markets and by
variable levels of achievement across our companies. Whilst we have
made progress on multiple fronts, including the development of new
products and our recently established Consumer Division, our
results were disappointing when compared to the Board's
expectations. We have been working hard to put in place robust
strategies to address the areas of concern, and remain confident
that our actions will translate into better results.
Results
Group revenue increased by 19.0 per cent to $101.0 million
(2011: $84.9 million). Adjusted EBITDA increased by 12.6 per cent
to $14.7 million (2011: $13.0 million). Adjusted operating profit
decreased by 7.4 per cent to $7.3 million (2011: $7.9 million) as a
result of a combination of increased investment in research and
development, weak trading from our indirect sales and a delay in
the launch of products from our Consumer Division. Accordingly
operating profit decreased by 51.9 per cent to $2.5 million (2011:
$5.3 million). Earnings per share decreased by 62.1 per cent to
1.56 cents (2011: 4.12 cents) due in part to the full year effect
of the Group's equity issuance at Admission on AIM in July
2011.
The increase in revenue was a result of a combination of mostly
contributions from acquisitions with some organic growth (1 per
cent) in the underlying business.
Our balance sheet remains strong, ending the year with net cash
and cash equivalents of $29.8 million (2011: $50.6 million)
reflecting a net cash inflow from operating activities of $6.9
million (2011: $3.5m), $21.0 million spent on acquisitions (2011:
$6.0 million, including $0.7m deferred consideration) and $3.3
million of net loan repayments (2011: $7.4 million). Net funds were
$24.4m (2011: $43.3m). A more detailed review of this year's
performance is given in the Business Review and Financial Review
within the Chief Executive's Statement.
Strategy
During 2012 we made further progress in delivering on our
strategy of strengthening further our position as a leading
international manufacturer and distributor of quality POU water
coolers, acquiring six bolt-on businesses in countries where we
already had wholly owned direct sales operations, in Scandinavia,
France and the US. In addition we signed a joint venture agreement
for the manufacture of our products in India. Our joint venture
partner will then distribute these products in India.
Building on our Firewall(TM) UV technology commercialisation
strategy, we have signed two further supply agreements with leading
consumer products companies, with shipment of our first consumer
products beginning in Q1 2013 and expected commercial launch in Q2
2013.
We also invested in our infrastructure and added talented people
to our company in order to achieve our objectives. This included
recruiting several people to our developing Consumer Division.
Since year-end we have completed the acquisition of Water
Filters Limited trading as Aqua Cure Scotland (consideration $0.5
million) in the UK, and increased our shareholding in our existing
Aqua Cure business in the UK from 70 per cent to 93.85 per
cent.
Board and Governance
Last year, we as a Board agreed on a number of key
responsibilities. The first was to discuss and refine our strategy
and to hold the executive team accountable for its execution; the
second was to ensure we have the right team in place and to plan
for succession; and the third was to set the tone for governance to
ensure that high standards of governance are part of our
culture.
During 2012, we have maintained our focus on these
responsibilities, further developing a number of the key elements
of our Governance Strategy, a process that we intend to continue
into the future. Underpinning this strategy has been the on-going
development of controls and challenge and support to the Executive
Directors to ensure adequate planning to deliver our business plan
in a difficult trading environment.
We have continued to monitor the composition of our Board since
our listing in 2011, and in doing so identified the need to
strengthen our commercial and international experience. As a
result, we are pleased to welcome Peter Cohen to the Group as Chief
Executive of our Waterlogic Commercial Division. This appointment
has enabled Jeremy Ben-David, our Group Chief Executive Officer, to
focus more of his time on the Consumer Division, an area in which
we see significant growth opportunity for the Group in the coming
years. We believe that the opportunities we see in both the
commercial and the consumer areas warrant the focus on those two
divisions by talented individuals with a proven record of managing
entrepreneurial growth. As of 31 December 2012, Steven Harrison
stepped down from his role as Group CFO. On behalf of the Board, I
would like to thank him for his contribution to the success and
development of the Group, including its successful Admission to AIM
and subsequent growth. We wish Steve the very best in his future
endeavours. The process to recruit a suitable replacement Group CFO
has progressed well and we expect to soon make an announcement in
this regard.
Our Board currently comprises two Executive Directors and four
Non-Executive Directors. Of these Non-Executive Directors, the
Board considers three to be independent. The Board comprises
business leaders from a wide range of sectors including accounting,
banking, general management, investing, management consulting,
operations, sales and marketing. Between them they have an
extensive geographic knowledge.
Further to the appointment of a Director of Internal Audit
announced last year, we have delivered a number of initiatives
including a Board performance evaluation process and an assessment
of corporate governance compliance and we will shortly be launching
our Code of Conduct across the Group. Further information on the
Board and governance is given in the Governance section of the
Directors' Report.
Outlook
We expect 2013 to be a year of progress with a combination of
organic growth, contributions from new acquisitions and the
commercial launch of products from the Consumer Division.
The commercial environment remains challenging in some of our
international territories, but we have developed a clear plan for
the business in the coming years and are committed to its
execution. In these tough economic times, we believe it is vital
that we listen to our customers and stay true to our corporate
values in order to successfully execute our strategy.
Our strong balance sheet means that we are ideally positioned to
take advantage of accretive acquisitions that we have identified.
We intend to proceed in a disciplined and deliberate manner so that
acquisitions deliver long-term value to our shareholders.
As I stated last year, we have developed new products for
existing and new markets. During 2013, following the signature of
key partners, we expect to commence the distribution of our first
Firewall(TM) units into the consumer market.
Finally, on behalf of the Board, I would like to thank our
employees at all levels for their continued commitment and
dedication to making this an exceptional company.
Ariel Recanati
Group Non-Executive Chairman
12 April 2013
CHIEF EXECUTIVE'S STATEMENT
BUSINESS REVIEW
2012 was a mixed year for the Group. There were many significant
achievements that place the Group in a strong position for the
future, but overall trading was weaker than expected.
Although Waterlogic's revenue grew by almost 19.0 per cent in
2012, reaching $101.0m, the Group did not achieve its objectives on
several fronts. A delay in the launch of the consumer market
products and a weakness in third party dealer sales resulted in
Group revenues being below the Board's revenue target. During the
year the Group invested substantially in strengthening the
management team, in building the new Consumer Division and in
research and development. The combination of lower revenue than
anticipated due to delayed sales and higher operating expenses,
research and development costs and investments caused the adjusted
operating profit, adjusted for the effects of capital
reorganisation related costs, acquisition and integration related
costs, corporate reorganisation costs and share based incentives,
to be below the Board's expectations at $7.3m (2011: $7.9m).
During 2012, we added circa 75,000 units to our install base,
which is now approximately 640,000 units.
Operations
The Group is managed on the basis of segment performance,
focused on the geographical location of markets. Following the
establishment of the new Consumer Division, operations are also
reviewed on the basis of performance of the Consumer and Commercial
Divisions separately.
The costs incurred in the Consumer Division were $3.5m
comprising $2.5m operating costs (2011: $0.9m) and $1.0m invested
in research and development. This additional $2.6m expenditure
resulted in only $0.5m of revenue, which came in the last weeks of
the year. On the positive side, three substantial contracts have
been signed by the Consumer Division, which should underpin much of
2013's budgeted sales in the division.
Group research and development costs were $3.8m in aggregate
(2011: $1.2m) of which $2.1m was capitalised (2011: $0.9m).
Management consider 2012 an exceptional year in terms of research
and development spending, due to the launch of several new products
for the consumer market, an additional product range for the
commercial market, as well as the investment in increased
manufacturing capacity required for the Consumer Division.
Lower sales to third party distributors in the Commercial
Division also affected revenue and profitability in 2012. These
sales were affected by difficult economic conditions in certain
markets, destocking by distributors in anticipation of new product
launches and a major international client undertaking substantial
restructuring that resulted in sales of 10,000 units fewer than in
previous years. We reported on this issue in 2011, but have not
seen sales to this customer return to former levels during
2012.
Organic revenue growth was only 1 per cent (2011: 6.2 per cent),
much lower than our experience in recent years. Analysis of Group
revenue for the year points to the main weakness being in indirect
sales. Our direct business grew by 31.9 per cent of which 4.6 per
cent was organic and, most pleasingly, our recurring rental and
service revenues grew from 31.8 per cent of overall revenue to 38.6
per cent, of which 4.0 per cent was organic. Continuing to increase
recurring revenue is a focal point for management in the coming
years. It is the business model with the highest margins and the
recurring nature of the revenue lowers volatility and provides
highly visible income streams.
The Group continues to have a very low churn rate of customers
at the end of contracts (approximately 5 per cent average across
our POU customer base) and has programmes in place to continue
improving customer retention through continuing to provide
excellent products and customer service.
The Group also made significant progress in many areas during
2012. I am delighted that we have strengthened our senior
management team, with the recruitment of Peter Cohen as CEO of our
Commercial Division. Peter has an excellent track record and in his
previous role as CEO of PHS where he grew the company's revenue
from GBP40m to approximately GBP400m. Peter has extensive
experience in acquiring companies (over 80 in his previous role) as
well as in running service companies in the business-to-business
environment. The recruitment of Peter has enabled the Company to
restructure into two divisions going forward, with my time now
focussed mainly on the Consumer Division, and my role as Group
CEO.
The Group will soon announce the recruitment of a new CFO. The
Finance team, under Robert Bell's stewardship (as Director of
Accounting and acting CFO) has done an excellent job in the interim
and the addition of the new CFO will add a substantial amount of
experience and bandwidth to the team. The CFO is expected to be
appointed prior to the announcement of first half results.
The USA senior management team was restructured in the middle of
2012 and we are seeing significant progress in both our Waterlogic
Commercial Products subsidiary (previously 'Innowave') and our
direct sales operations in the USA.
Technological innovation
There have been significant developments on the new product
development front in 2012. We have gone from concept drawings to
finished products on three major consumer product lines. In
addition, the Waterlogic 3 POU dispenser was launched in January
2013. The modern design of the Waterlogic 3 incorporates the patent
pending Firewall(TM) technology and replaces the very popular and
reliable WL850 range of sparkling water dispensers for the high end
commercial market.
Our Firewall(TM) technology continues to win international
acclaim and accolades. Jonathan Ben-David (CEO Group Manufacturing,
R&D) and Heung Soon Kim (Director of R&D) from Waterlogic
China have been recognised by the Water Quality Association (WQA)
with an International Award of Merit. This award is given in
recognition for their development of the unique Firewall(TM)
technology as a breakthrough in water purification innovation. Both
made significant contribution to the development of Firewall(TM),
which has revolutionised water purification and quality. The
invention provides an intense dose of UV purification at the point
of dispense whilst also protecting the spout from back
contamination. The technology is the first of its type to achieve
NSF/ANSI 55a and P231 together. It is 99.9999 per cent effective,
something which has been proven by over 5,000 physical tests by
main respected independent laboratories. The award is given to
individuals that have made significant contributions to the
international water quality improvement industry.
An international (PCT) application was filed for the
Firewall(TM) patent application in October 2010, and national phase
applications based on this international application were filed in
Europe and nineteen other countries in April 2012. In addition,
three direct national applications were filed in 2011. The South
African Firewall(TM) application has already been accepted. The
other Firewall(TM) applications are currently pending. Following
the recent allowance of the South African Firewall(TM) application,
our patent attorneys are working to achieve patent grant of the
remaining national applications in a timely manner.
Acquisitions and asset purchases
During 2012 our Mergers & Acquisition department oversaw a
total of six acquisitions with a total consideration net of cash of
$21.0m. The first acquisitions of 2012 were in Norway, where we
acquired Det Stavangerske Kaffeselskap SA (DSK), a $3.5 million
revenue business focusing on coffee and POU dispensers in the
Stavanger area, and France with acquisition of Prisme S.A.R.L.
(Prisme), a distributor of Waterlogic machines. Prisme was a
classic bolt-on acquisition that added 2,400 machines to our
machines in field (MIF) in France and $1.0 million in revenue
annually.
In March 2012, the Group acquired Aqua Service AS (Aqua Service)
in Scandinavia, our first acquisition of a company that is part
bottled water and part POU. The plan to convert bottled water
dispensers to POU products is progressing very positively and
acquisition results during the first nine months have been
promising and above budget. Should this conversion plan from
bottled water to POU products prove to be successful, it will
significantly increase the scope of potential future acquisitions.
The Group can target bottled water companies as well as POU
companies and gain substantial synergies due to lower cost of
products, shared back offices and customer density.
Aqua Service had 10,885 machines installed in Norway and Sweden
at the time of the acquisition, with $10.5m revenue. POU water
dispensers, its fastest growing segment, represented 16 per cent of
its installed base. The Board of Waterlogic believes that the
growth in conversion from bottled water dispensers to POU
dispensers represents an excellent opportunity for the Group as
customers look for more convenient, cost effective and
environmental solutions. Waterlogic expects to continue and
accelerate this process of converting customers to POU.
Three acquisitions in California have also helped the Group
establish a base in this crucial market. The introduction of
Waterlogic's highly innovative Firewall(TM) UV dispensers in this
region through this newly formed base should open up future growth
opportunities for the Group. The combination of the three
operations will enable us to provide an enhanced service in
California to corporations across the spectrum of the industrial,
commercial, hotel and restaurant, public, healthcare and education
sectors. This brings the existing installed base to over 10,500
water dispensers and coffee machines managed by our US west coast
hub.
Consumer products contracts
One of the most significant achievements in 2012 was the signing
of a joint venture agreement with India's Eureka Forbes Ltd, a
leading player in the consumer durables industry, Asia's largest
direct selling organisation and the market leader in residential
water purification systems.
A new company has been created with equal shareholdings between
Waterlogic and Eureka Forbes called Aquaignis Private Ltd
("Aquaignis" or the "Joint Venture").
The Joint Venture will manufacture water purification products
specifically suited to both Indian residential consumers and
business customers. These products will be sold in India through
Eureka Forbes' extensive sales network, which includes the largest
and most highly developed direct sales network for water dispensing
systems in Asia, as well as market-leading retail and commercial
channels. Additionally, products will be manufactured for export
sales by both Waterlogic globally and by Eureka Forbes in selected
territories outside India.
All relevant products will carry the Firewall(TM) branding, to
denote the use of Waterlogic's UV purification technology.
Aquaignis will begin manufacturing products incorporating
Waterlogic's filtration and purification technologies, at their
manufacturing facility in Dehradun, in the northern state of
Uttarakhand, India, which is due to open in the second half of
2013. Prior to this facility gearing up for full production, Eureka
Forbes will sell selected Waterlogic products manufactured and
imported from the Group's production centre in Qingdao, China.
We are excited to be working with an Indian super-brand like
Eureka Forbes, an organisation that is already well respected for
bringing cutting edge innovation to the market. Waterlogic's
Firewall(TM) UV technology is one of the most effective water
purification technologies for POU water dispenser applications
currently on the market and the technology is certified by the
Water Quality Association as being able to guarantee pure and safe
water meeting U.S. EPA standards 100 per cent of the time. We are
certain that it will be a valuable addition to Eureka Forbes'
offering in multiple markets. We look forward to reporting on
further progress in due course.
In early October 2012, the Group announced that it had signed a
supply agreement, effective until the end of 2015, with Indesit
Company S.p.A. (Indesit), one of Europe's leading manufacturers and
distributors of major domestic appliances.
This exclusive agreement is for the supply and distribution of
advanced water purification devices designed for the kitchen
incorporating Waterlogic's innovative Firewall(TM) UV technology.
Furthermore, the two companies will continue to investigate other
opportunities in the consumer market. The agreement covers 50
countries including all of Europe and parts of Asia. The first
commercial orders were shipped in February 2013, with launches
planned in 2013 in further key Indesit markets.
This represents for Waterlogic another major supply and
distribution agreement for products incorporating Firewall(TM) UV
technology for the residential market. It is being undertaken with
a key European player that manufactures and distributes its own
internationally well-recognised brands (Hotpoint, Indesit and
Scholtès) through major retail outlets.
All relevant units will display the Firewall(TM) branding as
well as Indesit's product branding.
This agreement further emphasises the quality of Waterlogic's
products and business as we strengthen our position in the consumer
market. Supplying water dispensers incorporating the most effective
water purification technology currently on the market will ensure
Indesit has a unique advantage.
This is a fantastic opportunity for Waterlogic to exploit
further the significant opportunities that Firewall(TM) is opening
up in Europe and beyond in the consumer market.
In September 2011 the Group announced that it had signed an
exclusive distribution contract for Firewall(TM) consumer products
with a prominent Middle Eastern consumer products company. The
project continues and in 2012 Waterlogic completed the design and
commenced manufacture of these OEM products. Launch of these
products is planned for May 2013 and orders for thousands of units
have been placed and are currently being shipped.
In December 2012, the Group shipped approximately 900 units to a
major consumer goods company in Latin America. These products were
for the purpose of testing the market and discussions are on-going
with this company regarding a distribution agreement for the
region.
The Consumer Division is currently focusing on several new
projects. Opportunities are being reviewed in Japan, the USA and
Latin America. There are plans to meet with potential partners in
China in the coming months. Tests continue with refrigerator
manufacturers that are testing the Firewall(TM) for the
water-dispensing units in refrigerators.
The Consumer Division enters 2013 with three contracts and
several significant opportunities that will help to underpin much
of the 2013 budget.
Management and staff
Although we did not fully meet our internal budgets and
expectations in 2012, the efforts of our management and employees
continue to be exceptional. I would like to thank them for their
relentless efforts in making Waterlogic a successful market leader
in the global POU market. We continue to develop new products for
new markets and I have little doubt that these efforts will be
reflected in our future results providing Waterlogic enormous
potential for many years to come.
I believe that Waterlogic's senior management objectives are
aligned with shareholders' interests. The Group PSP plan
incentivises management to achieve compound shareholder returns as
well as meeting EBIT objectives.
Since Admission to AIM in July 2011 the Group has continued to
strengthen the senior management team, as reflected in the
recruitment of Peter Cohen and the soon to be announced recruitment
of a new CFO. We have also recruited a full time Director of
Internal Audit to help improve our internal control and governance.
The Consumer Division is new and has a group of talented and
experienced individuals, focused on developing this very exciting
sector for Waterlogic.
Strategy
Waterlogic's strategic direction continues to be based on
further strengthening its position as a leading international
manufacturer and distributor of superior quality POU water coolers
and on taking advantage of the movement away from bottled water to
POU dispensers.
The Board believes that Waterlogic POU dispensers provide
customers with a more environmentally friendly and cost effective
solution, offering higher quality water and more features. The
commercial bottled water and POU dispenser markets are estimated at
$2 billion (2010) in the USA and Europe. Within this, Waterlogic
has seen a significant trend away from bottled water coolers to
POU; circa. 73 per cent of new installations between 2005-2011 were
POU. In the same period, the overall market grew 22 per cent and
the POU market grew 146 per cent, with a further shift from bottled
water to POU expected, driven by cost and environmental
concerns.
Growth through acquisition of dealers, competitors and into
related businesses continues to be a major part of the Group's
strategy. To facilitate this future growth and ensure the
efficiency of our balance sheet, we are engaging with a number of
banks to secure funds to help us realise this strategy. We are also
discussing several other exciting acquisition opportunities, some
of which should complete in 2013, that could utilise these
facilities.
The commercialisation of the Firewall(TM) technology with new
product launches in the consumer market is a strategy the Group is
pursuing actively. These new market segments represent a
substantial opportunity for the Group with the global residential
point of entry (POE)/POU market estimated at $7 billion by Piper
Jaffray's 2010 report. The Group is in discussions with several
potential distribution partners including water treatment
companies, white goods manufacturers and consumer product companies
with a view to launching these products through different channels
in 2013 and beyond. Senior management resource has been recruited,
with expertise in consumer sales and marketing, to help achieve the
Group objectives.
2011 saw Waterlogic partner with WaterAid USA, a charity which
shares the same ambitions and goals as Waterlogic for the
improvement of drinking water quality worldwide. Every day 4,000
children die from diseases that could easily be prevented by safe
water supplies, sanitation and hygiene education. Waterlogic is now
a proud global partner of WaterAid, committing to a minimum
donation of $225,000 over the three year period 2012 to 2014.
FINANCIAL REVIEW
Group results
Group revenue for 2012 was $101.0 million, up 19.0 per cent on
2011 ($84.9 million). Excluding the net impact of foreign currency
effects (-$2.4 million) and acquisitions (+$17.9 million),
underlying revenue was slightly higher at $85.5 million,
representing organic growth of 1 per cent on 2011. Weakness in
indirect sales by the Group were offset by direct sales, with
growth of 31.9 per cent (including contribution from acquisitions),
and recurring rental and service revenues growing by 21 per cent
from 31.8 per cent of overall revenue to 38.6 per cent.
The benefit to gross profit from comparable year on year unit
sales growth was offset by a reduction of 9.6 per cent in the
external sales of the International wholesale segment, the higher
mix of direct sales helping to lift the gross margin to 60.9 per
cent (2011: 59.2 per cent) with gross profit of $61.5 million.
Group operating profit for the year was $2.5 million, 51.9 per
cent below 2011 ($5.3 million). The Group has presented an adjusted
operating profit which eliminates the effect of the share incentive
plans, capital reorganisation costs, acquisition and integration
related costs, and corporate reorganisation costs. This adjusted
operating profit of $7.3 million represents a decrease of 7.4 per
cent on 2011, driven by the increase in operating costs of 31.2 per
cent mentioned above. Adjusted EBITDA was $14.7m, 12.6% above 2011,
and points to an improvement in underlying profitability,
eliminating the effect of a $2.3m increase in depreciation and
amortisation to $7.4m (2011: $5.1m) as a result of our investment
strategy.
Segment operating profit rose strongly in Scandinavia (38.1 per
cent) as a result of our acquisitions, and the French segment
strengthened performance with an operating profit of $0.5 million
compared to an operating loss in 2011 of $0.1 million. The German
segment made a profit of $2.0 million (2011: $1.4 million).The US
segment operating subsidiaries, being CoolerSmart and Innowave,
together with our new acquisitions Taylor Made, Aqua Prix and Aqua
Perfect made a combined operating loss of $1.1 million, (2011:
$0.1m profit).
Group operating costs increased by $14.1 million to $59.3
million in the year reflecting headcount increases from both newly
acquired businesses and in response to organic growth needs, as
well as $2.3m in one-off acquisition and integration related costs,
increased technical spend in order to invest in future product
development and increased costs in relation to development of the
Consumer Division, as mentioned above.
Finance costs in 2012 were $0.7 million compared to $1.6 million
in 2011. The 2012 charge includes $0.1 million in respect of
interest rate swaps to secure the Group's long term borrowing at an
attractive average rate of 4.5 per cent until 2016.
Group profit before tax for the year was $2.0 million, $1.8
million below 2011 profit before tax due to the above factors and
inclusive of the share incentive plan costs and acquisition
costs.
Taxation was $0.5 million for the year (2011: $1.0m). The
effective tax rate for the Group fell to 26.6 per cent (2011: 26.7
per cent).
Basic earnings per share for the year were 1.56 cents, compared
with 4.12 cents in 2011. Diluted earnings per share were 1.53
cents, compared with 4.10 cents for 2011.
Financial position
Net assets increased to $90.6 million (2011: $86.6 million). The
main movements in the balance sheet items were property, plant and
equipment (relating mainly to the addition of water coolers for
rental of $3.9 million) and goodwill and other intangible fixed
assets increasing by $25.2 million (primarily arising from
acquisitions during the year).
Cash and treasury
The Group continues to be cash generative from its operating
activities, with net cash inflow from operating activities for 2012
of $6.9 million, 97.9 per cent above 2011. The Group closed the
year with net cash and cash equivalents of $ 29.8 million (2011:
$50.6 million), and net funds of $24.4m (2011: $43.3m). These
higher inflows were offset by higher cash outflows in support of
acquisitions. ($22.4 million, being $21.0 million of acquisitions
and $1.4 million of intangible assets) and net repayment of
financing arrangements ($3.3 million). Interest received and paid
resulted in a net outflow of $0.3 million which was $1.5 million
lower than 2011, due predominantly to a full year's effect of lower
interest payments on debt post the Group's Admission in July 2011.
Investing activities for 2012 resulted in an outflow of $24.4
million in total which was $16.3 million higher than the
corresponding outflow in 2011.
The Group's net funds are notionally allocated for future
acquisition opportunities and working capital requirements, the
development and commercialisation of Firewall(TM) technology and
creating additional manufacturing capacity. As mentioned
previously, the Group is currently in the process of securing
additional debt finance to ensure we are able to continue to pursue
our growth strategy.
Post balance sheet events
After the year end, the Group acquired a 100 per cent interest
in Water Filters Limited trading as AquaCure Scotland. The deal was
completed for an initial consideration of $0.5 million.
Additionally the Group paid deferred consideration of $0.2m for
Prisme, released money from escrow for DSK and Aqua Service and
acquired an additional 23.85 per cent of the equity in AquaCure. On
28 February 2013, $0.2m was sent by Waterlogic Plc towards the
equity capital in the new joint venture in India with Eureka
Forbes.
Current trading and outlook
While the external commercial environment is expected to remain
challenging in 2013, the Directors remain confident about the
Group's Firewall(TM) technology projects, potential acquisitions
and, most importantly, the Group's organic business.
Looking ahead, we have put together comprehensive bottom-up
business plans with key emphasis on 'focus on delivery'. The
business plan is built around seven key business drivers:
-- Continue to deliver growth in consumer and commercial markets
by developing new products through innovation and creativity using
internal resource and the use of external specialists.
-- Deliver best value from suppliers through the introduction of
professional procurement.
-- Improve productivity, reduce costs and improve customer
service through investment in IT hardware and software.
-- Develop people skills through training and recruitment
appropriate to the fast growing and increasingly complex
business.
-- Make acquisitions in key existing geographic markets and one
in a new geographic territory.
-- Develop e-commerce marketing to accelerate acquisition of new
customers at optimum cost.
-- Develop appropriate pricing strategy and tactics in the Group
to maximise the multiple of price and volume.
We believe these plans reinforce the Group's philosophy of our
people working in a meritocracy, where making a strong contribution
to the Group will enable employees to develop their career within
the Group, that creates opportunities through both organic growth
and acquisitions. We are putting increased emphasis on the
statement "well done is better than well said" and we will develop
our values built on trust, honesty, loyalty, teamwork, commitment,
skill and determination.
Jeremy Ben-David
Group Chief Executive Officer
12 April 2013
Consolidated income statement Year ended 31
for the year ended 31 December 2012 December
------------------
2012 2011
Note $'000 $'000
------------------------------------------ ---- -------- --------
Continuing operations
Revenue 3 100,968 84,856
Cost of sales (39,463) (34,652)
------------------------------------------ ---- -------- --------
Gross profit 61,505 50,204
Administrative expenses (57,513) (43,677)
Distribution expenses (900) (792)
Marketing expenses (911) (696)
Other gains and losses 346 213
------------------------------------------ ---- -------- --------
Operating profit 2,527 5,252
------------------------------------------ ---- -------- --------
Adjustment for the effect of:
Share based incentives 5 1,630 1,872
Capital reorganisation related costs 5 56 628
Acquisition and integration related costs 5 2,308 66
Corporate reorganisation costs 5 774 61
------------------------------------------ ---- -------- --------
Adjusted operating profit 7,295 7,879
------------------------------------------ ---- -------- --------
Finance income 177 83
Finance costs (730) (1,571)
------------------------------------------ ---- -------- --------
Profit before tax 1,974 3,764
Income tax expense (525) (1,006)
------------------------------------------ ---- -------- --------
Profit for the year 1,449 2,758
------------------------------------------ ---- -------- --------
Profit attributable to:
Owners of the Company 1,185 2,488
Non-controlling interests 264 270
------------------------------------------ ---- -------- --------
1,449 2,758
------------------------------------------ ---- -------- --------
Earnings per share 6
Basic (cents per share) 1.56 4.12
Diluted (cents per share) 1.53 4.10
------------------------------------------ ---- -------- --------
Consolidated statement of comprehensive income
Year ended 31
for the year ended 31 December 2012 December
---------------
2012 2011
$'000 $'000
---------------------------------------------------------- --- ------- ------
Profit for the year 1,449 2,758
Exchange differences on translation of foreign operations 882 (574)
--------------------------------------------------------------- ------- ------
Total comprehensive income for the year 2,331 2,184
--------------------------------------------------------------- ------- ------
Total comprehensive income attributable to:
Owners of the Company 2,061 1,815
Non-controlling interests 270 369
--------------------------------------------------------------- ------- ------
2,331 2,184
-------------------------------------------------------------- ------- ------
Consolidated balance sheet
as at 31 December 2012
2012 2011
$'000 $'000
------------------------------------ --- ------- -------
ASSETS
Non-current assets
Goodwill 24,858 11,199
Other intangible assets 20,296 8,801
Property, plant and equipment 16,302 10,452
Deferred tax asset 1,071 288
----------------------------------------- ------- -------
Total non-current assets 62,527 30,740
Current assets
Inventories 13,361 12,495
Trade and other receivables 23,312 19,441
Cash and cash equivalents 30,154 51,130
----------------------------------------- ------- -------
Total current assets 66,827 83,066
----------------------------------------- ------- -------
Total assets 129,354 113,806
----------------------------------------- ------- -------
EQUITY AND LIABILITIES
Capital and reserves
Stated capital - -
Additional paid in capital 60,389 60,261
Translation reserve 298 (578)
Share based payment reserve 4,420 2,882
Retained earnings 25,218 24,033
----------------------------------------- ------- -------
Equity attributable to Shareholders 90,325 86,598
Non-controlling interest 297 27
----------------------------------------- ------- -------
Total equity 90,622 86,625
----------------------------------------- ------- -------
Consolidated balance sheet continued
as at 31 December 2012
2012 2011
$'000 $'000
-------------------------------------- --- ------- -------
EQUITY AND LIABILITIES continued
Non-current liabilities
Borrowings:
- bank and other borrowings 2,783 4,173
- obligations under finance leases 21 89
------------------------------------------- ------- -------
Total borrowings 2,804 4,262
Derivative financial instruments 96 132
Deferred tax liability 1,520 282
Provisions 81 69
Deferred and contingent consideration 1,271 1,863
------------------------------------------- ------- -------
Total non-current liabilities 5,772 6,608
Current liabilities
Trade and other payables 19,407 13,769
Borrowings:
- bank and other borrowings 2,855 3,431
- convertible loan notes - -
- obligations under finance leases 65 89
------------------------------------------- ------- -------
Total borrowings 2,920 3,520
Current tax liabilities 1,484 1,112
Provisions 81 92
Deferred revenue 5,496 2,069
Deferred and contingent consideration 3,572 11
------------------------------------------- ------- -------
Total current liabilities 32,960 20,573
------------------------------------------- ------- -------
Total liabilities 38,732 27,181
------------------------------------------- ------- -------
Total equity and liabilities 129,354 113,806
------------------------------------------- ------- -------
The consolidated financial statements were approved by the Board
of Directors and authorised for issue on 12 April 2013 and were
signed on its behalf by:
J Ben-David
Group Chief Executive Officer
Consolidated statement of changes in equity
for the year ended 31 December 2012
Additional
paid Share-based Attributable Non-
Stated in Translation payment Retained to controlling
capital capital reserve reserve earnings Shareholders interest Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------- -------- ---------- ----------- ----------- --------- ------------- ------------- -------
Balance at 1 January
2011 - 605 95 - 21,545 22,245 1,301 23,546
Share for share
exchange
to acquire
non-controlling
interest - 1,571 - - - 1,571 (1,571) -
Issue of new shares
on
Admission - 65,387 - - - 65,387 - 65,387
Costs relating to
the
issue of new shares - (7,147) - - - (7,147) - (7,147)
Initial recognition
of
non-controlling
interest - - - - - - (72) (72)
Fair value of put
and
call option over
non-controlling
interest acquired
in the
year - (155) - - - (155) - (155)
Fair value of LTIP
accrual
transferred to
reserves - - - 1,507 - 1,507 - 1,507
Transfer to reserves
for
share based payment
expense - - - 1,375 - 1,375 - 1,375
Profit for the year - - - - 2,488 2,488 270 2,758
Other comprehensive
income - - (673) - - (673) 99 (574)
-------------------- -------- ---------- ----------- ----------- --------- ------------- ------------- -------
Balance at 1 January
2012 - 60,261 (578) 2,882 24,033 86,598 27 86,625
Fair value of put
and
call option over
non-controlling
interest acquired
in the
year - 128 - - - 128 - 128
Transfer to reserves
for
share based payment
expense - - - 1,538 - 1,538 - 1,538
Profit for the year - - - - 1,185 1,185 264 1,449
Other comprehensive
income - - 876 - - 876 6 882
-------------------- -------- ---------- ----------- ----------- --------- ------------- ------------- -------
Balance at 31
December
2012 - 60,389 298 4,420 25,218 90,325 297 90,622
-------------------- -------- ---------- ----------- ----------- --------- ------------- ------------- -------
Consolidated cash flow statement
Year ended 31
for the year ended 31 December 2012 December
------------------
2012 2011
Note $'000 $'000
------------------------------------------------------ ---- -------- --------
Profit after tax for the year 1,449 2,758
Adjustments:
- depreciation and amortisation 7,363 5,142
- acquisitions (contingent consideration adjustments) 375 (379)
- share based incentives expense 1,630 1,872
- income tax expense 525 1,006
- net interest expense and changes in the fair
value of derivative financial instruments 584 1,593
- loss on disposal of non-current assets 57 55
------------------------------------------------------ ---- -------- --------
Adjusted operating profit before working capital
movements 11,983 12,047
Net effect of working capital movements 8 1,300 (1,086)
------------------------------------------------------ ---- -------- --------
Cash flow before purchase of rental assets,
interest and tax 13,283 10,961
Purchases of rental assets (3,931) (3,671)
Proceeds on disposal of rental assets 57 98
Interest paid (488) (1,890)
Tax paid (2,016) (2,009)
------------------------------------------------------ ---- -------- --------
Net cash from operating activities 6,905 3,489
Investing activities
Interest received 181 85
Proceeds on disposal of property, plant and
equipment 4 4
Purchases of property, plant and equipment (2,181) (1,031)
Purchases of intangible assets (1,380) (1,271)
Acquisitions, net of cash acquired (21,045) (5,112)
Deferred and contingent consideration paid (12) (726)
------------------------------------------------------ ---- -------- --------
Net cash used in investing activities (24,433) (8,051)
Financing activities
Proceeds from the issue of new shares (net of
costs) 8 - 58,240
New bank loans raised 1,257 5,027
Repayment of bank loans and other financing (4,567) (12,442)
------------------------------------------------------ ---- -------- --------
Net cash from financing activities (3,310) 50,825
Translation differences 17 (125)
Net (decrease)/increase in cash and cash equivalents (20,821) 46,138
Net cash and cash equivalents at beginning of
year 50,631 4,493
------------------------------------------------------ ---- -------- --------
Net cash and cash equivalents at end of year 8 29,810 50,631
------------------------------------------------------ ---- -------- --------
NOTES TO THE FINANCIAL INFORMATION
1. General information
Waterlogic Plc (the "Company") and its subsidiaries (together
the "Group") operate as a vertically integrated business engaged in
the design, manufacture, distribution, servicing and sale of point
of use water machines in worldwide markets.
The Company is a Public Limited company which is listed on the
London Stock Exchange's Alternative Investment Market (AIM) The
Company is incorporated in Jersey under registration number 108193.
The address of its registered office is 15, Union Street, St
Helier, Jersey, Channel Islands, JE2 3RF and the company's
operating activities are based in Ireland.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2012,
but is derived from those accounts. The auditors reported on those
accounts on 12 April 2013 and their report was unqualified.
Statutory accounts for 2012 will be delivered following the
company's Annual General Meeting.
2. Basis of preparation
The Company has prepared the financial statements under
International Financial Reporting Standards (IFRS) as adopted by
the EU. The financial statements have been prepared on a going
concern basis and under the historical cost convention, modified by
the revaluation of certain financial instruments.
The financial statements are presented in US Dollars. This is
the predominant functional currency of the Group and is the
currency of the primary economic environment in which it operates.
Foreign operations are consolidated within the financial statements
in accordance with the policies set out below.
3. Revenue
An analysis of the Group's revenue is as follows:
Year ended 31
December
---------------
2012 2011
$'000 $'000
---------------------------- ------- ------
Continuing operations
Direct sales 16,004 12,130
Indirect sales 45,994 45,719
Rental and service income 38,970 27,007
---------------------------- ------- ------
Consolidated total revenues 100,968 84,856
---------------------------- ------- ------
4. Business and geographical segments
Information reported to the Group's Chief Executive for the
purposes of resource allocation and assessment of segment
performance is focused on the location of markets in which the
Group operates. The Group's reportable segments are set out
overleaf.
The following is an analysis of the Group's revenues and
operating profit/(loss) by reportable segment.
Year ended 31
December
---------------
2012 2011
$'000 $'000
-------------------------------- ------- ------
International Trading
External sales 14,375 15,909
Inter-segment sales 12,636 13,563
-------------------------------- ------- ------
Total revenue 27,011 29,472
-------------------------------- ------- ------
Segment operating profit 3,415 5,386
Scandinavia
External sales 31,786 21,014
Inter-segment sales 563 58
-------------------------------- ------- ------
Total revenue 32,349 21,072
-------------------------------- ------- ------
Segment operating profit 3,361 2,434
France
External sales 7,342 6,539
Inter-segment sales - -
-------------------------------- ------- ------
Total revenue 7,342 6,539
-------------------------------- ------- ------
Segment operating profit/(loss) 481 (122)
Germany
External sales 11,934 11,618
Inter-segment sales 25 92
-------------------------------- ------- ------
Total revenue 11,959 11,710
-------------------------------- ------- ------
Segment operating profit 2,024 1,359
USA
External sales 24,768 22,655
Inter-segment sales - -
-------------------------------- ------- ------
Total revenue 24,768 22,655
-------------------------------- ------- ------
Segment operating (loss)/profit (1,137) 67
UK
External sales 10,757 7,118
Inter-segment sales 374 168
-------------------------------- ------- ------
Total revenue 11,131 7,286
-------------------------------- ------- ------
Segment operating profit 1,433 717
PRC
External sales 6 3
Inter-segment sales 15,258 15,834
-------------------------------- ------- ------
Total revenue 15,264 15,837
-------------------------------- ------- ------
Segment operating (loss) (115) (238)
Segment result
External sales 100,968 84,856
Inter-segment sales 28,856 29,715
------------------------------------------------------- -------- --------
Total revenue 129,824 114,571
------------------------------------------------------- -------- --------
Segment operating profit 9,462 9,603
Eliminations
Elimination of inter-segment sales (28,856) (29,715)
------------------------------------------------------- -------- --------
Eliminations from operating profit (40) (1,588)
------------------------------------------------------- -------- --------
4. Business and geographical segments continued
CONSOLIDATED
External sales 100,968 84,856
Aggregate segment operating profit net of eliminations 9,422 8,015
Central administration costs (6,895) (2,763)
------------------------------------------------------- -------- --------
Operating profit 2,527 5,252
------------------------------------------------------- -------- --------
The accounting policies of the reportable segments are the same
as the Group's accounting policies. Inter segment sales are charged
at prevailing market rates. Segment operating profit represents the
profit earned by each segment without allocation of the share of
central administration costs including Directors' salaries,
investment revenue and finance costs and income tax expense. This
is the measure reported to the Group's Chief Executive for the
purpose of resource allocation and assessment of segment
performance.
Central administration costs comprise principally the employment
related costs and other overheads incurred by the Company, and its
subsidiaries WIL and WLI (UK) Ltd, net of management charges to and
from other subsidiaries, and inter-company commission income. Also
included within central administration costs is the charge relating
to the share based payment plans of $1,630,000 for the year ended
31 December 2012 (2011: $1,872,000) (see note 9).
Segment net assets
2012 2011
Year ended 31 December $'000 $'000
------------------------ ------ -------
International Trading 5,904 2,399
Scandinavia 10,019 4,272
France 2,154 202
Germany 4,975 3,763
USA 9,928 12,118
UK 5,597 5,819
PRC 2,551 1,760
Total segment assets 41,128 30,333
Eliminations (736) (2,041)
Central services 50,230 58,333
------------------------ ------ -------
Consolidated net assets 90,622 86,625
------------------------ ------ -------
For the purposes of monitoring segment performance and
allocating resources between segments the Group's Chief Executive
monitors the tangible, intangible and financial assets attributable
to each segment. All assets are allocated to reportable segments
with the exception of investments in associates, other financial
assets (except for trade and other receivables) and tax assets.
Goodwill has been allocated to reportable segments. Assets used
jointly by reportable segments are allocated on the basis of the
revenues earned by individual reportable segments. The eliminations
principally represent goodwill recognised on internal transfers and
investments in subsidiaries.
Other segment information
Additions
to
Depreciation non-current
and amortisation assets
------------------- --------------
2012 2011 2012 2011
Year ended 31 December $'000 $'000 $'000 $'000
----------------------- --------- -------- ------ ------
International Trading 127 96 1,004 372
Scandinavia 1,477 339 16,222 231
France 611 436 2,463 751
Germany 1,458 1,277 1,491 1,369
USA 2,557 2,198 13,646 3,917
UK 395 271 52 7,896
PRC 521 325 1,560 624
Central services 217 200 364 515
----------------------- --------- -------- ------ ------
Total 7,363 5,142 36,802 15,675
----------------------- --------- -------- ------ ------
4. Business and geographical segments continued
The Group is managed on the basis of segment performance,
focused on the geographical location of markets. Following the
establishment of the new Consumer Division, operations are also
reviewed on the basis of performance of the Consumer and Commercial
Divisions. Accordingly, the following additional disclosure has
been made with respect to the Consumer and Commercial
Divisions.
Year ended 31
December
------------------------------------------------- -------------------------------------------------------------------
2012 2011
$000 $'000
------------------------------------------------- --------------------------------------- --------------------------
Commercial Sales
External sales 100,461 84,856
Gross profit 61,416 50,204
------------------------------------------------- --------------------------------------- --------------------------
Gross margin 61% 59%
------------------------------------------------- --------------------------------------- --------------------------
Division operating
profit 12,869 8,876
Consumer Sales
External sales 507 -
Gross profit 89 -
------------------------- ---------------------- --------------------------------------- --------------------------
Gross margin 18% -
------------------------- ---------------------- --------------------------------------- --------------------------
Division operating
loss (3,447) (861)
Consolidated
External sales 100,968 84,856
Gross profit 61,505 50,204
Gross margin 61% 59%
Aggregate division operating
profit 9,422 8,015
Central administration
costs (6,895) (2,763)
------------------------------------------------- -------- ----------------------------- --------------------------
Operating profit 2,527 5,252
------------------------------------------------- -------- ----------------------------- --------------------------
Information about major customers
No single customer accounted for more than 10 per cent of
reported sales in 2012 and no single major customer accounted for
more than 10 per cent of the total balance of trade receivables net
of allowances for doubtful debts on 31 December 2012. At 31
December 2011 a single major customer accounted for more 12.1 per
cent of the total balance of trade receivables net of allowances
for doubtful debts, but no other single customer accounted for more
than 10 per cent of this balance.
5. Adjusted profitability measures
The Directors use adjusted measures to judge the profitability
of the Group to provide them with a consistent basis of comparison
of the Groups results, on a year on year basis. During the years
under review, these "Adjusted" measures include: Adjusted operating
profit; Adjusted EBITDA; and Adjusted net income.
Where applicable the following items, including their tax effect
where applicable, have been excluded when calculating adjusted
items:
- Share based incentives expense
-- Share based payment expense recognised in connection with the PSP and the LTIP (note 9).
- Capital reorganisation related costs
-- Costs associated with the capital reorganisation of WIL and
those incurred by the Company in connection with the admission of
the Company's ordinary shares to AIM.
- Acquisition and integration related costs
-- Costs associated with acquisitions, including transaction
costs, now also including fair value adjustments on contingent
consideration. (To ensure a consistent basis of comparison, prior
year figures have been updated where appropriate.); and
-- Costs associated with the integration of companies, including
restructuring undertaken as a result of the acquisition of
subsidiaries by the Group.
- Corporate reorganisation costs
-- Costs associated with termination of employment resulting from:
o relocation and/or redundancy of role; and
o termination payments to Executive Directors of the Group.
Year ended 31
December
---------------
2012 2011
$'000 $'000
------------------------------------------------ ------- ------
Operating profit 2,527 5,252
Add depreciation and amortisation 7,363 5,142
------------------------------------------------ ------- ------
EBITDA 9,890 10,394
Adjusting items:
- share based incentives expense 1,630 1,872
- capital reorganisation related costs 56 628
- acquisition and integration related costs 2,308 66
- corporate reorganisation costs 774 61
------------------------------------------------ ------- ------
Total adjusting items 4,768 2,627
------------------------------------------------ ------- ------
Adjusted operating profit 7,295 7,879
Adjusted EBITDA 14,658 13,021
------------------------------------------------ ------- ------
Profit for the year (net income) 1,449 2,758
Total adjusting items and related finance costs 4,883 2,727
Tax effect of adjusting items (256) (276)
------------------------------------------------ ------- ------
Adjusted net income 6,076 5,209
------------------------------------------------ ------- ------
6. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Earnings
Year ended 31
December
---------------
2012 2011
$'000 $'000
------------------------------------------------- ------- ------
Profit attributable to the owners of the Company 1,185 2,488
------------------------------------------------- ------- ------
Year ended 31
December
------------------------
2012 2011
Number Number
---------------------------------------------------- ----------- -----------
Weighted average number of shares in issue 77,604,207 61,986,447
Weighted average number of shares held by employee
share trust (1,660,000) (1,660,000)
---------------------------------------------------- ----------- -----------
Shares used to calculate basic earnings per share 75,944,207 60,326,447
Dilution due to share-based incentive plans 1,356,781 341,523
---------------------------------------------------- ----------- -----------
Shares used to calculate diluted earnings per share 77,300,988 60,667,970
---------------------------------------------------- ----------- -----------
Basic earnings per share (cents) 1.56 4.12
Diluted earnings per share (cents) 1.53 4.10
---------------------------------------------------- ----------- -----------
Earnings per share have been calculated by dividing the profit
attributable to Shareholders by the weighted average number of
shares in issue during the year.
7. Acquisition of subsidiaries
Det Stavangerske Kaffeselskap AS
On 1 February 2012 the Group acquired 100 per cent of the shares
of Det Stavangerske Kaffeselskap AS ("DSK") for total consideration
of $1.5 million. DSK of Norway is a leading vendor of water
dispensers and coffee machines in the Stavanger region and the
acquisition represents a strategic opportunity for Waterlogic to
enhance market share in Norway.
Fair value
$'000
-------------------------------------- ------------
Net assets acquired:
- property, plant and equipment 22
- trade receivables 364
- other monetary assets 604
- monetary liabilities assumed (675)
- intangible assets recognised 560
- deferred tax liability (164)
-------------------------------------- ------------
Total net assets acquired 711
Goodwill recognised 790
-------------------------------------- ------------
1,501
-------------------------------------- ------------
Satisfied by:
- cash 1,587
- assignment of declared dividend (86)
-------------------------------------- ------------
1,501
-------------------------------------- ------------
Net cash flow on acquisition:
Cash consideration 1,587
Less: assignment of declared dividend (86)
Add: bank overdrafts assumed 69
-------------------------------------- ------------
1,570
-------------------------------------- ------------
Intangible assets of $560,000 have been recognised comprising
the value of the customer contracts and on-going customer
relationships that existed at the date of acquisition. Customer
contracts in place at the acquisition date have been valued based
upon the discounted cash flows arising from these contracts
following the deduction of relevant contributory asset charges. The
customer relationship value represents the future discounted cash
flows arising on the customer base projected over ten years
allowing for customer attrition rates and expected growth in
revenue and profits from these customers. A deferred tax provision
of $164,000 is recognised in respect of these intangible assets
with a corresponding off-set to goodwill. This deferred tax
provision is recycled through profit and loss in line with the
amortisation charges of the related intangible asset. We do not
expect the goodwill to be deductible for tax purposes.
Acquisition-related costs of $88,000 have been expensed and are
included in administrative expenses as incurred. DSK contributed
$2,378,100 of revenue and $96,400 of operating loss to the Group's
results for the period between the date of acquisition and the
balance sheet date. Had the acquisition of DSK occurred on 1
January 2012, Group revenue would have been approximately $220,700
higher and Group operating profit would have been approximately
$8,900 lower.
7. Acquisition of subsidiaries continued
Prisme SARL
On 31 January 2012 the Group acquired the entire issued share
capital of Prisme SARL ("Prisme") for total consideration of $1.5
million. Prisme, based in the south of France, is a leading vendor
of POU dispensers in the region and the acquisition represents a
strategic opportunity for Waterlogic to enhance market share in
France.
Fair value
$'000
-------------------------------- ------------
Net assets acquired:
- property, plant and equipment 88
- trade receivables 189
- other monetary assets 1
- monetary liabilities assumed (527)
- intangible assets recognised 684
- deferred tax liability (228)
-------------------------------- ------------
Total net assets acquired 207
Goodwill recognised 1,305
-------------------------------- ------------
1,512
-------------------------------- ------------
Satisfied by:
- cash 1,360
- contingent cash consideration 152
-------------------------------- ------------
1,512
-------------------------------- ------------
Net cash flow on acquisition:
Cash consideration 1,360
Add: bank overdrafts assumed 62
-------------------------------- ------------
1,422
-------------------------------- ------------
The contingent cash consideration represents the retained
element of the purchase price, which has subsequent to the balance
sheet date been paid on the first anniversary of the completion
date.
Intangible assets of $684,000 have been recognised comprising
the value of the customer contracts and on-going customer
relationships that existed at the date of acquisition. Customer
contracts in place at the acquisition date have been valued based
upon the discounted cash flows arising from these contracts
following the deduction of relevant contributory asset charges. The
customer relationship value represents the future discounted cash
flows arising on the customer base projected over ten years
allowing for customer attrition rates and expected growth in
revenue and profits from these customers. A deferred tax provision
of $228,000 is recognised in respect of these intangible assets
with a corresponding off-set to goodwill. This deferred tax
provision is recycled through the income statement in line with the
amortisation charges of the related intangible asset. We do not
expect the goodwill to be deductible for tax purposes.
Acquisition-related costs of $66,000 have been expensed and are
included in administrative expenses as incurred. Prisme contributed
$427,200 of revenue and $1,900 of operating loss to the Group's
results for the period between the date of acquisition and the
balance sheet date. Had the acquisition of Prisme occurred on 1
January 2012, Group revenue would have been approximately $38,300
higher and Group operating profit would have been approximately
$200 lower.
7. Acquisition of subsidiaries continued
Aqua Service AS
On 13 March 2012 the Group acquired 100 per cent of the shares
of Aqua Service AS ("Aqua Service") for total consideration of $6.7
million. Aqua Service is a leading rental and service supplier of
bottled water coolers, water dispensers and coffee machines in
Norway and Sweden and the acquisition represents a strategic
opportunity for Waterlogic to enhance market share in both
countries.
Fair value
$'000
-------------------------------- ------------
Net assets acquired:
- property, plant and equipment 3,411
- trade receivables 727
- monetary liabilities assumed (6,664)
- intangible assets recognised 6,374
- deferred tax liability (1,737)
-------------------------------- ------------
Total net assets acquired 2,111
Goodwill recognised 4,609
-------------------------------- ------------
6,720
-------------------------------- ------------
Satisfied by:
- cash 6,720
6,720
-------------------------------- ------------
Net cash flow on acquisition:
Cash consideration 6,720
Add: loan balances assumed 2,558
Less: cash balances acquired (495)
-------------------------------- ------------
8,783
-------------------------------- ------------
Intangible assets of $6,374,000 have been recognised comprising
the value of the customer contracts and on-going customer
relationships that existed at the date of acquisition and the trade
name "Aqua Service". Customer contracts in place at the acquisition
date have been valued based upon the discounted cash flows arising
from these contracts following the deduction of relevant
contributory asset charges. The customer relationship value
represents the future discounted cash flows arising on the customer
base projected over ten years allowing for customer attrition rates
and expected growth in revenue and profits from these customers.
The value of the trade name has been established using the 'Relief
from Royalty' method using an applicable royalty rate based on an
assessment of the strength of the trade name and is being amortised
over a five year period.
A deferred tax provision of $1,737,000 is recognised in respect
of these intangible assets with a corresponding off-set to
goodwill. This deferred tax provision is recycled through the
profit and loss in line with the amortisation charges of the
related intangible asset. We do not expect the goodwill to be
deductible for tax purposes.
Acquisition-related costs of $368,000 have been expensed and are
included in administrative expenses as incurred. Aqua Service
contributed $9,612,000 of revenue and $1,012,300 of operating
profit to the Group's results for the period between the date of
acquisition and the balance sheet date. Had the acquisition of Aqua
Service occurred on 1 January 2012, Group revenue would have been
approximately $2,119,100 higher and Group operating profit would
have been approximately $38,400 lower.
7. Acquisition of subsidiaries continued
Taylor Made Water Systems Inc
On 23 August 2012, the Group acquired 100 per cent of the shares
of Taylor Made Water Systems, Inc. ("TMW") for total consideration
of $6.9 million. TMW of USA is a leading vendor of water dispensers
and coffee machines in the Northern California region and the
acquisition represents a strategic opportunity for Waterlogic to
enter a new geographic region. The purchase price allocation
exercise is not yet finalised and accordingly the fair values set
out below are provisional.
Provisional
fair value
$'000
-------------------------------- -----------
Net assets acquired:
- property, plant and equipment 1,122
- trade receivables 435
- other monetary assets 312
- monetary liabilities assumed (1,627)
- intangible assets recognised 2,300
Total net assets acquired 2,542
Goodwill recognised 4,382
-------------------------------- -----------
6,924
-------------------------------- -----------
Satisfied by:
- cash 5,000
- working capital adjustment (880)
- contingent consideration 2,804
6,924
-------------------------------- -----------
Net cash flow on acquisition:
Cash consideration 5,000
Less: cash balances acquired (47)
-------------------------------- -----------
4,953
-------------------------------- -----------
Intangible assets of $2,300,000 have been recognised comprising
the value of the trade name "Taylor Made Water Systems",
non-compete agreements with vendors and on-going customer
relationships that existed at the date of acquisition. The customer
relationship value represents the future discounted cash flows
arising on the customer base projected over ten years allowing for
customer attrition rates and expected growth in revenue and profits
from these customers. The trade name is being amortised over a five
year period.
The Group has an obligation to the vendors to make payments in
the future based upon the earnings of the TMW business over the
three years after acquisition. Payments are to be made in stages
and the obligation has been recorded as either a current or
non-current liability dependent on the expected timing of the
payment. The present value of the expected payments is
$2,804,000.
Acquisition-related costs of $225,000 have been expensed and are
included in administrative expenses as incurred. TMW contributed
$1,589,700 of revenue and $227,900 of operating profit to the
Group's results for the period between the date of acquisition and
the balance sheet date. Had the acquisition of TMW occurred on 1
January 2012, Group revenue would have been approximately
$2,873,700 higher and Group operating profit would have been
approximately $412,000 higher.
7. Acquisition of subsidiaries continued
AquaPrix Inc
On 18 September 2012, the Group acquired the Commercial POU
coolers and rental contracts of AquaPrix Inc. ("APX") for total
consideration of $1.8 million. APX of the USA is a leading vendor
of water dispensers and coffee machines in the Northern California
region and the acquisition represents a strategic opportunity for
Waterlogic to increase market share in this region. The purchase
price allocation exercise is not yet finalised and accordingly the
fair values set out below are provisional.
Provisional
fair value
$'000
-------------------------------- -----------
Net assets acquired:
- property, plant and equipment 164
- trade receivables 47
- other monetary assets 69
- monetary liabilities assumed (60)
- intangible assets recognised 1,110
Total net assets acquired 1,330
Goodwill recognised 475
-------------------------------- -----------
1,805
-------------------------------- -----------
Satisfied by:
- cash 1,800
- purchase price adjustment 5
1,805
-------------------------------- -----------
Net cash flow on acquisition:
Cash consideration 1,800
1,800
-------------------------------- -----------
Intangible assets of $1,110,000 have been recognised comprising
the value of the trade name "AquaPrix", non-compete agreements with
vendors and on-going customer relationships that existed at the
date of acquisition. The customer relationship value represents the
future discounted cash flows arising on the customer base projected
over ten years allowing for customer attrition rates and expected
growth in revenue and profits from these customers. The trade name
is being amortised over a five year period.
Acquisition-related costs of $100,000 have been expensed and are
included in administrative expenses as incurred. APX contributed
$268,100 of revenue and $(28,100) of operating loss to the Group's
results for the period between the date of acquisition and the
balance sheet date. Had the acquisition of APX occurred on 1
January 2012, Group revenue would have been approximately $672,700
higher and Group operating profit would have been approximately
$70,500 lower.
7. Acquisition of subsidiaries continued
Aqua Perfect LLC
On 14 November 2012, the Group acquired the Commercial POU
coolers and rental contracts of Aqua Perfect LLC ("APT") for total
consideration of $2.4 million. APT of the USA is a leading vendor
of water dispensers and coffee machines in the Northern California
region and the acquisition represents a strategic opportunity for
Waterlogic to increase market share in this region. The purchase
price allocation exercise is not yet finalised and accordingly the
fair values set out below are provisional.
Provisional
fair value
$'000
-------------------------------- -----------
Net assets acquired:
- property, plant and equipment 138
- trade receivables 73
- other monetary assets 77
- monetary liabilities assumed (73)
- intangible assets recognised 1,100
Total net assets acquired 1,315
Goodwill recognised 1,083
-------------------------------- -----------
2,398
-------------------------------- -----------
Satisfied by:
- cash 2,350
- purchase price adjustment 48
2,398
-------------------------------- -----------
Net cash flow on acquisition:
Cash consideration 2,000
Deferred consideration 350
2,350
-------------------------------- -----------
Intangible assets of $1,100,000 have been recognised comprising
the value of the trade name "Aquaperfect", non-compete agreement
with the vendor and on-going customer relationships that existed at
the date of acquisition. The customer relationship value represents
the future discounted cash flows arising on the customer base
projected over ten years allowing for customer attrition rates and
expected growth in revenue and profits from these customers.
Acquisition-related costs of $109,000 have been expensed and are
included in administrative expenses as incurred. APT contributed
$121,600 of revenue and $12,200 of operating loss to the Group's
results for the period between the date of acquisition and the
balance sheet date. Had the acquisition of APT occurred on 1
January 2012, Group revenue would have been approximately $822,700
higher and Group operating profit would have been approximately
$82,500 lower.
8. Notes to the cash flow statement
Year ended 31 December
------------------------
2012 2011
$'000 $'000
------------------------------------------ ----------- -----------
Movements in working capital
Increase in trade and other receivables (451) (3,393)
Decrease in inventories 362 27
Increase in trade and other payables 1,513 1,953
(Decrease)/increase in deferred revenue (124) 327
------------------------------------------ ----------- -----------
Net effect of working capital movements 1,300 (1,086)
------------------------------------------ ----------- -----------
Proceeds from issue of new shares
Cash from issue of new shares - 65,387
Costs associated with issue of new shares - (7,147)
------------------------------------------ ----------- -----------
Net proceeds from issue of new shares - 58,240
------------------------------------------ ----------- -----------
Net cash and cash equivalents
Cash and cash equivalents 30,154 51,130
Bank overdrafts (344) (499)
------------------------------------------ ----------- -----------
Net cash and cash equivalents 29,810 50,631
------------------------------------------ ----------- -----------
Cash and cash equivalents comprise cash and short-term bank
deposits with an original maturity of three months or less, net of
outstanding bank overdrafts. The carrying amount of these assets is
approximately equal to their fair value.
9. Share-based compensation
Cash-settled Long Term Incentive Plan
The Group had established a Long Term Incentive Plan ("LTIP")
that has been granted to certain executives under what is known as
the phantom share scheme.
The Group recognised a liability for the services provided by
the qualifying executives in accordance with the fair value of the
expected cash settlement due in the future. The vesting period
ranged between four and six years across the holders from date of
grant. The award was forfeited if the executive left the Group
before vesting.
As at the date of Admission to AIM the beneficiaries of the LTIP
exchanged their interest in the LTIP for awards under the
Performance Share Plan (PSP). The fair value of the LTIP awards at
the date of Admission as estimated by the Directors based upon the
enterprise value of the Group immediately before Admission was
transferred from provisions to the share based payment reserve in
accordance with modification accounting of IFRS 2 "Share based
payments".
Prior to the transfer to the share based payment reserve the
fair value of this liability was re-measured at each balance sheet
date, with any changes in fair value recognised in administrative
expenses in the income statement for the period.
The fair value of the LTIP liability for the period under review
is as follows:
$'000
------------------------------------------- -------
Fair value at 31 December 2010 1,405
Change in fair value during 2011 102
Transferred to share based payment reserve (1,507)
------------------------------------------- -------
Fair value at 31 December 2011 -
Change in fair value during 2012 -
Transferred to share based payment reserve -
------------------------------------------- -------
Fair value at 31 December 2012 -
------------------------------------------- -------
9. Share-based compensation continued
Performance Share Plan and Non-Executive Awards
At Admission the Company established the PSP for certain
officers and employees of the Group. Awards take the form of a
right to acquire Ordinary Shares in the Company for nil
consideration. All the Awards include performance conditions, which
are primarily one or more of (i) continued employment within the
Group; (ii) earnings for a specified fiscal year of the
consolidated Group or an individual subsidiary; or (iii) an
absolute level of Total Shareholder Return (TSR) over a specified
period of typically three years. Awards based on EBIT have been
issued for fiscal years up to the year ending 31 December 2016.
The Company has also made Non-Executive Awards to Benoit
Raillard and Jeremy Marshall. The Non-Executive Awards are not
granted pursuant to the PSP but, except for not having any
performance conditions other than continuing to be a Director of
the Company have terms that mirror the PSP Awards.
The number of Awards with the different performance conditions
at 31 December 2012 is as follows:
Number
--------------------------------------------------------- ---------
Continued employment only (including the Non-Executive
Awards) 1,661,162
Continued employment and EBIT for a specific fiscal year 1,878,153
Continued employment and TSR for a specific period 1,029,070
Continued employment and other non-market conditions 81,097
--------------------------------------------------------- ---------
Total 4,649,482
--------------------------------------------------------- ---------
There are 37 beneficiaries of the PSP as at 31 December 2012
(2011: 35). The weighted average fair value of each award made in
2012 is $2.78 (2011: $2.21).
Details of awards outstanding under the PSP are as follows:
2012 2011
Performance Share Plan (PSP) Number Number
------------------------------------- --------- ---------
Outstanding at beginning of period 4,192,788 --
Granted during the period 2,054,240 4,192,788
Forfeited during the period (839,692) --
Exercised during the period -- --
Expired during the period (757,854) --
------------------------------------- --------- ---------
Outstanding at the end of the period 4,649,482 4,192,788
------------------------------------- --------- ---------
Exercisable at the end of the period 835,640 --
------------------------------------- --------- ---------
The total expense recognised in the year for the PSP awards
(including the social security charges estimated to arise on the
eventual exercise of the awards) is $1,630,000 (2011:
$1,732,000).
The weighted average remaining contractual life of the awards
outstanding at 31 December 2012 is 2.7 years (2011: 3.2 years). In
2012, awards were granted on 11 June, 27 and 28 September and 1
October. The aggregate of the estimated fair values of awards
issued on those dates is $5,705,000. In 2011, awards were granted
on 11 July, 1 and 8 November and 13 December. The aggregate of the
estimated fair values of awards issued on those dates was
$9,292,000.
Valuation methodology
The fair value of the PSP awards other than the TSR related
awards is measured as the market price of the underlying share at
the date of grant. The market price is obtained from external,
publicly available sources. At each year end the relevant accrual
for each grant is revised, if appropriate, to take account of any
changes in estimate of the likely number of shares expected to
vest.
The fair value of the TSR related awards is measured by applying
the probability of satisfying the conditions at the grant date
through an appropriate statistical model. This initial valuation
remains fixed throughout the life of the Award, irrespective of the
actual performance. Where a lapse occurs on non-market based
options due to the cessation of employment the cumulative charge
taken to date is reversed.
10. Events after the balance sheet date
Acquisitions of subsidiaries
Aqua Cure Scotland
On 28 February 2013 the Group acquired the entire issued share
capital of Water Filters Limited trading as Aqua Cure Scotland for
a total consideration of $0.5m. Aqua Cure Scotland, a vendor of
water filtration and water purification equipment based in Perth,
has for 20 years supplied a diverse customer base of both business
and residential customers. Waterlogic's strategic acquisition of
Aqua Cure Limited in 2011 has provided the Group with a
complementary range of products to offer its customers. The
acquisition of Aqua Cure Scotland expands upon this strategy,
increasing coverage of the UK market and giving the Company direct
access to the Scottish market. Following completion, the Aqua Cure
Scotland business will become part of Aqua Cure Limited, a
subsidiary of Waterlogic Plc. Due to the proximity of the
acquisition date to the date these financial statements were
authorised for issue, the fair values of the identifiable assets
acquired and liabilities assumed are yet to be finalised.
Acquisition of non-controlling interest
Aqua Cure Limited
On 7 March 2013, the Group acquired a further 23.85 per cent
holding in Aqua Cure Limited to bring its total holding in the
company to 93.85 per cent. The Group has an option over the
remaining 6.15 per cent interest which may be exercised up to 31
December 2015.
Joint venture
On 7 November 2012, Waterlogic signed a joint venture agreement
with Eureka Forbes Ltd ("Eureka Forbes"), a leading player in the
consumer durables industry, Asia's largest direct selling
organisation and the market leader in residential water
purification systems.
A new company has been created with equal shareholdings between
Waterlogic and Aquamall Water Solutions Ltd (the wholly-owned
manufacturing division subsidiary of Eureka Forbes) called
Aquaignis Private Ltd ("Aquaignis" or the "Joint Venture").
The Joint Venture will manufacture and market water purification
products specifically suited to both Indian residential consumers
and business customers. The products will be sold in India through
Eureka Forbes' extensive sales network, which includes the largest
and most highly developed direct sales network for water dispensing
systems in Asia, as well as market-leading retail and commercial
channels. Additionally, products will be manufactured for export
sales by both Waterlogic globally and by Eureka Forbes in selected
territories outside of India.
All relevant products will carry the Firewall(TM) branding, to
denote the use of Waterlogic's ultra-violet ("UV") purification
technology.
Aquaignis will begin manufacturing products incorporating
Waterlogic's filtration and purification technologies, at a new
manufacturing facility in Dehradun, in the northern state of
Uttarakhand, India, which is due to open in the second half of
2013. Prior to the manufacturing facility gearing up for full
production, Eureka Forbes will sell selected Waterlogic products
manufactured and imported from the Company's main production centre
in Qingdao, China.
On 28 February 2013, $153,000 was sent by both Aquamall Water
Solutions Limited and Waterlogic Plc towards the equity capital in
the new Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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