Source - RNS
RNS Number : 7504J
Modern Water PLC
14 September 2016
 

 

 

14 September 2016

 

Modern Water plc

("Modern Water" or "the Company")

 

INTERIM RESULTS

 

 

Modern Water (AIM:MWG), the owner of leading technologies for water and wastewater treatment and the monitoring of water quality, announces

half-year results for the 6 months ended 30 June 2016

 

Highlights

 

Operational

·     Re-organisation and cost control to save a further £0.6m per year

·     Cash burn halved to £1.1m in H1 2016 from £2.2m in H1 2015

·     First AquaPak order received

·     Launch of new QuickCheck Atrazine strip test

·     Launch of new SmartReader  photometer

·     Appointment of new President of Monitoring Division

 

Financial

·     Group Overheads reduced by 18% to £2.18m (H1 2015: £2.64m)

·     Group Operating losses reduced by 17% to £1.84m (H1 2015: £2.22m)

·     Cash balance of £2.07m (H1 2015: £4.65m) and debt free

·     Group revenues decreased by 27% to £1.14m (H1 2015: £1.56m)

·     Group Gross Margin increased to 51% (H1 2015 43%)

 

 

Commenting on the results, Alan Wilson, Chairman of Modern Water, said:

 

-ends-

 

 

 

For further information:

 

Modern Water plc

+44 (0) 1483 696 000

Simon Humphrey, Chief Executive




Numis Securities Limited    

+44 (0) 2072 601 000

Mark Lander (Corporate Broking)


Richard Thomas (Nominated Adviser)




Tavistock

+44 (0) 207 920 3150

Mike Bartlett 


Andrew Dunn


 

Notes to editors

 

Modern Water owns, installs and operates broad based membrane systems using world-leading Forward Osmosis (FO) membrane technologies; supplies packaged seawater Reverse Osmosis (RO) desalination systems; supplies wastewater treatment solutions; and develops and supplies advanced systems for water monitoring. Its shares trade on the Alternative Investment Market of the London Stock Exchange.

 

Modern Water's patented Forward Osmosis (FO) technology's benefits include lower energy consumption and lessen environmental impact in a variety of industries. With a sales presence in almost 60 countries, the Group's Monitoring Division includes a leading real-time continuous toxicity monitor and trace metal analysers for monitoring the quality of drinking water.

 

 

www.modernwater.com

 

 

 

 

 

Chairman's Statement

 

Modern Water has continued to adhere to its clearly defined strategy and I am pleased to report to shareholders that it is beginning to deliver demonstrable benefits, as highlighted by our first order for an AquaPak in the Middle East. Further endorsement of our progress is the interest we have received in our membrane technology from notable international water companies and contractors. I am also encouraged by the progress we have made in restructuring and refocusing our Monitoring Division, which is showing signs of returning better profit margins.

 

Our cost control and restructuring initiatives have generated further annualised, sustainable savings to the business of £0.6m and reduced overheads some 18%, helping to further reduce the Operating Loss by 17% to £1.84m (H1 2015: £2.22m).  Cash balances for the period stood at £2.07m (H1 2014: £4.65m) and the Company remains debt free.

 

Gross Margins were improved in the Monitoring division, increasing to 51% (H1 2015: 43%) although not fully mitigating a reduction in revenues in the division to £1.14m (H1 2015: £1.56m), predominantly due to weakness the Chinese market, which we expect to reverse in H2.  However, it is pleasing to report that our ongoing R&D operations have developed and launched new products within the Monitoring division during the period which have achieved early sales. 

 

Elsewhere in the business, Modern Water also generated a first order from Oman for AquaPak, our containerised desalination plant and have proposals at an advanced stage with a range of other customers.  Further orders for AquaPak are therefore likely before the end of the year.

 

As previously announced, our joint venture with Northumbrian Water was appointed preferred bidder for the design, build and operation of the Wastewater Treatment Plant in Gibraltar. We now await HM Government of Gibraltar's announcement on the project's timing. 

 

Whilst we are pleased that the strategy is beginning to gain traction, all employees at Modern Water are united and dedicated in working diligently to further improve the efficiency of operations, our commercial outreach and ultimately, the profitability of our business. We are confident that we will continue to generate gains in the near to medium term.

 

I would like to take this opportunity to thank all of our people and advisers for their hard work and look forward to achieving future successes together and also to thank our shareholders for their ongoing support.

 

 

 

 

Alan Wilson

Chairman

13 September 2016

 

 

 

Chief Executive's Statement

 

Continued Cost Reduction

 

A key focus of the first half of 2016 has been cost control. Purchasing improvements and targeted sales have helped increase the Group's Gross Margin from 43% in H1 2015 to 51% and a further £0.6m of annualised savings have been made to overheads, reducing the Operating Loss to £1.8m (H1 2015: £2.2m). Including tax recoveries and the benefits of the fall in Sterling post Brexit, the Group's net loss for the first half improved more than 30% to £1.4m (H1 2015: £2.2m).

 

Membrane Processes Division

 

Our partnership with Advent Envirocare in India is developing well.  The first membrane Brine Concentration pilot plant is due to be installed at a customer's site in India in November this year.

 

A Forward Osmosis pilot plant for pre-treatment of flows to Thermal Desalination plants is under construction by our partner Bilfinger Deutsche Babcock in Abu Dhabi. The plant is on track to be deployed on a live site in the fourth quarter of 2016.

 

Our Forward Osmosis desalination plant at Al Najdah in Oman continues to operate extremely well and provide potable water to the local community. The climate conditions at Al Najdah due to its desert location are highly challenging for desalination plants and it is testament to our technology that the plant continues to run successfully and deliver benefits to the region.

 

Monitoring Division

 

Under its new President, Doug Workman, Modern Water's Monitoring Division has continued to focus on its key markets of North America, Europe and China.  Sales revenue is lower than the same period in 2015, predominantly due to reduced sales volume in China.  However, our dedicated sales team has been focussed on improving both the sales mix and the margin, resulting in a significant increase in the Monitoring Division's margin to 51% compared to 43% for 2015.

 

As R&D efforts continue to expand the portfolio across the Group's operations, we were pleased to launch two new products for our Monitoring Division during the period: The QuickCheck™ strip test and reader for Atrazine detection; and the SmartReader photometer, of which first sales have already been achieved.

 

The QuickCheck™ strip test provides rapid, simple-to-use detection of Atrazine, the most detected pesticide in drinking water in the United States. Our product is sensitive in the range of 0.75 parts-per-billion (ppb) to 10 ppb, a wide ppb range which allows our customers to  see the Atrazine trend over time and take corrective action when their ppb threshold is reached, with results available in just 10 minutes.

 

Our SmartReader™ photometer provides a simpler method for using the Company's RaPID Assay® and EnviroGard® water and wastewater test kits to provide quicker and more accurate results.

 

AquaPak

 

Modern Water has received its first order for an AquaPak containerised desalination plant in Oman. The plant will be delivered before the end of 2016.  We are pleased to report that a significant number of additional proposals are at an advanced stage with various potential customers and we are confident that we will receive further orders before the end of the year.

 

Gibraltar Wastewater Treatment Plant

 

As previously reported, the project for the design, build and operation of a wastewater treatment plant in Gibraltar was tendered by HM Government of Gibraltar in accordance with the strict procedures set out in mandatory EU public procurement rules and the government has confirmed its commitment to the project, with timing yet to be confirmed.

 

The JV between Modern Water and Northumbrian Water has fulfilled its current obligations and continues to assist in the project's advancement.

 

Outlook

 

Modern Water continues to execute its strategy and has achieved a number of its goals in the first half of 2016: further improvements in cost control, improved margins in the Monitoring Division and a first AquaPak order. 

 

Cash burn reduced significantly in H1 and further operational and commercial benefits from the actions we have taken will flow through in H2. Our focus on cost control will continue, with ongoing initiatives that will further reduce cash burn in 2017.

 

The Company is well positioned to capitalise on the opportunities our proven technology offers, grow revenue and further improve Gross Margin in the second half of 2016 and beyond.

 

 

 

 

Simon Humphrey

Chief Executive Officer

13 September 2016

 

GROUP STATEMENT OF COMPREHENSIVE INCOME (UNAUDITIED)

SIX MONTH PERIOD ENDED 30 JUNE 2016

 


 

6 months

6 months

Year


 

ended

ended

ended


 

30 June

30 June

31 December


 

2016

2015

2015


Note

£'000

£'000

£'000

Revenue

6

1,135

1,562

3,232

Cost of sales

6

(552)

(885)

(2,024)

Gross profit

6

582

677

1,208

Administrative expenses

7

(2,175)

(2,639)

(4,936)

Other gains

 

-

-

18

Goodwill and intangibles impairment

 

-

-

-

Operating loss before interest, tax, depreciation & amortisation

 

(1,592)

(1,962)

(3,710)

Depreciation and amortisation

 

(249)

(258)

(527)

Operating loss

 

(1,842)

(2,220)

(4,237)

Finance income

 

127

28

210

Finance costs

 

-

-

-

Loss on ordinary activities before taxation

 

(1,715)

(2,192)

(4,027)

Taxation

 

253

4

249

Loss for the half year

 

(1,462)

(2,188)

(3,778)

Other comprehensive income

 

 

 


Items may be subsequently reclassified to profit or loss

 

 

 


Foreign currency translation differences on foreign operations

 

38

22

(93)

Total comprehensive loss for the half year

 

(1,424)

(2,166)

(3,871)

 

 

 

 


Loss attributable to:

 

 

 


Owners of the parent

 

(1,462)

(2,188)

(3,778)

Non-controlling interests

 

-

-

-

 

 

(1,462)

(2,188)

(3,778)

 

 

 

 


Total comprehensive loss attributable to:

 

 

 


Owners of the parent

 

(1,424)

(2,166)

(3,871)

Non-controlling interests

 

-

-

-

 

 

(1,424)

(2,166)

(3,871)

 

 

 

 


Loss per share attributable to the equity holders of the parent

 

 

 


Basic loss per share

9

1.84p

2.75p

4.75p

Diluted loss per share

9

1.84p

2.75p

4.75p

 

The notes form an integral part of this condensed consolidated interim financial information.

Items in the statement above are all derived from continuing operations.

 

 

GROUP STATEMENT OF FINANCIAL POSITION (UNAUDITED)

AS AT 30 JUNE 2016

 



30 June

30 June

31 December



2016

2015

2015



£'000

£'000

£'000

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

274

354

339

Intangible assets

 

3,527

3,760

3,647

Investments

 

-

-

-

 

 

3,802

4,114

3,986

 

 

 

 


Current assets

 

 

 


Inventories

 

1,475

1,890

1,459

Trade and other receivables

 

811

1,142

1,046

Cash and cash equivalents

 

2,065

4,649

3,161

 

 

4,350

7,610

5,666

Total assets

 

8,152

11,724

9,652

 

 

 

 


Equity and liabilities

 

 

 


Equity

 

 

 


Ordinary shares

 

199

199

199

Share premium account

 

40,032

40,032

40,032

Merger reserve

 

398

398

398

Accumulated losses

 

(33,109)

(29,988)

(31,773)

 

 

7,520

10,641

8,856

Non-controlling interests

 

148

126

126

Total equity

 

7,667

10,767

8,982

 

Liabilities

 

 

 


Non-current liabilities

 

 

 


Deferred tax liabilities

 

39

193

42

 

 

 

 


Current liabilities

 

 

 


Trade and other payables

 

445

764

628

Total liabilities

 

485

975

670

Total equity and liabilities

 

8,152

11,724

9,652

 

The notes form an integral part of this condensed consolidated interim financial information.

 

 

GROUP STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

SIX MONTH PERIOD ENDED 30 JUNE 2016

 


Called up

Share




Non-



share

premium

Merger

Retained

Total

controlling

Total


capital

account

reserve

Earnings


interests

equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

Six month period ended 30 June 2015

 

 

 

 

 

 

 

Balance as at 1 January 2015

199

40,032

398

(27,958)

12,671

126

12,797

Comprehensive loss

 

 

 

 

 

 

 

Loss for the period ended 30 June 2015

-

-

-

(2,188)

(2,188)

-

(2,188)

Foreign currency translation differences

-

-

-

22

22

-

22

Total comprehensive loss

-

-

-

(2,166)

(2,166)

-

(2,166)

Transactions with owners

 

 

 

 

 

 

 

Share-based payments

-

-

-

136

136

-

136

Total transactions with owners

-

-

-

136

136

-

136

Balance as at 30 June 2015

199

40,032

398

(29,988)

10,641

126

10,767

 

 

Six month period ended 30 June 2016

 

 

 

 

 

 

 

Balance as at 1 January 2016

199

40,032

398

(31,773)

8,856

126

8,982

Comprehensive loss








Loss for the period ended 30 June 2016

-

-

-

(1,462)

(1,462)

-

(1,462)

Foreign currency translation differences

-

-

-

38

38

22

59

Total comprehensive loss

-

-

-

(1,424)

(1,424)

22

(1,403)

Transactions with owners

 

 

 

 

 

 

 

Share-based payments

-

-

-

88

88

-

88

Total transactions with owners

-

-

-

88

88

-

88

Balance as at 30 June 2016

199

40,032

398

(33,109)

7,520

148

7,667

 

The notes form an integral part of this condensed consolidated interim financial information.

 

 

GROUP STATEMENT OF CASH FLOWS (UNAUDITED)

SIX MONTH PERIOD ENDED 30 JUNE 2016

 

 


 

6 months

6 months

Year


 

 ended

 ended

ended


 

30 June

30 June

31 December


 

2016

2015

2015


Note

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

 

Cash used in operations

10

(1,364)

(2,092)

(3,580)

Net cash flows used in operating activities

 

(1,364)

(2,092)

(3,580)

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

 

(37)

(22)

(109)

Proceeds from sale of property, plant and equipment

 

-

-

-

Purchase of patents and development costs

 

(30)

(15)

(54)

Interest received

 

3

13

20

Tax Received

 

253

-

93

Net cash flows used in investing activities

 

190

(24)

(50)

Cash flows from financing activities

 

 

 


Proceeds from issuance of ordinary shares

 

-

-

-

Net cash flows used in financing activities

 

-

-

-

Net (decrease)/increase in cash and cash equivalents

 

(1,174)

(2,116)

(3,630)

Cash and cash equivalents at start of period

 

3,161

6,801

6,801

Exchange (losses)/gains on bank balances

 

77

(36)

(10)

Cash and cash equivalents at end of period

 

2,064

4,649

3,161

 

The notes form an integral part of this condensed consolidated interim financial information.

 

 

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

SIX MONTH PERIOD ENDED 30 JUNE 2016

 

1. General information

Modern Water plc ('the Company') and its subsidiaries (together, 'the Group') invest in, develop and deploy new water technology. The Company is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the Alternative Investment Market (AIM), a market operated by the London Stock Exchange. The registered office and principal place of business is Bramley House, The Guildway, Old Portsmouth Road, Guildford, Surrey GU3 1LR.

This condensed consolidated interim financial information was approved for issue by the Board of Directors on 13 September 2016. These interim financial results are unaudited and do not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2015 were approved by the board of directors on 15 March 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

 

2. Basis of preparation and going concern

2.1 Basis of preparation

The principal accounting policies have been applied consistently throughout the period in the preparation of these financial statements. This condensed consolidated interim financial information for the six months ended 30 June 2016 has been prepared in accordance with the AIM Rules for Companies of the London Stock Exchange plc and with IAS 34, 'Interim financial reporting' as adopted by the European Union.  

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

2.2 Going concern

The directors are required by company law to be satisfied that the Group has adequate resources to continue in business for the foreseeable future.  A review has been conducted and the directors have concluded that such resources are available, and that the going concern basis is justified in preparation of the financial statements.

The Group's forecasts prepared by the directors reflect that funding requirements have reduced since 2014, as the result of the restructuring plan, delivering an annualised net £1.3m reduction in expenditure.  The Group's cash burn reduced to £1.1m for the first half of 2016, compared to £2.2m in the first half of 2015.

The Group's remaining funding requirements will be met from:

·      The £2.1m opening cash balance;

·      R&D tax credits receipts from HMRC for 2015;

·      Improvement in the Group's working capital, specifically a further reduction in inventories and aged trade receivables;

·      Continued improvement in the Monitoring Division's trading; and

·      Cash receipts from initial sales of AquaPak™ plants.

 

3. Accounting policies

3.1 Accounting policy and disclosure changes

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2015.

 

4. Principal risks and uncertainties

A detailed explanation of the principal risks and uncertainties affecting the Group, and the steps taken to manage them, is set out in the Directors' Report section of the Group's 2015 Annual Report and Accounts, which is available of the Group's website at www.modernwater.com. The principal risks and uncertainties are summarised as follows:

·      customer acceptance of the Group's technologies;

·      competitor technology;

·      socio-political risks;

·      scaling up the technology;

·      IP protection;

·      recruitment and retention of key personnel;

·      health and safety;  and

·      financial risks.

There have been no significant changes in the nature of these risks that will affect the next six months of the financial year.

 

5. Critical accounting estimates and judgements

The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. Estimates are continually evaluated and are based on historical experience and other factors, such as expectations of future events, and are believed to be reasonable under current circumstances. Actual results may differ from these estimates. The key sources of estimation uncertainty during the current year were consistent with the prior year, as detailed in the Group's 2015 Annual Report and Accounts.

 

6. Segmental analysis

The chief operating decision-maker is deemed to be the Board, for whom monthly financial information is provided by division to gross profit and direct overheads; below this financial information is reported in a consolidated Group format.  For management reporting purposes the Group is organised into two operating segments (i) membranes; and (ii) monitoring, which matches this divisional split.

Administrative expenses which are directly attributable to the two main operating divisions (comprised of business development, sales, operations and technical expenditure) are reported as expenditure in the respective division.  However, a significant proportion of the Group's expenditure (legal, marketing, finance, facilities and directors' expenditure) is managed and reported centrally.  As the commercial activities of the Group develop, this financial information is expected to evolve.

 

 


6 months ended 30 June 2016

6 months ended 30 June 2015

Statement of Comprehensive Income

Membrane

Monitoring

Central

Total

Membrane

Monitoring

Central

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Revenue

-

1,135

-

1,135

-

1,562

-

1,562

Cost of sales

-

(552)

-

(552)

-

(885)

-

(885)

Gross profit

-

582

-

582

-

677

-

677

Administrative expenses

(718)

(829)

(540)

(2,087)

(762)

(882)

(859)

(2,503)

Share-based payments

-

-

(88)

(88)

-

-

(136)

(136)

Operating profit/(loss) before tax depreciation and amortisation

(718)

(247)

(628)

(1,592)

(762)

(205)

(995)

(1,962)

Depreciation and amortisation

-

-

(249)

(249)

-

-

(258)

(258)

Operating profit/(loss)

(718)

(247)

(877)

(1,842)

(762)

(205)

(1,253)

(2,220)

Finance income

-

-

127

127

-

-

28

28

Finance costs

-

-

-

-

-

-

-

-

Profit/(loss) before taxation

(718)

(247)

(750)

(1,715)

(762)

(205)

(1,225)

(2,192)

Taxation

-

-

253

253

-

-

4

4

Profit/(loss) for the period

(718)

(247)

(497)

(1,462)

(762)

(205)

(1,221)

(2,188)

 

 

7. Administrative expenses by nature


 

6 months

6 months

Year


 

 ended

 ended

ended


 

30 June

30 June

31 December


 

2016

2015

2015


Note

£'000

£'000

£'000

Wages and salaries

 

920

1,078

2,129

Social security costs

 

100

104

201

Pension costs

 

44

46

94

Other employee benefits

 

74

78

149

Share-based payments

8

88

136

56

Operating lease payments

 

190

177

417

Research and development

 

30

112

156

Other administrative expenses

 

729

908

1,734

Total administrative expenses before depreciation and  amortisation

 

2,175

2,639

4,936

Depreciation and amortisation charges

 

249

258

527

Total administrative expenses including depreciation and amortisation

 

2,424

2,897

19,071

 

 

8.  Share-based payments


6 months

6 months

Year


 ended

 ended

ended


30 June

30 June

31 December


2016

2015

2015


£'000

£'000

£'000

Options (including EMI)

88

118

36

Conditional share awards

1

18

20

Equity-settled share-based payments

88

136

56

Cash-settled share-based payments

-

-

-

Total share-based payments charged to the income statement

88

136

56

 

9.  Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.  As the Group is loss making, the diluted loss per share is equal to the basic loss per share.


6 months

6 months

Year


ended

ended

ended


30 June

30 June

31 December


2016

2015

2015


£'000

£'000

£'000

Loss attributable to equity holders of the Company

1,462

2,188

3,778

Weighted average number of ordinary shares in issue (thousands)

79,505

79,505

79,505

Basic loss per share

1.84p

2.75p

4.75p

 

 

10.  Net cash flows used in operating activities



6 months

6 months

Year



 ended

 ended

ended



30 June

30 June

31 December



2016

2015

2015



£'000

£'000

£'000

Loss on ordinary activities before taxation

 

(1,715)

(2,192)

(4,027)

Adjustments for:

 



 

Depreciation of property, plant and equipment

 

99

112

228

Amortisation of intangible assets

 

150

146

299

Net finance (income)/cost

 

(127)

(28)

(210)

Share-based payments

 

88

136

56

Movements in working capital:

 

 

 

 

(Increase)/Decrease in inventories

 

64

(365)

27

Decrease in trade and other receivables

 

277

544

811

(Decrease) in trade and other payables

 

(201)

(445)

(764)

Cash used in operations

 

(1,364)

(2,092)

(3,580)

 

11.  Related party transactions

IP Group plc held 20.0% of the ordinary share capital of the Company as at 30 June 2016 and appoints a non-executive director, and it is therefore deemed a related party.  A service agreement dated 1 December 2006 was made between the Company and IP Group plc, whereby IP Group plc provides strategic, business development and administrative services to the Company. Fees for the period were £15,000 (2015: £15,000) and as at 30 June 2016 £7,500 (31 December 2015: £7,500) was outstanding under this agreement.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation in the Group accounts.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

SIX MONTH PERIOD ENDED 30 JUNE 2016

 

The directors confirm that, to the best of their knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS34 as adopted by the European Union. The interim management report includes a fair review of the information required by the FCA's Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R), namely:

·      an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

 

The directors of Modern Water plc are listed in the Modern Water plc Annual Report and Accounts 2015.  A list of the current directors is maintained on the Company's website www.modernwater.com.

 

 

 

 

 

Alan Wilson                                                                                                                          Simon Humphrey

Chairman                                                                                                                              Chief Executive Officer

 

13 September 2016

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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