15 Mar 2017 07:00
15 March 2017
Modern Water plc ("Modern Water" or "the Company")
FINAL RESULTS
Modern Water (AIM:MWG), the owner of leading technologies for water and wastewater treatment and the monitoring of water quality, today announces
full-year results for the 12 months ended 31 December 2016
Key points
Operational
· First sale of AMBC technology in India after a successful pilot
· First Aquapak order secured, currently being delivered in Oman
· New President appointed to the Monitoring division
· Cashflow breakeven achieved at the Monitoring division
Financial
· Revenue increased 12% to £3.6m (2015: £3.2m);
· Gross profit increased 54% to £1.9m (2015:£1.2m);
· Loss before tax, interest, depreciation, amortisation reduced to £2.5m (2015: £3.7m);
· Total comprehensive loss for the year reduced to £2.2m (2015: £3.9m)
· Cash outflow reduced to £2.0m (2015: £3.6m); and
· Cash as at 31 December 2016 was £1.1m (2015: £3.2m).
Commenting on the results, Alan Wilson, Non-Executive Chairman of Modern Water, said:
"Clearly the strategy review we undertook in 2015 is now bearing fruit. The Monitoring division delivered its first positive EBITDA since 2012 and we have successfully commercialised our AMBC technology, all whilst significantly reducing our cash burn. We enter 2017 with growing confidence."
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For further information:
Modern Water plc | +44 1483 696 000 |
Simon Humphrey, Chief Executive Officer | |
WH Ireland Limited | +44 207 220 1666 |
Paul Shackleton (Nominated Adviser) | |
Tavistock | +44 207 920 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 a reduction in 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
Alan Wilson
I am pleased to report that improvements at Modern Water have continued apace during the past year, resulting in a 12% increase in revenues and a 54% improvement in gross profits, both of which have been achieved whilst reducing our overheads by a further 11%, notwithstanding our continuing commitment to R&D and new product development.
Perhaps the most satisfying achievement I can report to shareholders is that our Monitoring division delivered positive EBITDA for the first time since the business was acquired in 2011, which is testament to the management changes we have made during the year. Sales in Monitoring increased by 8% and gross margins showed a substantial improvement to 50% (2015: 38%), primarily as a result of a better sales focus and product mix. Clearly, the strategy review we undertook in 2015 is bearing fruit and we are now in a position where we are working on a variety of new product developments which we believe will add to our portfolio and positively impact sales and profits as we move forward.
Our Membrane division continued to work with partners who have complementary skills, competencies and market coverage that can assist us in commercialising our proprietary membrane technology. As previously reported, we have been working closely with the likes of Advent Envirocare and Deutsche Babcock, both of whom offer us valuable additional market insight and support.
On that note, it was very pleasing to announce the award of a contract in February 2017 for the provision of our proprietary All Membrane Brine Concentration (AMBC) technology. Our innovative AMBC technology will be used to treat wastewater produced by an India-based customer involved in the textiles industry. The project will be executed in partnership with Advent Envirocare Technology during the course of 2017. Once commissioned, this plant will provide us with a fantastic shop window for our technology and will provide us with a springboard into other markets and geographies.
Our 2016 financial results show strong progress. Revenue and gross profit increased on the prior year, whilst overheads continued to reduce, resulting in an operating loss of £3.1m (2015: £4.2m). Cash burn in 2016 reduced to £2.0m (2015: £3.6m) and should reduce further in 2017. As at 31 December 2016, the Group's financial position was debt free, with cash of £1.1m (2015: £3.2m).
With an un-geared balance sheet, a cash generative Monitoring division, the Membrane division expected to break even in 2018 and a trade finance facility secured, we believe the Group now has the resources in place to become a genuinely sustainable, profitable business.
STRATEGIC REPORT
Simon Humphrey
The Directors of Modern Water plc (Modern Water or the Company) and its subsidiary undertakings (which together comprise the Group) present their Strategic Report for the year ended 31 December 2016.
Membrane Division
Strategy
Over the last decade, the Membrane division has developed a wide range of IP, creating a Forward Osmosis (FO) platform from which a suite of products is being commercialised, a key example being the AMBC sale in February 2017. Each of the key technologies being focused upon in the near-term provides a solution that enables waste or unusable water to be desalinated or reused, at a lower cost than alternative systems already in existence, whilst enabling customers to comply with regulatory requirements. We believe that there is clear demand for Modern Water's products and services in a number of different industrial processes and across a number of geographic territories globally, driven by increased legislation and regulation as governments try to address the growing global water crisis.
The Company has continued to pursue its key strategic goals and has made clear progress in the commercialisation of its technologies. The focus of the Company remains on its four market areas within a clear framework to:
• | develop and commercialise our membrane technologies that have unique competitive advantage; and
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• | work with strategic partners, by product and territory, who have proven track records in the target sector, on joint development and commercialisation; risk sharing; licensing; and protecting and expanding our IP.
|
All Membrane Brine Concentrator (AMBC)
The Group has developed and proven an All Membrane Brine Concentrator (AMBC) which can reduce the energy consumption and capital costs for achieving Zero Liquid Discharge or near Zero Liquid Discharge, thereby reducing the cost of achieving regulatory compliance for wastewater treatment.
The technology is based on using successive stages of osmotically driven filtration to concentrate waste streams and can be used across a wide range of industries.
In March 2016 Modern Water signed a joint development and commercialisation agreement with Advent Envirocare Technology, based in India. Following successful piloting of the technology in December 2016, the first commercial order was secured rapidly. In early February 2017 an agreement was reached to deploy our technology in a textile dye facility. A second AMBC trial in a different industrial sector is scheduled to commence in India later this year.
Forward Osmosis (FO) Pre-treatment for Thermal Desalination
Modern Water has invented a Forward Osmosis process to allow an increase in the top brine temperature (TBT) of a typical Thermal Desalination plant by osmotic dilution of the re-circulating brine or brine blow-down. Through this patented and proprietary technology, on a typical multi-stage flash desalination (MSF) plant, the Group's technology can both improve the thermal efficiency by 12% and reduce power consumption by 27%. The technology is also flexible and can be alternatively optimised to increase the production of water from existing assets by 22%.
In January 2016, Modern Water signed a joint commercialisation agreement with Bilfinger Deutsche Babcock Middle East (BDB) for our proprietary Forward Osmosis technology. BDB is a leading services provider across the Middle East and Africa for the construction, rehabilitation, O&M and lifecycle services in a range of industries. Under the agreement, the two parties agreed to develop and commercialise Modern Water's Forward Osmosis technology for use in both existing and new build MSF desalination plants across the Middle East and Africa.
Following a joint design exercise, a pilot plant is being constructed by BDB in Abu Dhabi, with the first field trials due to take place in 2017. The purpose of the pilot plant is to develop and demonstrate the effectiveness of FO to osmotically dilute and soften the re-circulating brine of a desalination plant, consequently proving the benefits customers can expect.
Forward Osmosis (FO) Evaporative Cooling Systems
The Company has continued to refine its technology to reduce the cost and environmental impact of traditional evaporative cooling systems. In line with our stated strategy for the membrane business, we are in discussion with a number of potential partners to undertake field tests of our technology in water-scarce regions.
Aquapak
AquaPak is a low cost containerised or skid mounted desalination plant using proven Reverse Osmosis (RO) technology. The units are manufactured in three standard capacities of 100m3, 250m3 and 500m3 per day of fresh water. The AquaPak units have been designed by Modern Water using its inherent technical knowhow and fabricated by a third party partner. The primary target market for AquaPak is the Gulf States, driven by the ever-increasing requirement for fresh water in remote locations.
As highlighted in our Interim Results statement of September 2016, the Company was awarded its first AquaPak contract in August 2016 by a client in Oman. The plant has been fabricated and delivered to Oman on schedule.
We continue to actively generate a significant number of enquiries and are pursuing a number of projects. We are confident of receiving further orders in the coming months.
Wastewater Treatment
The status of our joint venture with Northumbrian Water is unchanged from previous statements. We remain the preferred bidder for a wastewater project in Gibraltar. Modern Water has completed its current obligations and continues to assist in the project's advancement, with little in the way of ongoing costs being incurred by us.
This is a much needed infrastructure project for Gibraltar and is important in bringing the country up to international wastewater treatment standards. However, given the region's current challenge following the Brexit vote, uncertainty remains over potential timescales.
Monitoring Division
Strategy and Performance Review
Modern Water's Monitoring division has been built through a number of small acquisitions over the last decade. The division has a proven capability in the design, development and provision of analytical instruments and technologies for monitoring contaminants in water, soil, food and industrial process streams. These activities can be provided to clients either at a laboratory, on site or on-line, through a combination of direct and distributor sales channels. The Monitoring division's products and services are supplied to laboratories, industrial companies and municipalities across 60 countries globally. Revenue is generated through a combination of equipment sales and reagents/consumables.
Specifically, the Monitoring division is focused on three core product segments: Toxicity, Trace/Heavy Metals and Environmental contaminants, with a geographic focus on North America, China and Europe.
Doug Workman was appointed as President of the Monitoring division in March 2016 and has subsequently restructured the sales team, launched new products and consolidated all production and systems at the Monitoring division's head office in New Castle, Delaware, USA. Results so far have been very encouraging, with strong revenue growth delivered, alongside a highly attractive >50% gross margin.
The Monitoring division achieved a key milestone in 2016, reporting positive EBITDA of £60,000 (2015: loss of £508,000). Adjusting for the expected recovery of 2016 R&D tax credits would improve this further. This is the first positive EBITDA achieved by the division since 2012. The two key factors in achieving this milestone were an 8% growth in revenue and an improvement in gross margins to 50% (2015: 38%). The growth in margin was due to an increased focus on direct sales, improved shipping cost recoveries, strong sales of consumables and reagents and consolidation of production to a single site.
Recurring revenue from service contracts and reagent sales was £1.1m in 2016 (2015: £1m).
Group Key Performance Indicators (KPIs)
At the Company's current stage of development, the Directors consider that strategic and operational progress is best measured by achievement in terms of technical and business development milestones and at this stage does not monitor non-financial KPIs. In 2016 we achieved progress against our goals and will continue to focus on these elements to drive future growth. In 2016, the key milestones reached were:
• The first sale for our AMBC technology
• The first sale of our AquaPak product
• Continued revenue growth in the Monitoring division
Further details of strategic and operational progress for the two main operating divisions are outlined in the Membrane and Monitoring sections of this Strategic Report. The Board reviews strategic, operational and financial information on a monthly basis to measure progress. The key financial performance indicators for 2016, covered in more detail in the Financial Review and the financial statements, were:
• Revenue increased 12% to £3.6m (2015: £3.2m);
• Gross profit grew 54% to £1.9m (2015:£1.2m);
• Operating loss before tax, interest, depreciation, amortisation decreased to £2.5m (2015: £3.7m);
• Total comprehensive loss for the year reduced to £2.2m (2015: £3.9m)
• Cash outflow decreased to £2.0m (2015: £3.6m); and
• Cash as at 31 December 2016 was £1.1m (2015: £3.2m).
Group Research & Development (R&D)
The Group continues to invest in R&D across membrane, wastewater and monitoring technologies to support the development and delivery of commercial products for customers and expand the patent portfolio of the Group. Expenditure recorded in the Statement of Comprehensive Income for R&D during the year was £200,000 (2015: £156,000). The Group has benefited from the HMRC R&D tax credits scheme with the receipt of £0.5m in cash from claims made in 2016, related to R&D expenditure in 2013, 2014 and 2015. The Group will submit claims for the recovery of 2016 R&D expenditure to HMRC in 2017.
Group Patent Portfolio & Intellectual Property
As part of our active patent management we have decided to abandon patent coverage in some strategically unimportant jurisdictions, thereby achieving cost savings.
As a result our patent portfolio in the Membrane division now consists of 89 (2015: 104) granted patents across eight main patent families comprising solvent removal, improved solvent removal, secondary oil recovery, osmotic energy, separation process, evaporative cooling, cooling tower improvements and thermal desalination. The Monitoring division currently holds 13 granted patents (2015: 18) and Modern Water has 5 (2015: 7) innovative wastewater treatment patents. Altogether the Group holds 107 granted patents (2015: 129) with a further 22 pending applications (2015: 29).
Group Resources
Modern Water strives to create a community, not just a workplace and makes an effort to encourage collaboration and networking across the Group. We also support the ongoing development of our employees and have an excellent track record in the retention of key employees.
Our strategy of employing local workers wherever we operate continued during 2016, especially in Oman where our operations continue to be 100% locally managed with support from our central technical team. Both our Membrane and Monitoring divisions have adopted this strategy, which is working well.
As at 31 December 2016 the Group employed 44 permanent staff (2015: 49), supplemented by contract staff as required.
Group Financial Review
The Group had £1.1m cash in the bank and no debt at 31 December 2016 (2015: £3.2m cash) and has subsequently put a trade finance facility of £0.5m in place. During the year the Group as a whole continued to incur losses, reflecting the early stage of commercial roll out of the Membrane division, however the Monitoring division broke even at the EBITDA level. The overall loss before interest, tax, depreciation and amortisation reduced to £2.5m (2015: £3.7m). The reduction on the prior year losses was primarily due to a further reduction in operating costs during 2016 and an improvement in gross margin from the Monitoring division. The ongoing reorganisation, started in 2015, has now removed over £1.4m of administrative expenses.
The Group generated revenues of £3.6m in 2016 (2015: £3.2m). Total comprehensive loss reduced to £2.2m (2015: £3.9m).
Cash Flows
The Group cash outflow, for the year was £2.0m (2015: £3.6m). This reduction in cash burn was due to the increase in gross profit, reduction in operating expenses and an improvement in working capital movement during the year.
Cash inflow from R&D tax credits was £0.5m (2015: £0.1m). Cash outflows comprised £0.1m on property, plant and equipment (2015: £0.1m), £0.1m on patents (2015: £0.1m) and £2.0m on operating activities (2015: £3.5m).
Accounting Policies
The Group financial statements have been prepared in accordance with EU Endorsed IFRS, IFRS Interpretations Committee (IFRIC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The key accounting policies to note are those concerned with intangible assets and share-based payments.
Capital Structure
The Group is entirely equity funded which is appropriate during the current stage of development. As the Group develops, the capital structure will be reassessed on a project by project basis.
Treasury Management
The Group has adopted a low risk approach to treasury management. Cash balances are invested in instant access current and deposit accounts. Credit risk is addressed by the Group's treasury policy. Deposits are selected based on achieving the optimum balance of yield, security and liquidity. Foreign exchange risk is primarily mitigated through natural hedging of receipts and payments.
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 2015, as the result of the restructuring plan, delivering an annual net £1.4m reduction in expenditure. The cash position as at 31 December 2016 was £1,072,000 and as of 9 March 2017 stood at £906,000. The Group remains loss making, but its cash burn is expected to decrease further through 2017 and 2018 as revenues increase and the full year effect of 2016 cost reductions impact.
The Group's funding requirements will be met from:
• | £0.9m opening cash balance as of 9 March 2017; |
• | R&D tax credits receipts from HMRC for 2016; |
• | £0.5m credit line secured on Modern Water Inc.'s trade receivables; |
• | favourable movement in the Group's working capital, specifically reduction in inventories and aged trade receivables in the Monitoring division; and |
• | first meaningful revenues from the commercialisation of the Membrane division's technology. |
In addition, Modern Water is pursuing a number of commercial opportunities, which would provide incremental positive cash inflows, the most significant of which is the joint venture between Modern Water and Northumbrian Water, where our JV has preferred bidder status and has satisfied all its responsibilities and obligations.
Principal Risks and Uncertainties
The principal risks inherent in the operation of the Group are well understood by the Board of Directors and the Management Team. Control measures have been established to ensure that these and other, risks are adequately controlled both in terms of frequency and consequence. The internal control environment is described in the Corporate Governance Statement. The principal risks and uncertainties affecting the Group and the steps taken to manage these are:
Customer acceptance of the Group's technologies and emergence of competing technologies
The Group's success depends on potential customer acceptance of its products and processes. There are significant risks in predicting the size and timing of material revenue. The target customers of the Group's products and processes are often in developing countries which carry additional potential risks. The Group seeks to address these risks by building a track record and proving technology capabilities to future customers and industry players. The Group has increased investment in business development as product development progresses. Modern Water has formed a number of strategic partnerships to create local presence in target countries, overcome pre-qualification criteria on contract tendering and establish new routes to market. The range of applications for the Group's products provides mitigation against the risk of failure in a specific country or application. The Group continues to invest in research and development (R&D) to mitigate the risk of the emergence of competitor technologies.
Socio-political risks
Modern Water operates, and is looking to secure further contracts and sales, in a number of countries around the world. This exposes the Group to a range of social and political developments and consequentially to potential changes in the operating, regulatory and legal environment. The Group operates and generates revenue in countries where political, economic and social transition is taking place. Some countries have experienced, or may experience in the future, political instability, changes to the regulatory environment, changes in taxation, expropriation or nationalisation of property, civil strife, strikes, acts of war and insurrections. Any of these conditions occurring could disrupt our operations and revenue. The Group seeks to manage these risks through diversifying the regions in which it operates.
Scaling up the technology
The Group's Membrane division and certain monitoring products are not yet well established commercially. They have been developed over recent years and whilst the proving of the technology is largely complete there remain significant risks associated with commercialising technology and a portfolio of new products. There are technology and procurement risks in scaling up the products through to large scale commercial deployment. The Group seeks to mitigate these risks through the use of partners with proven manufacturing and fabrication capabilities, rather than developing in-house capabilities, and through the development and operation of pilot plants prior to full commercial deployment.
Additionally there are risks related to developing the optimum contract, royalty and licensing models to derive value from the products. The Group manages these risks through employment of executives and senior management with significant experience both in the water industry and in the development and growth of early stage companies.
Intellectual Property (IP) protection
The Group's ability to generate value from its products depends in part on the development and protection of its IP. The Group assigns significant resources, both internally through the Company's General Counsel and technical staff, and externally through patent attorneys, to enhance and protect its patented and non-patented IP.
Recruitment and retention of key personnel
The Group's directors and employees are highly qualified and experienced. Recruiting and retaining key staff is critical to the overall success. Knowledge and experience of the Group's products and customer base is retained by a relatively small number of individuals. The risk of staff loss is mitigated through its HR policies, competitive remuneration (including the Modern Water plc Incentive Plan), performance appraisals and training.
Health and safety
There are inherent health and safety risks with the deployment of the core membrane and monitoring products. The mitigation of any health and safety events involving the Group's products is key to the strategy for growth. The Group mitigates its health and safety risks through its Group Health and Safety Policy, which includes regular reporting to the Board and to the Management Team.
Capital risks
It may be desirable for the Company to raise additional capital by way of the further issue of Ordinary Shares to enable the Company to progress through further stages of development. Any additional equity financing may be dilutive to shareholders. There can be no assurance that such funding, if required, will be available to the Company.
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2016
2016 | 2015 | |||
Total | Total | |||
£000 | £000 | |||
Revenue | 3,629 | 3,232 | ||
Cost of sales | (1,764) | (2,024) | ||
Gross profit | 1,865 | 1,208 | ||
Administrative expenses | (4,414) | (4,936) | ||
Other gains - net | - | 18 | ||
Operating loss before depreciation and amortisation | (2,549) | (3,710) | ||
Depreciation and amortisation | (502) | (527) | ||
Operating loss | (3,051) | (4,237) | ||
Finance income | 514 | 210 | ||
Finance costs | (30) | - | ||
Loss on ordinary activities before taxation | (2,567) | (4,027) | ||
Taxation | 465 | 249 | ||
Loss for the year | (2,102) | (3,778) | ||
Other comprehensive income | ||||
Foreign currency translation differences on foreign operations | (76) | (93) | ||
Total comprehensive loss for the year | (2,178) | (3,871) | ||
Loss attributable to: | ||||
Owners of the parent | (2,102) | (3,778) | ||
(2,102) | (3,778) | |||
Total comprehensive loss attributable to: | ||||
Owners of the parent | (2,211) | (3,871) | ||
Non-controlling Interest | 33 | - | ||
(2,178) | (3,871) | |||
Earnings / (Loss) per share for the year (attributable to owners of the parent): | ||||
Basic earnings / (loss) per share | (2.64p) | (4.75p) | ||
Diluted earnings / (loss) per share | (2.64p) | (4.75p) |
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 December 2016
Group | Company | |||
2016 | 2015 | 2016 | 2015 | |
£000 | £000 | £000 | £000 | |
Assets | ||||
Non-current assets | ||||
Property, plant and equipment | 255 | 339 | - | - |
Intangible assets | 3,388 | 3,647 | - | - |
Investments | - | - | 1,730 | 1,628 |
3,643 | 3,986 | 1,730 | 1,628 | |
Current assets | ||||
Inventories | 1,319 | 1,459 | - | - |
Trade and other receivables | 1,559 | 1,046 | 5,567 | 4,141 |
Cash and cash equivalents | 1,072 | 3,161 | 419 | 2,218 |
3,950 | 5,666 | 5,986 | 6,359 | |
Total assets | 7,593 | 9,652 | 7,716 | 7,987 |
Equity and liabilities | ||||
Equity | ||||
Ordinary shares | 199 | 199 | 199 | 199 |
Share premium account | 40,032 | 40,032 | 40,032 | 40,032 |
Merger reserve | 398 | 398 | 398 | 398 |
Foreign exchange reserve | (248) | (139) | - | - |
Accumulated losses | (33,629) | (31,634) | (33,009) | (32,722) |
6,752 | 8,856 | 7,620 | 7,907 | |
Non-controlling interests | 159 | 126 | - | - |
Total equity | 6,911 | 8,982 | 7,620 | 7,907 |
Liabilities | ||||
Non-current liabilities | ||||
Deferred tax liabilities | 29 | 42 | - | - |
Current liabilities | ||||
Trade and other payables | 653 | 628 | 96 | 80 |
653 | 628 | 96 | 80 | |
Total liabilities | 682 | 670 | 96 | 80 |
Total equity and liabilities | 7,593 | 9,652 | 7,716 | 7,987 |
GROUP STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2016
Ordinary | Share premium | Merger | Foreign exchange | (Accumulated losses)/ Retained | Non-controlling | Total | ||
shares | Account | reserve | reserve | Earnings | Total | Interest | Equity | |
Group | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
Balance as at 1 January 2015 | 199 | 40,032 | 398 | (46) | (27,912) | 12,671 | 126 | 12,797 |
Comprehensive loss | ||||||||
Loss for the year | - | - | - | - | (3,778) | (3,778) | - | (3,778) |
Foreign currency translation differences | - | - | - | (93) | - | (93) | - | (93) |
Total comprehensive loss | - | - | - | (93) | (3,778) | (3,871) | - | (3,871) |
Transactions with owners | ||||||||
Share-based payments | - | - | - | - | 56 | 56 | - | 56 |
Total transactions with owners | - | - | - | - | 56 | 56 | - | 56 |
Balance as at 1 January 2016 | 199 | 40,032 | 398 | (139) | (31,634) | 8,856 | 126 | 8,982 |
Comprehensive loss | ||||||||
Loss for the year | - | - | - | - | (2,102) | (2,102) | - | (2,102) |
Foreign currency translation differences | - | - | - | (109) | - | (109) | 33 | (76) |
Total comprehensive loss | - | - | - | (109) | (2,102) | (2,211) | 33 | (2,178) |
Transactions with owners | ||||||||
Share-based payments | - | - | - | - | 107 | 107 | - | 107 |
Total transactions with owners | - | - | - | - | 107 | 107 | - | 107 |
Balance as at 31 December 2016 | 199 | 40,032 | 398 | (248) | (33,629) | 6,752 | 159 | 6,911 |
Company | ||||||||
Balance as at 1 January 2015 | 199 | 40,032 | 398 | - | (26,188) | 14,441 | - | 14,441 |
Comprehensive loss | ||||||||
Loss and total comprehensive loss for year | - | - | - | - | (6,590) | (6,590) | - | (6,590) |
Total comprehensive loss | - | - | - | - | (6,590) | (6,590) | - | (6,590) |
Transactions with owners | ||||||||
Share-based payments | - | - | - | - | 56 | 56 | - | 56 |
Total transactions with owners | - | - | - | - | 56 | 56 | - | 56 |
Balance as at 1 January 2016 | 199 | 40,032 | 398 | - | (32,722) | 7,907 | - | 7,907 |
Comprehensive loss | ||||||||
Loss and total comprehensive loss for year | - | - | - | - | (394) | (394) | - | (394) |
Total comprehensive loss | - | - | - | - | (394) | (394) | - | (394) |
Transactions with owners | ||||||||
Share-based payments | - | - | - | - | 107 | 107 | - | 107 |
Total transactions with owners | - | - | - | - | 107 | 107 | - | 107 |
Balance as at 31 December 2016 | 199 | 40,032 | 398 | - | (33,009) | 7,620 | - | 7,620 |
GROUP STATEMENT OF CASH FLOWS
Year ended 31 December 2016
Group | Company | |||
2016 | 2015 | 2016 | 2015 | |
£000 | £000 | £000 | £000 | |
Cash flows from operating activities | ||||
Cash used in operations | (1,974) | (3,487) | (1,809) | (3,475) |
Net cash flows used in operating activities | (1,974) | (3,487) | (1,809) | (3,475) |
Cash flows from investing activities | ||||
Purchase of property, plant and equipment | (70) | (109) | - | - |
Purchase of patents and development costs | (44) | (54) | - | - |
Interest received | 4 | 20 | 4 | 20 |
Net cash flows (used in)/generated from investing activities | (110) | (143) | 4 | 20 |
Cash flows from financing activities | ||||
Proceeds from issuance of ordinary shares | - | - | - | - |
Net cash flows generated from financing activities | - | - | - | - |
Net (decrease) /increase in cash and cash equivalents | (2,084) | (3,630) | (1,805) | (3,455) |
Cash and cash equivalents at the beginning of the year | 3,161 | 6,801 | 2,218 | 5,666 |
Exchange (losses) / gains on bank balances | (5) | (10) | 6 | 7 |
Cash and cash equivalents at the end of the year | 1,072 | 3,161 | 419 | 2,218 |
NOTES TO THE FINANCIAL STATEMENTS
1. Authorisation and basis of preparation
The board of directors approved these results on 14 March 2017. The financial information set out above is abridged and does not constitute the Group's statutory financial statements for the year to 31 December 2016. Statutory financial statements for the year ended 31 December 2016 have been reported on by the Group's auditors. The report for the year ended 31 December 2016 was unqualified.
The principal accounting policies have been applied consistently throughout the year, unless otherwise stated, in the preparation of these financial statements. The financial statements of Modern Water plc ("the Company") have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, IFRS Interpretations Committee (IFRIC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.
2. 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.
2016 | 2015 | |||||||
Membrane | Monitoring | Central | Total | Membrane | Monitoring | Central | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Revenue | 148 | 3,481 | - | 3,629 | 10 | 3,222 | - | 3,232 |
Cost of sales | (35) | (1,729) | - | (1,764) | (38) | (1,986) | - | (2,024) |
Gross profit / (loss) | 113 | 1,752 | - | 1,865 | (28) | 1,236 | - | 1,208 |
Administrative expenses | (1,313) | (1,692) | (1,302) | (4,307) | (1,607) | (1,744) | (1,529) | (4,880) |
Share based payments | - | - | (107) | (107) | - | - | (56) | (56) |
Other gains - net | - | - | - | - | - | - | 18 | 18 |
Operating profit /(loss) before depreciation and amortisation | (1,200) | 60 | (1,409) | (2,549) | (1,635) | (508) | (1,567) | (3,710) |
Depreciation and amortisation | (69) | (432) | (1) | (502) | (60) | (445) | (22) | (527) |
Operating profit / (loss) | (1,269) | (372) | (1,410) | (3,051) | (1,695) | (953) | (1,589) | (4,237) |
Finance income | - | - | 514 | 514 | - | - | 210 | 210 |
Finance costs | - | - | (30) | (30) | - | - | - | - |
Profit / (loss) before taxation | (1,269) | (372) | (926) | (2,567) | (1,695) | (953) | (1,379) | (4,027) |
Taxation | 318 | 134 | 13 | 465 | 93 | - | 156 | 249 |
Profit / (loss) for the year | (951) | (238) | (913) | (2,102) | (1,602) | (953) | (1,223) | (3,778) |
2015 figures have been restated to give better disclosure of divisional financials
Geographical information
The Group operates in four main geographical regions, based on customer location.
2016 | 2015 | |||||
Revenue | Membranes | Monitoring | Total | Membranes | Monitoring | Total |
£000 | £000 | £000 | £000 | £000 | £000 | |
Americas | - | 1,296 | 1,296 | - | 1,178 | 1,178 |
Europe | - | 733 | 733 | - | 725 | 725 |
Middle East and Africa | 148 | 155 | 303 | 10 | 383 | 393 |
Asia Pacific | - | 1,297 | 1,297 | - | 936 | 936 |
Total | 148 | 3,481 | 3,629 | 10 | 3,222 | 3,232 |
The Group has non-current assets in four countries (2015: four), based on location of the assets.
2016 | 2015 | |||||
Property, plant and equipment | Intangible assets including goodwill | Total | Property, plant and equipment | Intangible assets including goodwill | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | |
UK | 16 | 3,388 | 3,404 | 85 | 3,647 | 3,732 |
US | 236 | - | 236 | 245 | - | 245 |
Oman | - | - | - | - | - | - |
Gibraltar | 3 | - | 3 | 9 | - | 9 |
Total | 255 | 3,388 | 3,643 | 339 | 3,647 | 3,986 |
Assets and liabilities are presented to the chief operating decision maker in a consolidated Group format. Assets and liabilities are not currently presented by segment, because they are managed centrally. As the commercial activities of the Group develop this financial information is expected to evolve.
Major customers
Within the Monitoring division revenue to one customer totalled £603,000 (2015: £497,000), representing 17% (2015: 15%) of the division's revenue. No other customer represented more than 10% of the division's revenue. All revenue in the Membrane division came from a single customer (2015: 100%).
3. Administrative expenses by nature
2016 | 2015 | ||
£000 | £000 | ||
Employee benefits expense | 2,495 | 2,573 | |
Share-based payments | 107 | 56 | |
Operating lease payments | 381 | 417 | |
Research and development | 200 | 156 | |
Auditor's remuneration | 64 | 103 | |
Other administrative expenses | 1,167 | 1,631 | |
Total administrative expenses before depreciation, amortisation and exceptional charges | 4,414 | 4,936 | |
Depreciation and amortisation charges | 502 | 527 | |
Total administrative expenses including depreciation, amortisation and exceptional charges | 4,916 | 5,463 |
4. Intangible assets
Goodwill | Patent and trademark costs | Development costs | Research and development, and patented technology acquired as part of a business combination | Customer contracts acquired as part of a business combination | Total | |
Group | £000 | £000 | £000 | £000 | £000 | £000 |
At 1 January 2015 | ||||||
Cost | 13,434 | 923 | 131 | 4,007 | 180 | 18,675 |
Accumulated amortisation and impairment charge | (11,902) | (380) | (131) | (2,190) | (180) | (14,783) |
Net book amount | 1,532 | 543 | - | 1,817 | - | 3,892 |
Year ended 31 December 2015 | ||||||
Opening net book amount | 1,532 | 543 | - | 1,817 | - | 3,892 |
Additions | - | 54 | - | - | - | 54 |
Amortisation charge | - | (44) | - | (255) | - | (299) |
Closing net book amount | 1,532 | 553 | - | 1,562 | - | 3,647 |
At 31 December 2015 | ||||||
Cost | 13,434 | 977 | 131 | 4,007 | 180 | 18,729 |
Accumulated amortisation and impairment charge | (11,902) | (424) | (131) | (2,445) | (180) | (15,082) |
Net book amount | 1,532 | 553 | - | 1,562 | - | 3,647 |
Year ended 31 December 2016 | ||||||
Opening net book amount | 1,532 | 553 | - | 1,562 | - | 3,647 |
Additions | - | 44 | - | - | - | 44 |
Amortisation charge | - | (48) | - | (255) | - | (303) |
Closing net book amount | 1,532 | 549 | - | 1,307 | - | 3,388 |
At 31 December 2016 | ||||||
Cost | 13,434 | 1,021 | 131 | 4,007 | 180 | 18,773 |
Accumulated amortisation and impairment charge | (11,902) | (472) | (131) | (2,700) | (180) | (15,385) |
Net book amount | 1,532 | 549 | - | 1,307 | - | 3,388 |
5. Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Modern Water plc will be held at 10.00am on 25 April 2017 at the offices of Modern Water plc, Bramley House, The Guildway, Old Portsmouth Road, Guildford, GU3 1LR.
6. Availability of Annual Report
Copies of the full statutory accounts will be posted to shareholders at least 21 days before the Company's Annual General Meeting and may be obtained from the date of posting from the registered office of the Company office at Bramley House, The Guildway, Old Portsmouth Road, Guildford, GU3 1LR, as well as from the Company's website at www.modernwater.com.