MWG.L Regulatory News (MWG)

29 Feb 2008 07:01

Modern Water PLC29 February 2008 Modern Water plc, the water technology investment business, announces Final Results for 12-month period ended 31 December 2007 Modern Water moves ahead after successful first six months as a PLC Highlights * Successful first six months as a PLC since IPO in June 2007* Agreement signed to locate commercial proving plant in Gibraltar* Gibraltar plant due to be operational by mid 2008* High level of interest in our technology from the Gulf, Australasia and the Mediterranean region* Cash balances of £29 million at 31 December 2007 Commenting on today's results, Neil McDougall, Executive Chairman of ModernWater plc said: "We are delighted to reflect on a successful first six months as a publiclylisted company during which the Modern Water management team has been steadilydelivering on the business plan. There has been a high level of interest in ourdesalination technologies and we are pleased to announce that we have agreed toinstall a proving plant in Gibraltar. This plant is due to be operational by mid2008 and is a major break-through that will enable us to demonstrate thesignificant advantages of our desalination technology, including lower energy,capital and operational costs." For further information: Modern Water plcNeil McDougall, Executive Chairman 07740 930303www.modernwater.co.uk 01483 696000 HeadLand ConsultancyDudley White or Tom Gough 020 7367 5222 KBC Peel Hunt LtdJonathan Marren or Oliver Stratton 020 7418 8900 Chairman's statement It is with great pleasure that I make my first full report as Executive Chairmanof Modern Water plc. The past year has been an exceptional one. The company wasfounded at the end of 2006. In June 2007, we raised £30 million on admission tothe AIM market of the London Stock Exchange, and we were delighted that theshare offer was well oversubscribed. Following admission, the management teamhas been steadily delivering against its plans whilst successfully layingimportant commercial and technical foundations for future growth. With the lack of availability of fresh water becoming ever more acute weanticipate that there will continue to be growing demand for water andwater-related products. With expectations that by 2025 two-thirds of the world'spopulation will live in countries that are classified as water-stressed, ourportfolio of technologies will revolutionise the provision of fresh water. Sustainability and environmental responsibility lie at the heart of ourbusiness. Our technology has a positive impact on the environment as it reducesenergy use by desalination plants and lowers the consumption and disposal ofhazardous chemicals. Our processes reduce or eliminate the harmful emissions ofsalt brine seen in traditional desalination plants. We are also developing anexciting renewable and emission-free form of energy. Since admission to AIM, a core focus has been the commercial roll out of ourtechnology. I am pleased to report that there has been a very high level ofinterest internationally, particularly for our desalination technology. This hasbeen most marked in the Gulf, Australasia and the Mediterranean region. I am delighted to announce, as part of this roll out, we have agreed to locatethe first manipulated osmosis desalination proving plant in a commercialenvironment in Gibraltar. This is an important step and gives us the opportunityto demonstrate the significant advantages of our desalination technology,including lower energy, capital and operational costs and higher output. We continue to monitor other water-related technology, with a particular focuson areas complementary to our existing products. As a result in September wemade an investment in Stonybrook Purification, a company that is developing anew generation of membrane technology. Ongoing investment in intellectual property has resulted in a recent patentgrant approval for hydro-osmotic power, which generates power by mixing waterwith different levels of salinity. This is a natural extension of our work indesalination and represents a potentially important new revenue stream. To support the roll out of our technologies we have continued to build a strongmanagement team. We have made a range of impressive appointments in all keyareas, with particular focus on sales and technical support. We are delighted tocontinue to attract high calibre staff who are well respected in the water anddesalination sectors. I would like to take this opportunity to thank all of ourstaff who have helped to ensure that the first period as a quoted company hasbeen such a success. We expect that the high level of interest in our ground-breaking technologieswill continue, and that the foundations and key relationships we have put inplace will grow into successful long-term partnerships. The board looks forwardto continuing this positive growth in 2008. Neil McDougall Executive Chairman 29 February 2008 Business review Introduction The group has continued to grow following our admission to AIM on 12th June2007. Based in new offices, with our key executive team of technical andbusiness development professionals, we are confident that we have solidfoundations from which to rapidly grow our business. Market Availability of fresh water and the treatment of wastewater remain at theforefront of the environmental agenda. The serious issues facing the developedworld are now being recognised and the importance of sustainable solutions tothese issues is increasingly urgent. The company is experiencing continuing interest in its technology offeringwithin its target markets. We believe our technology provides significantbenefits over current technology. We are continuing to invest in developingfurther applications for our core manipulated osmosis technology to ensure weretain our technological advantage. We have seen significant market interest from developers for the implementationof all our technology offerings on a single site. Gibraltar The company has announced the first contract for a manipulated osmosisdesalination plant in a commercial environment. The proving plant will belocated next to the existing desalination plant in Gibraltar and will use thesame feedwater, producing 100m3/day of fresh water. This is an important project for us and will enable us to illustrate theefficiency of our technology against traditional desalination methods. Thisshowcase has attracted significant interest and will be an important part of ourmarketing strategy. Commercial progress During the year the company made a number of investments in technology. Theinitial investments in Poseidon Water, Cymtox and Surrey Aquatechnology werecompleted prior to the AIM admission. On completion of the AIM listing, Modern Water acquired the balance of SurreyAquatechnology shares to take the company to 100% ownership. In November 2007, Modern Water purchased an additional 20% of Cymtox to take theshareholding to 37%. Cymtox is continuing to make significant progress in thedevelopment of its commercial product. In line with our strategy to invest in new complementary technologies, inSeptember 2007 the company made an investment in Stonybrook Purification.Stonybrook, a spinout from Stonybrook University, is developing a membraneplatform that enables water treatment systems to process more water to a higherstandard, faster and at a lower cost. Technical developments The company continues to sponsor research on further applications for ourosmotic technology, led by Professor Sharif and his team at the University ofSurrey. This work has resulted in a number of new patent applications. One area of successful research has been in the use of manipulated osmosis forgenerating power. This will allow power to be generated from the brine output ofexisting desalination plants. In the future this will allow power to begenerated where there are fresh and sea water resources. Development of thistechnology is continuing and we are reviewing suitable locations for a largescale proving plant. Intellectual property Good progress has been achieved in securing the patents for the company's owntechnology. The osmotic energy patent has been granted by the European Patent Office. Thecompany has also received other individual country patent approvals for themanipulated osmosis process, including the sole right to use the technology inSouth Africa. In addition, as part of Modern Water's drive to gain access to leading research,the company has agreed to join the Questor Group, which provides Modern Waterwith valuable links to Queens University Belfast, Dublin City University andStevens Institute of Technology. Other members of the Questor Group include BP,Shell and Coca-Cola. People and premises In terms of headcount, the company is growing rapidly. Appointments havefocused on technical and business development professionals, reflecting ourincreasing focus on the roll out and commercialisation of our technologies,attracting impressively high calibre people. Recruitment is ongoing as thebusiness continues to grow, and our key executive team is now in place to drivethe company forward. Following the completion of our IPO, the company finalised the development ofits stand alone IT and accounting systems, and moved to its current offices inGuildford. Corporate Social Responsibility The company is committed to the improvement and sustainability of theenvironment in which we operate. As a team, we are aware of our responsibilityto conduct business and develop the company with a focus on environmentalaccountability. As the company grows, our intention is to place increasedemphasis on our corporate social responsibility for the long term benefit of theplanet. To this end, we are working towards ensuring that all the paper we printon is from sustainable sources. The inks used in our annual report arevegetable-based and we recycle all waste paper and card at our UK head office. Lack of fresh water availability is becoming an increasingly pressing threat.Our range of technologies provide environmentally sound solutions to addressthis global issue. The technology we have developed for osmotic power generationis renewable and complements other renewable energy sources, such as solar andwind. The process allows for sustainable desalination whilst significantlyreducing energy consumption. Our technology greatly impacts upon the reductionof long term damage to the planet caused by the use of fossil fuels. Ourapplication of renewable energy in the treatment of water for industrial anddomestic use will ensure this process is both sustainable and energy efficient. Risks and uncertainties The risks inherent in the operation of the company are well understood andcontrol measures have been established to ensure that risks are adequatelycontrolled both in terms of frequency and consequences. Risks are reviewed bythe board on a regular basis. Treasury risks are described in more detail in thefinancial review. Other risks reviewed include business controls, managementstructure and recruitment programmes, corporate and capital structure and thesecurity of company assets such as intellectual property and patents. Financial review SummaryThe financial position of the company is strong, having raised £30 million atIPO. At the year-end, cash balances were in excess of £29 million after fundingthe acquisition of two subsidiaries, two further investments and theinfrastructure to support business development. Accounting policiesThe major accounting policies to note are those that deal with intangible assetsand share based payments. The company has adopted IFRS and as such is requiredto value intangible assets acquired as part of a business combination. Theresulting appraisal values the group's intangible assets at over £13 million.The company is also required to place a value on share-based payments. Thisamounted to a non-cash charge on the consolidated group income statement of £1.3 million out of a total loss of £1.7 million. Capital structureThe company is entirely equity funded which is appropriate during the currentpre-revenue, development phase. As the company develops income generatinginvestments the capital structure will be reassessed on a project by projectbasis. Treasury risk and policyThe company is subject to the following risks: • Risks associated with variable interest rates.• Credit risks associated with having cash on deposit.• The risk of not having cash on deposit available at short notice. The company has adopted a low risk approach to treasury management appropriateto manage all the above risks. Cash balances are invested in term depositaccounts, with maturity dates to suit projected liquidity requirements. Avariety of institutions are used in consultation with the company's financialadvisers. Cash flowsThe major cash inflow was the raising of total capital of £32 million comprising£30 million from the IPO and the remainder from the initial investors. Cash outincludes transaction costs from the above (£1.6 million) and operating costs(£1.4 million), the majority of which relate to the rapid growth of the company.Cash investments totalling £350,000 have been made in four companies. Conclusion It has been an exciting and challenging period in the development of ModernWater. The foundations are now in place to allow the company to continue itsrapid growth. Simon Humphrey Chief Executive 29 February 2008 Group income statement period ended 31 December 2007 £000Administrative costs (2,719)--------------------------------------------------------------------------------Operating loss (2,719)Net finance income 1,020Share of loss of associates (50)--------------------------------------------------------------------------------Loss on ordinary activities before taxation (1,749)Tax on loss on ordinary activities 16--------------------------------------------------------------------------------Loss for the period (1,733)--------------------------------------------------------------------------------Attributable to:Equity holders of the company (1,632)Minority interest (101)-------------------------------------------------------------------------------- (1,733)--------------------------------------------------------------------------------Loss per share for the period (attributable to equity holders of the company)Basic loss per share 4.6pDiluted loss per share 4.5p-------------------------------------------------------------------------------- Group statement of changes in equity period ended 31 December 2007 Called up Share share premium Merger Retained Minority Total capital account reserve earnings interest equityGroup £000 £000 £000 £000 £000 £000-----------------------------------------------------------------------------------------------------------Equity as at 11 October 2006 - - - - - -Acquisition of subsidiaries 27 - 12,782 - 274 13,083 Proceeds from shares issued 120 30,532 - - - 30,652Share-based payments - - - 1,252 - 1,252Loss for the period - - - (1,632) (101) (1,733)-----------------------------------------------------------------------------------------------------------Equity as at 31 December 2007 147 30,532 12,782 (380) 173 43,254----------------------------------------------------------------------------------------------------------- Group balance sheet as at 31 December 2007 Group £000--------------------------------------------------------------------------------AssetsNon-current assetsProperty, plant and equipment 409Intangible assets 13,772Investments 257-------------------------------------------------------------------------------- 14,438--------------------------------------------------------------------------------Current assetsTrade and other receivables 688Cash and cash equivalents 29,059-------------------------------------------------------------------------------- 29,747--------------------------------------------------------------------------------Total assets 44,185-------------------------------------------------------------------------------- Equity and liabilitiesEquityCalled up share capital 147Share premium account 30,532Merger reserve 12,782Retained earnings (380)-------------------------------------------------------------------------------- 43,081Minority interest 173--------------------------------------------------------------------------------Total equity 43,254-------------------------------------------------------------------------------- LiabilitiesCurrent liabilitiesTrade and other payables 472Borrowings 32-------------------------------------------------------------------------------- 504--------------------------------------------------------------------------------Non-current liabilitiesDeferred tax liability 427--------------------------------------------------------------------------------Total liabilities 931--------------------------------------------------------------------------------Total equity and liabilities 44,185-------------------------------------------------------------------------------- Group cash flow statement period ended 31 December 2007 Group £000--------------------------------------------------------------------------------Cash flows from operating activitiesCash used in operations (1,270)--------------------------------------------------------------------------------Net cash flows used in operating activities (1,270)-------------------------------------------------------------------------------- Cash flows from investing activitiesPurchase of property, plant, equipment (433)Purchase of patents and development costs (163)Acquisition of subsidiaries, net of cash acquired (110)Acquisition of associates (167)Acquisition of other investments (90)--------------------------------------------------------------------------------Net cash flows used in investing activities (963)-------------------------------------------------------------------------------- Cash flows from financing activitiesProceeds from issue of shares 32,253Transaction costs of issuing shares (1,601)Proceeds from borrowings 15Repayment of borrowings (8)Interest received 633--------------------------------------------------------------------------------Net cash flows from financing activities 31,292-------------------------------------------------------------------------------- Net increase in cash and cash equivalents 29,059Cash and cash equivalents at 11 October 2006 ---------------------------------------------------------------------------------Cash and cash equivalents at 31 December 2007 29,059-------------------------------------------------------------------------------- 1. Basis of preparation The board of directors approved these preliminary audited results on 29 February2008. The financial information set out above is abridged and does notconstitute the company's statutory financial statements for the period from 11October 2006 to 31 December 2007. Statutory financial statements for the yearended 31 December 2007 have been reported on by the company's auditors. Thereport for the year ended 31 December 2007 was unqualified. These financialstatements are the first prepared by the company and therefore no comparativesare disclosed. The financial statements of Modern Water plc have been prepared in accordancewith EU Endorsed International Financial Reporting Standards (IFRS), IFRICinterpretations and the Companies Act 1985 applicable to companies reportingunder IFRS. The financial statements have been prepared under the historicalcosts convention. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the group's accountingpolicies. There have been no changes in accounting policies from the condensedconsolidated interim financial information for the period ended 30 June 2007. 2. Operating loss Operating loss is stated after charging: 2007 £000--------------------------------------------------------------------------------Employee benefits - share based 820Other share based payments 432--------------------------------------------------------------------------------Total share based payments 1,252Wages and salaries 532Amortisation of intangible assets 70Depreciation 26Minimum lease payments recognised as an operating lease expense 63Auditor's remuneration 69-------------------------------------------------------------------------------- 3. Intangible assets Research and development acquired as part Patent Development of a business Goodwill costs costs combination TotalGroup £000 £000 £000 £000 £000--------------------------------------------------------------------------------------------------------------------CostAt 11 October 2006 - - - - -Additions - 116 57 - 173Acquisition of subsidiaries 12,042 57 - 1,620 13,719--------------------------------------------------------------------------------------------------------------------At 31 December 2007 12,042 173 57 1,620 13,892--------------------------------------------------------------------------------------------------------------------Accumulated amortisation andimpairment --------------------------------------------------------------------------------------------------------------------At 11 October 2006 - - - - -Acquisition of subsidiaries - 9 - 38 47Amortisation - 13 3 57 73--------------------------------------------------------------------------------------------------------------------At 31 December 2007 - 22 3 95 120--------------------------------------------------------------------------------------------------------------------Net carrying amountAt 31 December 2007 12,042 151 54 1,525 13,772-------------------------------------------------------------------------------------------------------------------- The acquisitions of Surrey Aquatechnology Limited and Poseidon Water Limitedgave rise to the recognition of goodwill and intangible assets. The additions to patent costs arise from legal and other fees incurred insecuring patents. The additions to development costs arise from costs incurredonce there was sufficient certainty over the technical feasibility andcommercial viability over the underlying desalination technology. Goodwill is reviewed for impairment annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired. Therewas no goodwill impairment recorded in the period. On 14 December 2006 the groupacquired 51% of the share capital of Poseidon Water Limited including goodwillof £140,000 for a cash consideration of £425,000. On 30 November 2006 the groupacquired 30% of the share capital of Surrey Aquatechnology Limited ("SAL")including goodwill of £67,000 for a cash consideration of £535,000. On 12 June2007 the group acquired the remaining 70% of the share capital of SAL includinggoodwill of £11,835,000 in a share for share exchange with a fair valueconsideration of £12,809,000 (10,763,600 Modern Water plc shares). 4. Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Modern Water plc (the"company") will be held at 10.00am on 28 April 2008 at the offices of ModernWater plc, Bramley House, The Guildway, Old Portsmouth Road, Guildford GU3 1LR. 5. Availability of Annual Report Copies of the full statutory accounts will be available from the registeredoffice at Bramley House, The Guildway, Old Portsmouth Road, Guildford GU3 1LRfrom 27 March 2008 and will also be available on the company's website at www.modernwater.co.uk. This information is provided by RNS The company news service from the London Stock Exchange