10 Sep 2008 07:00
Modern Water plc, the owner of leading water technologies, announces Interim Results for six-month period ended 30 June 2008
Highlights
* Desalination proving plant in place in Gibraltar; in final stages of commissioning
* Office opened in Oman to tap into the Middle Eastern market
* Additional interest from the Mediterranean and Asia
* Stake in Cymtox increased to 53%
* Strong cash position with £28.7 million in hand at 30 June 2008
Commenting on today's results, Neil McDougall, Executive Chairman of Modern Water plc said:
"The Gibraltar proving plant is an important milestone for Modern Water, enabling us to demonstrate the significant advantages of our manipulated osmosis desalination technology in a commercial environment. We are pleased to have the plant in situ in Gibraltar and expect to deliver our first major project on time and on budget and look forward to reporting back on its performance.
"This is an exciting period for Modern Water. Not only is the Gibraltar plant now in place, but we also continue to receive strong interest in our suite of water-related technologies from the Middle East, the largest global market for desalination, and other global markets. In line with our business strategy, we have also been making good progress developing other applications of our core technologies, as we pursue further revenue streams for the company."
For further information:
| Modern Water plcNeil McDougall, Executive Chairmanwww.modernwater.co.uk | 07740 930303 |
| HeadLand ConsultancyDudley White or Tom Gough | 020 7367 5222 |
| KBC Peel Hunt LtdJonathan Marren or Oliver Stratton | 020 7418 8900 |
Report to shareholders
It is with great pleasure that I make my second interim report as Executive Chairman of Modern Water plc. The company has made good progress in the first half of 2008.
In line with our strategy, we are rapidly moving to the commercial roll-out of our ground breaking technologies. Our manipulated osmosis desalination plant, the first of its kind in the world to be developed, was completed at the end of July and is now in the final stages of commissioning in Gibraltar. We anticipate that the plant will prove how our technology delivers a higher output whilst using less energy and keeping capital and operational costs down. In due course, this new technology will provide a cheaper and more environmentally friendly alternative to a growing, multi-billion dollar desalination marketplace.
The company increased its stake in Cymtox to 53% in April 2008. This is consistent with our ambition to expand the Modern Water investment portfolio and will enable us to further influence the unique water quality protection and toxicity monitoring technology being developed by Cymtox.
Our team continues to grow, and I am delighted to welcome the new staff to Modern Water. We are carefully targeting our international expansion and growth, with an office located in the UK, as well as a newly opened office in Oman to tap into the large and fast-growing Middle Eastern market.
Modern Water is focusing on specific key markets as we expand our international operations. The Middle East, Mediterranean region and Asia have great potential and we are pleased to have received interest in our technologies from these territories.
Our growing portfolio of leading edge water-related technologies offers a number of significant potential near-term revenue streams. These include a wastewater treatment product which reduces domestic fresh water requirement by over 30%; pre-treatment technology that increases thermal desalination output by up to 25% and extends plant lifespan; and a technology that uses the manipulated osmosis process in cooling towers to reduce environmental damage and costs.
In difficult economic times, we continue to marshal our financial resources carefully. As a result, we remain in a robust financial position with a strong balance sheet. At 30 June 2008, we had £28.7m cash which is equivalent to 49 pence/share.
With our portfolio of pioneering technologies, a robust balance sheet and a strong team, the board looks forward to both the immediate and long-term future with confidence.
Neil McDougall
Executive Chairman
9 September 2008
Balance sheet
| Note | 30 June 2008 £'000 | 30 June 2007 £'000 | 31 December 2007 £'000 | |
| Assets | ||||
| Non-current assets | ||||
| Property, plant and equipment | 6 | 506 | 15 | 409 |
| Intangible assets | 6 | 14,176 | 13,647 | 13,772 |
| Investments | 6 | 90 | 75 | 257 |
| Total non-current assets | 14,772 | 13,737 | 14,438 | |
| Current assets | ||||
| Trade and other receivables | 357 | 101 | 688 | |
| Cash and cash equivalents | 28,719 | 30,484 | 29,059 | |
| Total current assets | 29,076 | 30,585 | 29,747 | |
| Total assets | 43,848 | 44,322 | 44,185 | |
| Equity and liabilities | ||||
| Equity | ||||
| Share capital | 147 | 147 | 147 | |
| Share premium account | 30,532 | 30,548 | 30,532 | |
| Merger reserve | 12,782 | 12,782 | 12,782 | |
| Retained earnings | (1,124) | (298) | (380) | |
| 42,337 | 43,179 | 43,081 | ||
| Minority interest | 174 | 229 | 173 | |
| Total equity | 42,511 | 43,408 | 43,254 | |
| Non-current liabilities | ||||
| Deferred income tax liabilities | 5 | 433 | 440 | 427 |
| Total non-current liabilities | 433 | 440 | 427 | |
| Current liabilities | ||||
| Trade and other payables | 879 | 453 | 472 | |
| Borrowings | 25 | 21 | 32 | |
| Total current liabilities | 904 | 474 | 504 | |
| Total liabilities | 1,337 | 914 | 931 | |
| Total equity and liabilities | 43,848 | 44,322 | 44,185 |
The notes form an integral part of this condensed consolidated interim financial information.
Income statement
| Note | 6 months ended 30 June 2008 | 9 months ended 30 June 2007 | 15 months ended 31 December 2007 | |
| £'000 | £'000 | £'000 | ||
| Operating expenses | 4 | (1,962) | (1,112) | (2,719) |
| Operating loss | (1,962) | (1,112) | (2,719) | |
| Finance income | 849 | 115 | 1,020 | |
| Share of (post tax) losses of associates | (35) | (68) | (50) | |
| Loss before income tax | (1,148) | (1,065) | (1,749) | |
| Income tax credit | 5 | 13 | 3 | 16 |
| Loss for the period | (1,135) | (1,062) | (1,733) | |
| Attributable to: | ||||
| - equity shareholders of the company | (1,046) | (1,015) | (1,632) | |
| - minority interest | (89) | (47) | (101) | |
| (1,135) | (1,062) | (1,733) |
All results derive from continuing operations.
| 6 months ended 30 June 2008 | 9 months ended 30 June 2008 | 15 months ended 31 December 2007 | ||
| Loss per share attributable to the equity holders of the company | ||||
| - basic | 1.8p | 5.4p | 4.6p | |
| - diluted | 1.7p | 5.3p | 4.5p |
Statement of changes in equity
| Called up share capital | Share premium account | Merger reserve | Retained earnings | Minority interest | Total equity | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Balance at 11 October 2006 | - | - | - | - | - | - |
| Loss for the period | - | - | - | (1,015) | (47) | (1,062) |
| Total recognised income for the period | - | - | - | (1,015) | (47) | (1,062) |
| Proceeds of share issues | 120 | 30,548 | - | - | - | 30,668 |
| Share for share exchange | 27 | - | 12,782 | - | - | 12,809 |
| Share based payment schemes | - | - | - | 717 | - | 717 |
| Minority interest at acquisition | - | - | - | - | 276 | 276 |
| Balance at 30 June 2007 | 147 | 30,548 | 12,782 | (298) | 229 | 43,408 |
| Balance at 1 January 2008 | 147 | 30,532 | 12,782 | (380) | 173 | 43,254 |
| Loss for the period | - | - | - | (1,046) | (89) | (1,135) |
| Minority interest at acquisition | - | - | - | - | 90 | 90 |
| Share based payment schemes (note 7) | - | - | - | 302 | - | 302 |
| Balance at 30 June 2008 | 147 | 30,532 | 12,782 | (1,124) | 174 | 42,511 |
Cash flow statement
| 6 months ended 30 June 2008 | 9 months ended 30 June 2007 | 15 months ended 31 December 2007 | ||
| Note | £'000 | £'000 | £'000 | |
| Cash flows from operating activities | ||||
| Cash used in operations | 4 | (1,215) | (265) | (1,270) |
| Net cash flows used in operating activities | (1,215) | (265) | (1,270) | |
| Cash flows investing activities: | ||||
| Purchases of property, plant and equipment | 6 | (138) | (10) | (433) |
| Purchase of patents and development costs | 6 | (111) | - | (163) |
| Acquisition of subsidiaries, net of cash acquired | 3 | 66 | (110) | (110) |
| Acquisition of associates | - | (75) | (167) | |
| Acquisition of other investments | - | - | (90) | |
| Net cash flows from investing activities | (183) | (195) | (963) | |
| Cash flows from financing activities | ||||
| Proceeds from issue of ordinary shares | - | 32,253 | 32,253 | |
| Transaction costs of issuing shares | - | (1,305) | (1,601) | |
| Proceeds of borrowings | - | - | 15 | |
| Repayments of borrowings | (5) | (4) | (8) | |
| Interest received | 1,063 | - | 633 | |
| Net cash flows from financing activities | 1,058 | 30,944 | 31,292 | |
| Net (decrease)/increase in cash and cash equivalents | (340) | 30,484 | 29,059 | |
| Cash and cash equivalents less bank overdraft at start of period | 29,059 | - | - | |
| Cash and cash equivalents and bank overdrafts at end of period | 28,719 | 30,484 | 29,059 |
The following notes form an integral part of this condensed consolidated interim financial information.
Notes to the condensed consolidated interim financial information
1 General information
Modern Water plc ('the company') and its subsidiaries (together, 'the group') invests in, develops and deploys new water technology.
The company is a limited liability company incorporated and domiciled in the UK. The address of its registered office is Bramley House, The Guildway, Old Portsmouth Road, Guildford GU3 1LR.
The company is quoted on the AIM market of London Stock Exchange.
This condensed consolidated interim financial information was approved for issue on 9 September 2008.
These interim financial results do not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the 15 month period ended 31 December 2007 were approved by the board of directors on 29 February 2008 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 237 of the Companies Act 1985 (section 498 of the Companies Act 2006).
This condensed consolidated interim financial information has been reviewed, not audited.
2 Basis of preparation and accounting policies
The principal accounting policies have been applied consistently throughout the period in the preparation of these financial statements.
(a) Basis of preparation
This condensed consolidated interim financial information for the six months ended 30 June 2008 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.
Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2007.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
IFRS 7 'Financial instruments' is effective for the year ended 31 December 2008 and will result in changes of disclosures regarding financial instruments and associated notes in the annual financial statements.
(b) Standards not yet effective
The following pronouncements have been issued since approval of the 2007 financial statements but are not effective for the year ended 31 December 2008:
On 22 May 2008, the IASB issued an amendment to IFRS 1 'First time adoption of IFRS' and IAS 27 'Consolidated and separate financial statements' effective for annual periods beginning on or after 1 January 2009. There is no expected impact on the group.
On 8 May 2008, IFRIC approved an Interpretation based on D22, 'Hedges of a net investment in a foreign operation' requiring that in a net investment hedge, the currency risk being hedged must be between the functional currency of the foreign operation and that of any of its parent entities (ultimate or intermediate parent). There is no expected impact on the group.
3 Business combinations
At 1 January 2008 the group owned 37% of the share capital of Cymtox Limited ("Cymtox"), which had been accounted for as an associate company. On 14 April 2008 Cymtox issued ordinary shares which the group acquired for a cash consideration of £150,000, taking the group holding to a controlling interest of 53%.
The acquired business contributed revenues of £nil and net costs of £56,000 to the group for the period from acquisition to 30 June 2008. If the acquisition had occurred on 1 January 2008, Cymtox would have contributed revenue and consolidated losses for the period ended 30 June 2008 of £nil and £150,000 respectively.
Details of net assets acquired and goodwill are as follows:
| As at 31 December 2007 | 6 months ended 30 June 2008 | Total | |
| £'000 | £'000 | £'000 | |
| Cash consideration | 167 | 150 | 317 |
| Fair value of net identifiable assets acquired | (19) | (14) | (33) |
| Goodwill | 148 | 136 | 284 |
The goodwill is attributable to the potential of Cymtox in its markets and the synergies expected to arise after acquisition by the group.
The assets and liabilities arising from the acquisition are as follows:
| As at 31 December 2007 | 6 months ended 30 June 2008 | |||||
| £'000 | £'000 | £'000 | £'000 | |||
| Acquiree's carrying amount | Fair value | Acquiree's carrying amount | Fair value | |||
| Cash and cash equivalents | 63 | 63 | 217 | 217 | ||
| Intangibles | - | 70 | - | 68 | ||
| Development costs | - | - | 17 | 17 | ||
| Payables | (61) | (61) | (195) | (195) | ||
| Deferred tax liability | - | (20) | - | (19) | ||
| Net identifiable assets | 2 | 52 | 39 | 88 | ||
| Percentage acquired | 37% | 16% | ||||
| Net identifiable assets acquired | 19 | 14 | ||||
| Outflow of cash to acquire business, net of cash acquired: | ||||||
| - cash and cash equivalents in subsidiary acquired | 217 | |||||
| - cash consideration | (150) | |||||
| Cash inflow on acquisition | 66 | |||||
4 Operating expenses
The following items have been charged to operating expenses during the interim period:
| 6 months ended 30 June 2008 | 9 months ended 30 June 2007 | 15 months ended 31 December 2007 | |
| £'000 | £'000 | £'000 | |
| Fair value of employee share based remuneration (note 7) | 302 | 477 | 820 |
| Other share based payments for services from IP Group plc | - | 240 | 432 |
| Wages and salaries | 888 | 130 | 469 |
| Social security costs | 58 | 15 | 56 |
| Other employee benefits | 39 | - | 7 |
| Depreciation of tangible fixed assets | 41 | 2 | 26 |
| Amortisation of intangible assets | 76 | 14 | 70 |
| Minimum lease payments recognised as an operating lease expense | 74 | - | 63 |
IP Group plc is a significant shareholder of the company.
Net cash flows from operating activities
| 6 months ended 30 June 2008 | 9 months ended 30 June 2007 | 15 months ended 31 December 2007 | |
| £000 | £000 | £000 | |
| Operating loss | (1,962) | (1,112) | (2,719) |
| Adjustments for: | |||
| Depreciation of property, plant and equipment | 41 | 15 | 26 |
| Amortisation of intangible assets | 76 | - | 73 |
| Equity-settled share-based payments | 302 | 717 | 1,252 |
| Movements in working capital: | |||
| Decrease/(increase) in trade and other receivables | 70 | (42) | (177) |
| Increase in trade and other payables | 258 | 157 | 275 |
| Cash used in operations | (1,215) | (265) | (1,270) |
5 Income taxes
During the period there were no taxable profits. At the balance sheet date the group had a deferred tax asset in respect of unutilised trading losses. This asset has not been recognised as its utilisation is not yet sufficiently certain.
The deferred tax liability of £433,000 at 30 June 2008 (2007 : £440,000) arises from taxable temporary differences on intangibles recognised on business combinations and is expected to unwind over the useful economic life of these assets. £13,000 has been credited to the Income Statement to 30 June 2008 (2007 : £3,000).
6 Capital expenditure
| Property, plant and equipment | Intangible assets | Investments | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Opening net book amount at 1 January 2008 | 409 | 13,772 | 257 | 14,438 |
| Acquisition of subsidiary (note 3) | - | 369 | (167) | 202 |
| Additions | 138 | 111 | - | 249 |
| Depreciation / amortisation | (41) | (76) | - | (117) |
| Closing net book amount at 30 June 2008 | 506 | 14,176 | 90 | 14,772 |
7 Share based payments
| 6 months ended 30 June 2008 | 9 months ended 30 June 2008 | 15 months ended 31 December 2007 | |
| £'000 | £'000 | £'000 | |
| Option scheme | 170 | 473 | 180 |
| Management share incentive scheme | 63 | 4 | 640 |
| Employee bonus scheme | 69 | - | - |
| Fair value of employee share based remuneration | 302 | 477 | 820 |
Option scheme
The directors' and employees' holdings of options over ordinary shares issued under the Modern Water Incentive Plan were as follows:
| Number of options | ||||||||
| Date of grant | Earliest Exercise date | Expiry date | Exercise price | 1 January 2008 | Granted in period | Exercised in period | Lapsed in period | 30 June 2008 |
| Neil McDougall* | ||||||||
| 12.06.07 | 12.06.08 | 12.06.17 | 119.0p | 186,959 | - | - | 186,959 | - |
| 12.06.07 | 12.06.09 | 12.06.17 | 119.0p | 186,959 | - | - | - | 186,959 |
| 12.06.07 | 12.06.10 | 12.06.17 | 119.0p | 186,959 | - | - | - | 186,959 |
| Simon Humphrey* | ||||||||
| 12.06.07 | 12.06.08 | 12.06.17 | 119.0p | 373,917 | - | - | 373,917 | - |
| 12.06.07 | 12.06.09 | 12.06.17 | 119.0p | 373,918 | - | - | - | 373,918 |
| 12.06.07 | 12.06.10 | 12.06.17 | 119.0p | 373,918 | - | - | - | 373,918 |
| Employees** | ||||||||
| 13.12.07 | 13.12.10 | 13.12.19 | 97.0p | 600,000 | - | - | - | 600,000 |
| 26.02.08 | 26.02.11 | 26.02.20 | 87.5p | - | 200,000 | - | - | 200,000 |
| 02.06.08 | 02.06.11 | 02.06.20 | 112.5p | - | 200,000 | - | - | 200,000 |
| 2,282,630 | 400,000 | - | 560,876 | 2,121,754 | ||||
* The Modern Water Incentive Plan provides options to directors subject to performance criteria. One third of the options vest on the date 12 months from AIM admission, one third vest on the date 24 months from AIM admission and one third vest on the date 36 months from AIM admission. Each tranche will vest subject to total shareholder return being at least equal to 10 per cent for the 12 months preceding the relevant tranche vesting date.
** Options will vest subject to total shareholder return being at least equal to 30 per cent for the 3 years between grant and vesting.
Management Share Incentive Scheme ("MSIS")
The directors' holdings of ordinary shares issued under the MSIS were as follows
| Date of subscription | No of Ordinary Shares | Subscription price | |
| Neil McDougall | 1.12.06 &12.03.07 | 3,363,400 | 0.1p |
| Simon Humphrey | 1.12.06 &12.03.07 | 1,479,000 | 0.1p |
| Gerald Jones | 1.12.06 | 200,000 | 0.1p |
One third of the MSIS shares are not subject to restrictions. One third of the MSIS shares are subject to restrictions which were lifted on 1 December 2007. One third of the MSIS shares are subject to restrictions which are lifted on 1 December 2008.
Independent review report to Modern Water plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008, which comprises the balance sheet, income statement, statement of changes in equity, cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The financial information included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules for Companies.
PricewaterhouseCoopers LLP Chartered Accountants, Gatwick 9 September 2008
Notes:
(a) The maintenance and integrity of the Modern Water plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.