RNS Number : 7016W
Modern Water PLC
18 April 2019
 

 

Modern Water plc

 

("Modern Water", "the Company" or "the Group")

 

 

Final Results

 

For immediate release

18 April 2019

 

 

 

Modern Water plc, the owner of world-leading technologies for water and wastewater treatment and for water quality monitoring, today announces audited full-year results for the 12 months ended 31 December 2018.

 

Key points

 

Operational

·    The first commercial AMBC plant commissioned in India

·    Chinese joint venture company established for AMBC technology in the Chinese market

·    New partnership established for the African market with WEC Projects (Pty) Ltd

·    Development of upgraded Microtox® LX laboratory-based toxicity testing technology

·    ASTM approved method for SRB testing achieved

 

Financial

·    Revenue increased 18% to £4.2m (2017: £3.5m)

·    Gross profit increased 31% to £2.3m (2017:£1.8m)

·    Operating loss before tax, interest, depreciation, amortisation was £2.1m (2017: £2.8m)

·    Total comprehensive loss for the year was £2.8m (2017: £5.0m)

·    Cash outflow before financing in 2018 was £1.7m (2017: £2.2m)

·    Cash as at 31 December 2018 was £0.2m (2017: £0.5m)

 

 

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

 

"Significant milestones were achieved in 2018 across the divisions of the Company:  the Membrane Division commissioned its first full-scale AMBC plant in India; two new AMBC partnerships in China and South Africa were signed; the advance works contract for a waste-water treatment plant in Gibraltar was executed, resulting in a successful planning application in early 2019. The Monitoring Division has upgraded its best-selling product, the Microtox LX, and has successfully commissioned a monitoring station for a major power-generation company in the Middle East. I believe that Modern Water is now in an excellent position to start profiting from the excellent efforts of our talented employees and I sincerely hope that we can start returning value to our loyal shareholders."

 

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

 

--Ends--

 

 

For further information:

 

Modern Water plc

+44 (0) 1483 696 000

Simon Humphrey, Chief Executive

 

 

 

 

Cairn Financial Advisers LLP  (Nominated Adviser)  

 

+44 (0) 207 213 0880

Sandy Jamieson / Tony Rawlinson

Ludovico Lazzaretti

 

 

Turner Pope Investments (Broker)

Andy Thacker

+44 (0) 20 3621 4120

 

 

 

Notes to editors:

 

Modern Water is a pioneering and innovative technology company, specialising in membrane water treatment solutions and advanced monitoring products. The Company works for customers in a range of industries across the globe and owns proprietary technologies for use in a diverse range of applications. Modern Water's Monitoring Division has a portfolio of world-leading toxicity and trace metal monitoring products, some of which constitute the regulatory standard. The headline technology of the Company's Membrane Division, called "AMBC", can be used to tackle complex wastewater treatment problems at a reduced cost compared to standard processes, while being simple to operate.

www.modernwater.com

 

CHAIRMAN'S STATEMENT

Modern Water's financial performance in 2018 marks another year of steady improvement in the turnaround, which started towards the end of 2014.  Revenues and Gross Profits in 2018 reached record highs of £4.2m (2017: £3.52m) and £2.3m (2017: £1.8m) respectively.  These results generated a loss before tax, interest, depreciation and amortisation of £2.1m (2017: £2.8m), the lowest on record.

 

When reflecting upon the Company's financial performance since 2014, I am satisfied that substantial progress continues to be made: revenues are up by some 50%, administration costs have been slashed by 31%, whilst average annual operating losses since 2015 have been around 50% lower than those seen previously.

 

A significant milestone was achieved in the year, when the Membrane Division commissioned its first full-scale AMBC plant in India, serving a large textiles customer.  Wider recognition and interest in our membrane technology was highlighted by signing two new AMBC partnerships in China and South Africa.  Our Chinese partner, Sunup, took a 5% stake in Modern Water because they see significant potential for our AMBC and also our membrane technology when applied to treating leachate from landfill sites - a potentially huge market given there are approx.10,000 landfill sites in China.

 

The advance works contract for a waste-water treatment plant, located in Gibraltar, was executed during the year.  This work resulted in a successful planning application, which passed a public planning meeting on 26 March 2019.  Detailed design and construction of the new plant will be conducted by Modern Water, as part of a joint venture with Northumbrian Water Group, who will operate the completed facility.

 

The Monitoring Division has gone from strength-to-strength, by upgrading its best-selling product, the Microtox LX, which has received a strong level of interest from users of its predecessor, the Microtox M500 and also from Modern Water's international distribution network. In addition, the Monitoring Division has successfully commissioned a monitoring station for a major power generation company in the Middle East, including two OVAs.  Modern Water's reputation for technical excellence was rewarded by the Frost & Sullivan Water Quality Innovation award for the Monitoring Division's CTM toxicity monitor, a highly prestigious award.

 

In October, the Company issued 3,792,410 new ordinary shares, which successfully raised ca. £340,000 in an open offer.  This followed the investment from China in July, which saw our partner, Sunup, subscribe for 5,021,353 new shares, investing ca. £550,000 in Modern Water.

 

Outlook

I believe the Monitoring Division's foundations are now well set: gross profit is continually increasing as time passes, market focus has markedly improved and the successful launch of a new product sets the tone for continued increases in sales and profits in the coming period.

 

Over the years, the Membrane Division has struggled to find proper market traction for its impressive technology and deep knowledge of membrane systems design.  Recent interest and sales of our AMBC technology from India and China highlight a turning point for the Division, which I believe is now showing that there is substantial market potential that will build sales and profits as we move forward.

 

HM Government of Gibraltar has given planning go-ahead for the design and construction of a new waste-water treatment plant and Modern Water's portion of this contract is valued at around £25m. 

 

Based upon the foregoing, I believe that Modern Water is now in an excellent position to start profiting from the excellent efforts of our talented employees and I sincerely hope that we can start returning value to our loyal shareholders.

 

Alan Wilson

Chairman

18 April 2019

 

 

STRATEGIC REPORT

 

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 2018.

 

Membrane Division

 

Strategy

The Company has continued to pursue its key strategic goals and has made clear progress in the commercialisation of its technologies.

 

We have continued to follow our preferred business model of licensing our technologies to key partners.  Under these arrangements Modern Water receives a licence fee for our technology, a design fee for high-level process design and a fee for supervising process commissioning.  In addition we supply key items of process plant for each project.  Our licensing business model significantly reduces the commercial and financial risk of each project.

 

Commercial Progress

During the year the Membrane Division achieved a number of key commercial milestones;

 

Bodal Plant Commissioned and Opening Ceremony

On 4th of July following a successful commissioning period the British Deputy High Commissioner of Gujarat, Geoff Wain, opened the world's first brine treatment plant based on Modern Water's all membrane brine concentration process ("AMBC"). The plant treats technically challenging waste water for Indian chemicals giant Bodal Chemicals, a major international chemicals company and one of the world's leading manufacturer of dyes and dye intermediates. This is a crucial part of an energy-efficient treatment process for a highly saline organic-laden effluent stream from dyes manufacturing operations that achieves zero liquid discharge ("ZLD"), meaning that all waste water is purified and recycled at the end of the treatment cycle.

 

Joint Venture Established in China for AMBC Technology

Also on 4th of July, Modern Water and Sunup announced the formation of a Joint Venture Company, Encyclo, in China to promote Modern Water's innovative and proprietary brine concentration technology, the AMBC. 49% of Encyclo's shares are owned by Modern Water and 51% by Sunup. The parties are both represented on the board and are signatories to a joint venture agreement relating to Encyclo.

 

On completion of the JV formalities an opening ceremony for Encyclo was held in Changxing in December.  The ceremony was attended by senior representatives of Modern Water and Sunup, together with senior representatives of the Chinese Government.

 

Forward Osmosis for Landfill Leachate Treatment

In September the Company licensed its proprietary forward osmosis technology for use in a demonstration plant to treat leachate from a landfill site in China. Modern Water's customer, Sunup, will use the demonstration plant to enhance its existing technological offering for the treatment of leachate from landfill sites.

 

AMBC Partner for Africa

In October, Modern Water entered into a collaboration agreement with WEC Projects (Pty) Ltd, a leading South-African EPC contractor which specialises in the provision of engineered solutions in the water and wastewater treatment sector. Based in Johannesburg, South Africa, WEC Projects will promote Modern Water's AMBC technology throughout the African continent.

 

AquaPak for Omani Safari Park

In December Modern Water was awarded a contract to provide a desalination plant for an exciting new safari theme park in Oman in the illustrious Adam location of the Sultanate.

 

Further AMBC Order in India

Post year-end, in March 2019, Modern Water received an order from one of the world's leading chemicals producers for an AMBC plant. The plant, which will be delivered with Modern Water's Indian partner Advent Envirocare Technology Pvt. Ltd., will treat technically challenging waste water. It is a crucial part of an energy-efficient treatment process for a highly saline organic-laden effluent stream, achieving ZLD, meaning that all waste water is purified and recycled at the end of the treatment cycle, leaving only a small amount of concentrated dry solids. Modern Water's AMBC will significantly reduce the cost of achieving ZLD for our client.

 

Gibraltar Wastewater Treatment Project

In January 2018, H.M. Government of Gibraltar awarded an Advance Works Contract to the Joint Venture between Modern Water Services Ltd and NWG Commercial Solutions Limited ("Northumbrian Water"), covering the design and survey work required for final planning and environmental approvals, as well as preliminary site works. This contract was successfully completed in March 2019 following the presentation of the project to Gibraltar's Development and Planning Commission.  Work continues on closing the main contract for a wastewater treatment plant to treat all the wastewater from Gibraltar.

 

Modern Water is responsible for the design and build portion of the contract. Northumbrian Water will be responsible for the operation and maintenance of the plant for 20 years following its completion. 

 

Monitoring Division

 

Strategy

 

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.  

 

2018 was a significant year for the Monitoring Division.  The year-on-year increase in revenue was 19%, resulting in an increase in gross margin of 25% over 2017.  In addition to the significant improvement in revenue and gross profit the Division also undertook a significant product development programme.

 

In April 2018, the Division completed the commissioning of a Monitoring Station for a major power generation company in the Middle East to help ensure environmental compliance. The Monitoring Station monitors critical parameters such as Chlorine, PH, Aluminum and 12 critical trace metals.

 

The development programme for the new Microtox LX, the Division's laboratory-based toxicity monitoring product, was completed at the end of 2018 and the new product was launched in January 2019.  Initial feedback from customers on the new product has been very favourable.

 

Another achievement in 2018 (announced post year-end in January) was that Modern Water's SRB Test Kits meet the proposed new ASTM standards, which aim to address corrosion in petrochemical pipelines by helping to detect quantities of corrosion-inducing bacteria in water. The test method produces real benefits to customers: the real-time detection of corrosion inducing bacteria allows faster and more accurate remediation, which in turn reduces corrosion costs in pipelines and equipment.

 

Recurring revenue from service contracts and reagent sales was £1.4m in 2018 (2017 £1.0m).

 

Capital Raise

In October, the Company issued 3,792,410 new ordinary shares, which successfully raised £310,864 (after costs) in an open offer supported by management and existing shareholders. This followed the investment from China in July, which saw Modern Water's partner Sunup subscribe for 5,021,353 new shares, investing

£552,348.83 (before costs) in Modern Water.

 

 

Outlook

Modern Water continues to make steady progress in commercialising its core membrane technologies and in the last year has signed up partners in two new key markets, China and Africa. Alongside the new projects, a number of pilot trials have been successfully concluded and we expect to see new orders resulting from this work.

 

We expect the Monitoring Division to continue to build on the record sales achieved in 2018 with the launch of the new Microtox LX product at the end of 2018.

 

Modern Water has developed an attractive range of technologies which offer demonstrable benefits to our target markets.  This range of capabilities, developed over many years, now offers the Company an exciting series of opportunities, as we continue to commercialise our technology.  In addition, increasingly efficient operational practices, close control of costs and the careful use of capital allow us to maintain this commercial traction and continue to develop new products and techniques in parallel. 

 

 

 

Group Key Performance Indicators (KPIs)

As previously stated, 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 2018 we achieved progress against our goals and will continue to focus on these elements to drive future growth.  In 2018 the key milestones reached were: 

 

·    The first commercial AMBC plant commissioned in India

·    Chinese joint venture company established for AMBC technology in the Chinese market

·    New partnership established for the African market with WEC Projects (Pty) Ltd

·    Development of upgraded Microtox® LX laboratory-based toxicity testing technology

·    ASTM approved method for SRB testing achieved

 

Further details of strategic and operational progress for the two main operating Divisions are outlined above 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 2018, covered in more detail in the Financial Review and the financial statements, were:

 

·    Revenue increased 18% to £4.2m (2017: £3.5m);

·    Gross profit increased 31% to £2.3m (2017:£1.8m);

·    Operating loss before tax, interest, depreciation, amortisation was £2.1m (2017: £2.8m)

·    Total comprehensive loss for the year was £2.8m (2017: £5.0m)

·    Cash outflow before financing in 2018 was £1.7m (2017: £2.2m); and

·    Cash as at 31 December 2018 was £0.2m (2017: £0.5m). 

 

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 £72,000 (2017: £165,000). The Group has benefited from the HMRC R&D tax credits scheme with the receipt of £155,386 in cash from claims made in 2018, related to R&D expenditure in 2017. The Group will submit claims for the recovery of 2018 R&D expenditure to HMRC in 2019.

 

Group Patent Portfolio & Intellectual Property

We have continued to file new patents to strengthen our portfolio in important markets whilst, 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 114 (2017: 86) 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 11 granted patents (2017: 13) and Modern Water has 2 (2017: 6) innovative wastewater treatment patents. Altogether the Group holds 127 granted patents (2017: 105) with a further 27 pending applications (2017: 42).

 

Group Resources

Modern Water continues to view its employees as a community, not just a workforce, and collaboration and networking across the Group is encouraged and welcomed. We also believe in developing and nurturing all our staff.  Making Modern Water a great place to work is a key element in our successful attraction and retention of the most talented people to help us reach our goals.

 

As at 31 December 2018 the Group employed 37 permanent staff (2017: 41), supplemented by contract staff as required.

 

Group Financial Review

Summary

The Group had £0.2m cash in the bank and a bank loan of £0.5m at 31 December 2018 (2017: £0.5m cash). The Monitoring Division ended the year with an order book of £368,000. The overall loss before interest, tax, depreciation and amortisation decreased to £2.1m (2017: £2.8m).

 

The Group generated revenues of £4.2m in 2018 (2017: £3.5m). Total comprehensive loss was £2.8m (2017: £5.0m, £3.5m before goodwill impairment).

 

Cash Flows

The Group cash outflow for the year was £1.4m (2017: £2.2m) and during the year a net £0.9m was raised through the issue of new equity.

 

Cash inflow from R&D tax credits was £0.2m (2017: £0.2m). Cash outflows comprised £0.1m on property, plant and equipment (2017: £0.2m), £0.3m on patents (2017: £0.1m) and £1.4m on operating activities (2017: £1.9m).

 

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 primarily 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. See note 3 to the Accounts for further detail of financial risk management.

 

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.  The Group has recorded a loss for the year of £2.3m and has net cash out flows from operating activities of £1,352,000. The Directors have performed a detailed analysis of the cash flow projections for the Group as a whole covering the period through to the financial year ended 31 December 2018 and beyond.

 

The forecasts support that the Company will remain a going concern for at least twelve months from the date on which these financial statements have been approved and signed. The cash flow forecasts are based on the key assumptions set out below, some of which are subject to material uncertainty that may cast significant doubt on the Group and the Company's ability to continue as a going concern:  

 

·      Monitoring Division: Continuing revenue growth over 2018.

·      Membrane Division:  Significant increase in number of technology licences sold vs 2018.

·      Gibraltar Waste Water Treatment Plant: full contract commences during 2019.

·      R&D tax credit receipts from HMRC of a broadly similar amount to 2018.

·      Continued availability of a £0.5m bank loan from Barclays Bank Plc.

 

As disclosed in Note 21 a covenant on the bank loan was breached as at 31 December 2018, but the bank has waived this breach and reset the covenant.

 

Post year-end, the $0.5m credit facility that was available to the Group was terminated and is to be replaced with a new $0.75m facility to be finalised, providing additional available resources to the Group.

 

Modern Water is also pursuing a number of new commercial opportunities across its divisions and also believes it has a variety of external financing options available should they become necessary.

 

Following the review, the Directors have concluded that adequate resources are available and therefore that they are justified in using the going concern basis for the preparation of the financial statements.

 

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.

 

'Brexit' risk

Approximately one-third of the Monitoring division's sales are to EU Countries, but these sales are invoiced and predominantly supplied from Modern Water Inc in the USA. The Membrane division does not currently have any projects in any EU Countries. During 2019, Modern Water did undertake work in Gibraltar- however although Gibraltar is not part of the UK, but as a British Overseas Territory it will, by default, cease to be part of the EU upon UK's withdrawal.

Possible outcomes for Monitoring Division sales:

•       Taxes/tariffs on any product shipped from the US to Cambridge (UK) plus additional taxes/tariffs on shipments from Cambridge to EU countries.

•           Delays of shipments are possible due to taxes and tariffs collections.

•           Licenses, registrations or certificates may be required to provide services in EU.

•           Additional documentation to ship product from the UK to EU.

•       Currently, bulk inventory is transferred from the US to UK and import/export documentation is provided at that time. No additional documentation is required when shipping from the UK to other EU countries.

        Import/export documentation (commercial invoice) may be required for every shipment from the UK to EU.

•           Possibly, customers will require import permits to receive goods from the UK.

•           GBP value can further decline therefore margins may suffer.

 

However all the above are at best speculation at the time of writing and the exact outcome is yet to be confirmed.

 

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 Group's 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.

 

Financial risks

These risks and mitigating controls are described in note 3 to the Accounts.

 

The Strategic Report was approved by the Board of Directors on 18 April 2019 and signed on its behalf by:

 

 

Simon Humphrey

Chief Executive Officer

18 April 2019

 

Group Statement of Comprehensive Income

for the year ended 31 December 2018

 

 

 

 

2018

2017

 

 

 

 

Total

Total

 

Note

 

 

£000

£000

Revenue

5

 

 

4,159   

3,518    

Cost of sales

5

 

 

(1,843)

(1,744)

Gross profit

5

 

 

2,316

1,774

Administrative expenses

7

 

 

(4,371)

(4,410)

Exceptional Item: Inventory valuation adjustment

6

 

 

(3)

(173)

Operating loss before depreciation and amortisation

 

 

 

(2,058)

(2,809)

Depreciation and amortisation

14,15

 

 

(523)

(508)

Exceptional Item: Goodwill Impairment

15

 

 

-

(1,532)

Operating loss

 

 

 

(2,581)

(4,849)

Finance income

11

 

 

204

-

Finance costs

11

 

 

(92)

(381)

Loss on ordinary activities before taxation

 

 

 

(2,469)

(5,230)

Taxation

12.1

 

 

163

157

Loss for the year

 

 

 

(2,306)

(5,073)

Other comprehensive income

 

 

 

 

 

Foreign currency translation differences on foreign operations

 

 

 

(504)

69

Total comprehensive loss for the year

 

 

 

(2,810)

(5,004)

 

 

 

 

 

 

Loss attributable to:

 

 

 

 

 

Owners of the parent

 

 

 

(2,170)

(5,073)

Non-controlling Interest

 

 

 

(136)

-

 

 

 

 

(2,306)

(5,073)

 

Total comprehensive loss attributable to:

 

 

 

 

 

Owners of the parent

 

 

 

(2,674)

(4,990)

Non-controlling Interest

 

 

 

(136)

(14)

 

 

 

 

(2,810)

(5,004)

 

 

 

 

 

 

(Loss) per share for the year (attributable to owners of the parent):

 

 

 

 

 

Basic (loss) per share

13.1

 

 

(2.22p)

(5.71p)

Diluted (loss) per share

13.2

 

 

(2.22p)

(5.71p)

 

 

Group and Company Statements of Financial Position

as at 31 December 2018

 

 

Group

Company

 

 

2018

2017

2018

2017

 

Note

£000

£000

£000

£000

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Property, plant and equipment

14

199

230

-

-

Intangible assets

15

1,563

1,658

-

-

Investments

16

-

-

2,023

1,877

 

 

1,762

1,888

2,023

1,877

Current assets

 

 

 

 

 

Inventories

17

935

1,047

-    

-    

Trade and other receivables

18

1,014               

1,043               

6,479

5,971

Cash and cash equivalents

19

228

466

-

234

 

 

2,177

2,556

6,479

6,205

Total assets

 

3,939

4,444

8,502

8,082

 

 

 

 

 

 

Equity and liabilities

 

 

 

 

 

Equity

 

 

 

 

 

Ordinary shares

 

261

239

261

239

Share premium account

 

42,613

41,604

42,613

41,604

Warrant reserve

 

100

-

100

-

Merger reserve

 

398

398

398

398

Foreign exchange reserve

 

(669)

(165)

-    

-  

Accumulated losses

 

(40,642)

(38,540)

(35,590)

(34,268)

 

 

2,061

3,536

7,782

7,973

Non-controlling interests

 

9

145

-

-

Total equity

 

2,070

3,681

7,782

7,973

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Deferred tax liabilities

12.3

-

27

-

-

Current liabilities

 

 

 

 

 

Trade and other payables

20

1,337

736

189

109

Bank loan

20.1

532

-

532

-

 

 

1,869

736

721

109

Total liabilities

 

1,869

763

721

109

Total equity and liabilities

 

3,939

4,444

8,502

8,082

 

Group and Company Statements of Changes in Equity

for the year ended 31 December 2018

 

 

Ordinary

Share premium

 

 

Warrant

Merger

Foreign exchange

(Accumulated losses)/ Retained

 

Non-controlling

Total

 

 

shares

Account

reserve

reserve

Reserve

Earnings

Total

interest

Equity

Group

Note

£000

£000

 

£000

£000

£000

£000

£000

£000

£000

Balance as at 1 January 2017

 

199

40,032

 

 

-

398

(248)

(33,629)

6,752

159

6,911

Comprehensive loss

 

 

 

 

 

 

 

 

 

Loss for the year

 

-

-

 

-

-

-

(5,073)

(5,073)

(136)

(5,073)

Foreign currency translation differences

 

-

-

-

 

83

-

83

 

69

Total comprehensive loss

 

-

-

 

 

-

-  

83

(5,073)

(4,990)

(14)

(5,004)

Transactions with owners

 

 

 

 

 

 

 

 

 

Share issue (net of transaction fees)

 

40

1,572

 

 

 

-

-

-

-

1,612

-

1,612

Share-based payments

9

-

-

 

-

-

-

162

162

-

162

Total transactions with owners

 

40

1,572

 

 

-

-

-

162

1,774

-

1,774

Balance as at 1 January 2018

 

239

41,604

 

 

-

398

(165)

(38,540)

3,536

145

3,681

Comprehensive loss

 

 

 

 

 

 

 

 

 

Loss for the year

 

-

-

 

-

-

-

(2,170)

(2,306)

(136)

(2,306)

Foreign currency translation differences

 

-

-

 

 

 

-

-

(504)

-

(504)

-

(504)

Total comprehensive loss

 

-

-

 

 

-

-  

(504)

(2,170)

(2,674)

(136)

(2,810)

Transactions with owners

 

 

 

 

 

 

 

 

 

Share issue (net of transaction fees)

 

22

1,009

 

 

 

100

-

-

(100)

1,031

-

1,031

Share-based payments

9

-

-

 

-

-

-

168

168

-

168

Total transactions with owners

 

22

1,009

 100

-

-

68

1,199

-

1,199

Balance as at 31 December 2018

 

261

42,613

 

 

 100

398

(669)

(40,642)

2,061

9

2,070

 

 

Group and Company Statements of Cash Flows

for the year ended 31 December 2018

 

 

Group

Company

 

 

2018

2017

2018

2017

 

Note

£000

£000

£000

£000

 

 

 

 

 

 

Net cash flows from operating activities

 

 

 

 

 

Loss on ordinary activities before taxation

 

(2,469)

(5,230)

(1,390)

(1,421)

Adjustments for:

 

 

 

 

 

Inventory Valuation adjustment

 

3

173

-

-

Depreciation of property, plant and equipment

14

109

153

-

-

Amortisation of intangible assets

15

414

355

-

-

Impairment of Goodwill

 

-

1,532

-

-

Net finance income

11

(112)

381

32

-

Share-based payments

9

168

162

21

16

R&D Tax credit receipts

 

155

184

-

-

Movements in working capital:

 

 

 

 

 

(Increase) / decrease in inventories

 

109

239

-

-

Decrease / (increase) in trade and other receivables

 

29

3

(508)

(404)

Increase / (decrease) in trade and other payables

 

242

108

80

13

Net cash flows from operating activities

 

(1,352)

(1,940)

(1,765)

(1,796)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchase of property, plant and equipment

14

(60)

(162)

-

-

Purchase of patents and development costs

15

(319)

(113)

-

-

Net cash flows (used in)/generated from investing activities

 

(379)

(275)

-

-

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from borrowings

 

500

 

500

 

Proceeds from issuance of ordinary shares

 

1,031

1,612

1,031

1,612

Net cash flows generated from financing activities

 

1,531

1,612

1,531

1,612

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

(200)

(603)

(234)

(184)

Cash and cash equivalents at the beginning of the year

19

466

1,072

234

419

Exchange losses on bank balances

 

(38)

(3)

-

(1)

Cash and cash equivalents at the end of the year

19

228

466

-

234

               

 

 

Notes to the Financial Statements

1. General information

Modern Water plc 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.

 

The board of directors approved these results on 18 April 2019. The financial information set out above is abridged and does not constitute the Group's statutory financial statements for the year to 31 December 2018. Statutory financial statements for the year ended 31 December 2018 have been reported on by the Group's auditors. The auditors report for the year ended 31 December 2018 includes a material uncertainty in relation to going concern and was otherwise unmodified.

 

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.

 

The consolidated and Company financial statements of Modern Water plc (the 'Company') and its subsidiaries (together the 'Group') for the year ended 31 December 2018 were authorised for issue by the Board of directors on 21 March 2019 and the statement of financial position was signed by the Chief Executive Officer (Simon Humphrey).

 

The principal accounting policies adopted by the Group and Company are set out below.

 

2. Summary of significant accounting policies

The principal accounting policies have been applied consistently throughout the current and prior year, unless otherwise stated, in the preparation of these financial statements.

 

2.1 Basis of preparation and changes in accounting policy and disclosures

The financial statements of Modern Water plc 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.

 

The preparation of financial statements in conformity with IFRSs 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. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4.

 

Under Section 479A of the Companies Act 2006, exemptions from an audit of the accounts for the financial year ended 31 December 2018 have been taken by Aguacure Ltd (05893786), Cymtox Limited (05025552), Modern Water Monitoring Limited (06701882), Modern Water Services Limited (06316697), MW Monitoring Limited (07495046), MW Monitoring IP Limited (07810737), Modern Water Holdings Limited (07588452), Poseidon Water Limited (04598478) and Surrey Aquatechnology Limited (05698169). As required, the Company guarantees all outstanding liabilities to which the subsidiary companies listed above are subject at the end of the financial year, until they are satisfied in full and the guarantee is enforceable against the parent undertaking by any person to whom the subsidiary companies listed above is liable in respect of those liabilities.

 

2.1.1 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.  The Group has recorded a loss for the year of £2.3m and has net cash out flows from operating activities of £1,352,000. The directors have performed a detailed analysis of the cash flow projections for the Group as a whole covering the period through to the financial year ended 31 December 2018 and beyond.

 

The forecasts support that the company will remain a going concern for at least twelve months from the date on which these financial statements have been approved and signed. The cash flow forecasts are based on the key assumptions set out below, some of which are subject to material uncertainty that may cast significant doubt on the group and the company's ability to continue as a going concern:  

 

·        Monitoring Division: Continuing revenue growth over 2018.

·        Membrane Division:  Significant increase in number of technology licences sold vs 2018.

·        Gibraltar Waste Water Treatment Plant: full contract commences during 2019.

·        R&D tax credit receipts from HMRC of a broadly similar amount to 2018.

·        Continued availability of a £0.5m bank loan from Barclays Bank Plc.

 

As disclosed in Note 21 a covenant on the bank loan was breached as at 31 December 2018, but the bank has waived this breach and reset the covenant.

 

Post year-end, the $0.5m credit facility that was available to the Group was terminated and will be replaced with a new $0.75m facility agreed in April 2019, providing additional available resources to the Group.

 

Modern Water is also pursuing a number of new commercial opportunities across its divisions and also believes it has a variety of external financing options available should they become necessary.

 

Following the review, the directors have concluded that adequate resources are available and therefore that they are justified in using the going concern basis for the preparation of the financial statements.

 

2.1.2 Changes in accounting policy and disclosures

(a) New and amended standards adopted by the group

New Standards adopted as at 1 January 2018

 

IFRS 9 'Financial Instruments'

 

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

 

Financial assets, other than those designated and effective as hedging instruments, are classified

into the following categories:

Ø amortised cost

Ø fair value through profit or loss (FVTPL)

Ø fair value through other comprehensive income (FVOCI)

 

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items.

IFRS 9's impairment requirements use more forward-looking information to recognise expected credit losses - the 'expected credit loss (ECL) model'. Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows. The Group has not recognised any additional expected losses at the year-end as a result of the implementation of IFRS 9.

 

 

 

IFRS 15 'Revenue from Contracts with Customers'

 

With effect from 1 January 2018 Modern Water Group adopted IFRS 15 Revenue from Contracts with Customers which presents new requirements for the recognition of revenue. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs.

To determine whether to recognise the revenue the Group follows a 5 step process:

Ø Identify the contract with a customer

Ø Identify the performance obligations

Ø Determine the performance price

Ø Allocating the transaction price to the performance obligations

Ø Recognising revenue when performance obligations are satisfied

 

Revenue is recognised either at a point in time or over time when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as deferred revenue in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.

Management feels the new standard if anything could align revenue recognition with the commercial substance of the contracts. The application of IFRS 15 has no impact on the lifetime profitability or cash flow of our contracts, or the majority of our transactional businesses. Instead, the resulting changes in the timing of revenue and cost recognition more closely aligns our financial results with the timing of the delivery of our outcomes to clients.

The Group transitioned applying the modified retrospective approach, however, no adjustments were required to prior years as all contracts were completed before the year-end previously.

 

(b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2019 and not adopted early

New standards and amendments to standards and interpretations effective for annual periods beginning after 1 January 2019 have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group.

 

(b) Standards, amendments and Interpretations to existing Standards that are not yet effective and have not been adopted early by the group

 

At the date of authorisation of these financial statements, several new, but not yet effective, Standards, amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards, amendments or Interpretations have been adopted early by the Group.

 

Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations neither adopted nor listed below have not been disclosed as they are not expected to have a material impact on the Group's financial statements

 

IFRS 16 'Leases'

 

Adoption of IFRS 16 Leases

IFRS 16 is effective from 1 January 2019 and replaces IAS 17 Leases and related interpretations. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, a right-of-use asset and a financial liability for future lease payments are recognised. The only exceptions are short-term leases, low-value leases, and leases of intangible assets.

The Group will apply the Standard from 1 January 2019. The Group will apply the modified retrospective transition approach and will not restate comparative amounts for the year ended 31 December 2018. The Group's main assets including IT equipment are owned outright so we will only be looking at rent leases.

 

Impact of adoption of IFRS 16 Leases

 

Balance sheet

There may be a transition adjustment recognised as a debit to retained earnings. The Group will not capitalise low-value leases on transition, or those which expire before 31 December 2019, and has opted not to apply IFRS 16 to leases relating to intangible assets. The right-of-use asset principally consists of property (rent leases).

Statement of Comprehensive Income 

Under IFRS 16 the Group will see a different pattern of expense within the income statement, as the IAS 17 operating lease expense is replaced by depreciation and interest charges.

Cash flow statement

The change in presentation as a result of the adoption of IFRS 16 will see an improvement in 2019 in cash flow generated from operating activities, offset by a corresponding decline in cash flow from financing activities. There is no overall cash flow impact from the adoption of the new Standard. Lessor accounting under IFRS 16 is largely unchanged from IAS 17.

Management have not yet completed a full impact assessment of adopting the new standard.

 

2.1.3 Parent company financial statements

Modern Water plc has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to disclose the parent company statement of comprehensive income. The loss attributed to the parent company in the year was £1,390,000 (2017 loss of: £1,421,000).

 

2.2 Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries).

 

(a) Subsidiaries

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

•      Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

•      Exposure, or rights, to variable returns from its involvement with the investee

•      The ability to use its power over the investee to affect its returns

 

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

•      The contractual arrangement(s) with the other vote holders of the investee

•      Rights arising from other contractual arrangements

•      The Group's voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

 

Acquisition costs are expensed as incurred.

 

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquire is re-measured to fair value at the acquisition date through profit or loss.

 

Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date.

Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in the profit and loss or as a charge to other comprehensive income.

 

Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

 

Goodwill is initially measured as the excess of the aggregate of the consideration transferred in relation to the fair value of the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the statement of comprehensive income.

 

Inter-company transactions, balances, income and expenses on transactions between group companies are

eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

(b)  Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as transactions with the equity owners of the Group.  For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of the net assets of the subsidiary is recorded in equity.

 

Comprehensive losses are attributable to non-controlling interests only to the extent the Group expects to recover them.

 

When the Group ceases to have control or significant influence, any retained interest in the entity is re-measured to fair value with the change in carrying amount recognised in the statement of comprehensive income. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. Any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to the profit or loss.

 

 

2.3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board that makes strategic decisions.

 

2.4 Foreign currency translation

 

(a) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in sterling (£), which is the Group's presentation currency and the Company's functional currency.

 

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive income within 'finance income or cost'.

 

(c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary

economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

·      assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

·      income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

·      all resulting exchange differences are recognised in other comprehensive income.

 

2.5 Property, plant and equipment

All property, plant and equipment is shown at cost less accumulated depreciation and impairment. Cost includes expenditure that is attributable to the acquisition of the items. Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful economic life, as follows:

Leasehold improvements                 -              remaining term of the lease

Plant and machinery                           -              three to five years

Motor vehicles                                      -              three to five years

Office equipment                                 -              three to five years

Furniture, fixtures and fittings            -              three to five years

 

The assets' residual values and useful economic lives are reviewed, and adjusted if appropriate, at each balance sheet date.

 

Subsequent costs are capitalised only when it is probable that they will result in future economic benefits flowing to the Group and when they can be measured reliably. All other repairs and maintenance expenditure is charged to the statement of comprehensive income in the period in which it is incurred.

 

2.6 Intangible assets

(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary/joint venture/associate at the date of acquisition:

·      goodwill on acquisitions of subsidiaries is included in 'intangible assets'; and

·      goodwill on acquisitions of joint ventures is included in 'investments in joint ventures' and is tested for impairment as part of the overall balance

 

Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold.

 

Goodwill is not subject to amortisation, but is tested for impairment annually to identify whether there have been events or a change in circumstances to indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and the value in use. For the purposes of assessing impairments, assets are grouped at the lowest levels for which there are identifiable cash flows in Cash Generating Units (CGUs). The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. Due to the pre-revenue stage of most of the Group's technologies, value in use has been assessed based on the present value of applying the Group's technologies to potential contracts in the future and an assessment of the expected number of such contracts.

 

(b) Patents and trademarks

Separately acquired patents are recognised at cost. They have a finite useful economic life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of patents over their estimated useful economic lives of 20 years from patent filing.

 

Trademarks are initially recorded at historical cost.  They have a finite useful life and are subsequently carried at cost less accumulated amortisation.  Amortisation is calculated using the straight-line method to allocate the cost of trademarks over their useful economic life of five years from filing.

 

(c) Development costs

Development costs identified as a result of a business combination are accounted for in accordance with IAS 38, brought on to the consolidated statement of financial position at the date of acquisition and amortised on a straight-line basis between 10 and 20 years.

 

(d) Research and development

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

Any internally-generated development costs are recognised as an asset only if all of the following are met:

 

1) The technical feasibility of completing the intangible asset so that it will be available for use or sale

2)The intention to compete the intangible asset and use or sell it

3) The ability to use or sell the intangible asset

4) The ability of the intangible asset to generate probable future economic benefits

5) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset

6) The ability to measure reliably the expenditure attributable to the intangible asset during its development

 

Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. Internally generated intangible assets are amortised on a straight-line basis over three years.

 

Patented technology acquired as part of a business combination is recorded at the fair value on acquisition and amortised on a straight-line basis over the useful economic life of the asset.

 

R&D tax credits received are recorded as income in the corporation tax charge/benefit in the year the cash is received.

 

2.7 Impairment of intangible assets, investments, property, plant and equipment

Assets that are subject to amortisation or depreciation are tested for impairment when events or a change in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and the value in use. For the purposes of assessing impairments, assets are grouped at the lowest levels for which there are identifiable cash flows. Due to the pre-revenue stage of most of the Group's technologies, value in use has been assessed based on the present value of applying the Group's technologies to potential contracts in the future and an assessment of the expected number of such contracts.

 

2.8 Investments

Investments are stated at cost less any provision for impairment. Investment assets are tested annually for impairment, see note 16.

 

2.9 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

 

2.10 Financial instruments

Recognition and derecognition

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

 

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

 

Classification and initial measurement of financial assets

Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

 

Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories:

•  amortised cost

•  fair value through profit or loss (FVTPL)

•  fair value through other comprehensive income (FVOCI).

 

In the periods presented the group does not have any financial assets categorised as FVTPPL or FVOCI.

 

The classification is determined by both:

•  the entity's business model for managing the financial asset

•  the contractual cash flow characteristics of the financial asset.

 

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

 

Subsequent measurement of financial assets

Financial assets at amortised cost

Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL):

•  they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows

•  the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding

 

After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.

 

Impairment of financial assets

IFRS 9's impairment requirements use more forward-looking information to recognise expected credit losses - the 'expected credit loss (ECL) model'. This replaces IAS 39's 'incurred loss model'. Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised cost, trade receivables and contract assets recognised and measured under IFRS 15.

 

Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.

 

In applying this forward-looking approach, a distinction is made between:

•  financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk ('Stage 1') and

•  financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low ('Stage 2').

 

'Stage 3' would cover financial assets that have objective evidence of impairment at the reporting date.

 

'12-month expected credit losses' are recognised for the first category while 'lifetime expected credit losses' are recognised for the second category.

 

Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.

 

Previous financial asset impairment under IAS 39

In the prior year, the impairment of trade receivables was based on the incurred loss model. Individually significant receivables were considered for impairment when they were past due or when other objective evidence was received that a specific counterparty will default. Receivables that were not considered to be individually impaired were reviewed for impairment in groups, which are determined by reference to the industry and region of the counterparty and other shared credit risk characteristics. The impairment loss estimate was then based on recent historical counterparty default rates for each identified group.

 

Trade and other receivables and contract assets

The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.

 

The Group assess impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due. Refer to Note 18 for a detailed analysis of how the impairment requirements of IFRS 9 are applied.

 

Classification and measurement of financial liabilities

The Group's financial liabilities include borrowings, trade and other payables and derivative financial instruments.

 

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.

 

Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments).

 

All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.

 

2.11 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour and other direct costs but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Provisions, if necessary, are made for slow-moving, obsolete and defective inventories.

 

2.12 Share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

 

2.13 Employee benefits

(a) Pension obligations

The Group has a defined contribution pension plan for directors and staff. The scheme is administered by an insurance company to which the Group pays fixed contributions and the Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

 

(b) Share-based payments

Share-based incentive arrangements are provided to directors and employees. The Group operates a number of share-based payment schemes under the Modern Water plc Incentive Plan (MWIP) which is described in note 9.

 

The fair value of the services received in exchange for the share-based payment is recognised as an expense with a corresponding credit to equity, where the payment is equity-settled, if cash settled then the cost is accrued in the statement of financial position. Where equity-settled the total amount to be expensed over the vesting period is determined by reference to the fair value of the options and bonus shares granted at the date of grant using either a Black-Scholes or Monte Carlo pricing model. Where cash-settled the total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted at the date of grant and then reassessed at each subsequent reporting date using the Black-Scholes model. The annual charge is modified to take account of awards granted to employees who leave the Group during the performance or vesting period and forfeit their rights to the share options and in the case of non-market related performance conditions, where it becomes unlikely they will vest.

 

The grant by the Company of share-based payments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.

 

2.14 Taxation

The current income tax charge is calculated on the basis of the tax laws applicable to the current year and enacted or substantively enacted at the statement of financial position date in the countries where the Company's subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation, and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

 

Deferred income tax is provided in full, using the liability method, on temporary differences arising between tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination, which at the time of the transaction affects neither the accounting nor the taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax is realised or the deferred income tax liability is settled.

 

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

 

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

 

2.15 Revenue

Revenue arises mainly from the sale of goods and services, licence and maintenance fees, engineering contracts and royalties.

To determine whether to recognise revenue, the Group follows a 5-step process:

1  Identifying the contract with a customer

2  Identifying the performance obligations

3  Determining the transaction price

4  Allocating the transaction price to the performance obligations

5  Recognising revenue when/as performance obligation(s) are satisfied.

 

The Group often enters into transactions involving a range of the Group's products and services, for example for the delivery of goods, licences and maintenance fees. In all cases, the total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties.

 

Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

 

The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.

 

(a) Sale of goods

Revenue from the sale goods for a fixed fee is recognised when or as the Group transfers control of the assets to the customer. Invoices for goods or services transferred are due upon receipt by the customer.

 

For stand-alone sales of goods that are neither customised by the Group nor subject to significant integration services, control transfers at the point in time the customer takes undisputed delivery of the goods. When such items are either customised or sold together with significant integration services, the goods and services represent a single combined performance obligation over which control is considered to transfer over time. This is because the combined product is unique to each customer (has no alternative use) and the Group has an enforceable right to payment for the work completed to date. Revenue for these performance obligations is recognised over time as the customisation or integration work is performed, using the cost-to-cost method to estimate progress towards completion. As costs are generally incurred uniformly as the work progresses and are considered to be proportionate to the entity's performance, the cost-to-cost method provides a faithful depiction of the transfer of goods and services to the customer.

 

(b) Licence fees

For sales of licences that are neither customised by the Group nor subject to significant integration services, the licence period commences upon delivery. For sales of licences  subject to significant customisation or integration services, the licence period begins upon commencement of the related services.

 

(c) Maintenance contracts

The Group enters into agreements with its customers to perform regularly scheduled maintenance services on goods and licences purchased from the Group. Revenue is recognised over time based on the ratio between the number of hours of maintenance services provided in the current period and the total number of such hours expected to be provided under each contract. This method best depicts the transfer of services to the customer because: (a) details of the services to be provided are specified by management in advance as part of its published maintenance program, and (b) the Group has a long history of providing these services to its customers, allowing it to make reliable estimates of the total number of hours involved in providing the service.

 

(d) Engineering contracts

The Group enters into contracts for the design, development and installation of its technology in exchange for a fixed fee and recognises the related revenue over time. Due to the high degree of interdependence between the various elements of these projects, they are accounted for as a single performance obligation. When a contract also includes promises to perform after-sales services, the total transaction price is allocated to each of the distinct performance obligations identifiable under the contract on the basis of its relative stand-alone selling price.

 

To depict the progress by which the Group transfers control of the systems to the customer, and to establish when and to what extent revenue can be recognised, the Group measures its progress towards complete satisfaction of the performance obligation by comparing actual hours spent to date with the total estimated hours required to design, develop, and install each system. The hours-to-hours basis provides the most faithful depiction of the transfer of goods and services to each customer due to the Group's ability to make reliable estimates of the total number of hours required to perform, arising from its significant historical experience constructing similar projects.

 

(e) Royalties

Royalty income is recognised as revenue on an accruals basis in accordance with the substance of the relevant agreements as agreed targets are met/sales are made. Royalty revenue is recognised on the basis of royalty statements provided by distributors.

 

2.16 Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

 

3.  Financial risk management

The Group is subject to a number of financial risks, principally market risk (interest rate risk and foreign exchange risk); credit risk; liquidity risk; and capital risk. The Group's policy aims to mitigate these risks though a conservative approach to treasury management: 

 

(a)   Market risk

(i) Interest risk

The Group's interest rate risk arises from variable interest rates on finance income and investing cash flows from the cash deposits. The Group's policy is to invest in fixed interest term deposits, thereby mitigating uncertainty over the future interest receipts. As the Group has no borrowings it only has limited interest rate risk.

 

(ii) Foreign exchange risk

During 2018 the majority of the Group's costs were in pounds sterling and US dollars therefore it was appropriate to hold funds in pounds sterling and US dollars. The Group does also have a major supplier who invoices in Australian dollars, but the FX conversion is executed at the time of any transaction. In addition to sterling and US dollar accounts, the Group maintains Euro, RMB and OMR accounts for customer receipts and to hold currency to hedge against future commitments in those currencies.

 

(b) Credit risk

The Group is exposed to credit risk from placing significant deposits with counterparties. The Group's policy is to restrict counterparties to institutions that are Moody's A rated when the deposit is placed; ratings can change during the term of the deposit. Cash balances by counterparty credit rating are listed in note 19. Additionally the Group is exposed to credit risk from customers. This risk is mitigated in the Monitoring Division through new customers being required to pay in advance for their first purchase. Customer's seeking credit undergo a credit application process and are subject to credit limits. Accounts receivable balances are monitored and actively managed on a regular basis.

 

(c) Liquidity risk

The Group's liquidity risk arises from cash being on deposit with counterparties and therefore not available at short notice to meet requirements. The Group's policy is to maintain rolling cash flow forecasts and place cash on deposit with a range of maturity dates to meet forecast liquidity requirements. The maximum duration for a term deposit is 12 months from the date of deposit.

 

(d) Capital risk

Capital risk relates to the long term funding requirements for the Group. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. At the Group's current stage of development it is appropriate for it to be wholly funded by equity. As the Group develops, this capital structure will be reviewed. 

 

4.  Critical accounting estimates and judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

 

Significant management judgements

The following are the judgements made by management in applying the accounting policies of the Group that have the most significant effect on the financial statements.

 

(a) Recognition of maintenance and engineering contract revenues

As revenue from maintenance agreements and engineering contracts is recognised over time, the amount of revenue recognised in a reporting period depends on the extent to which the performance obligation has been satisfied. Recognising revenue for engineering contracts requires significant judgment in determining the estimated number of hours required to complete the promised work when applying the hours-to-hours method described in Note 2.15(d).

 

(b) Capitalisation of internally developed intangibles

Distinguishing the research and development phases of a new customised software project and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired (see Note 2.6(d)).

 

(c) Deferred tax recognition

The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry-forwards can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions. For further details please see note 12.3 of the Notes to the Financial Statements.

 

(d) Going Concern

The directors have carried out a review of forecast cash flows and have concluded that the going concern basis is justified in preparation of the financial statements. Judgement has been made in assessing the appropriate assumptions to be used in carrying out this review. For further details please see note 2.1.1 of the Notes to the Financial Statements.

 

(e) Classification of warrants

The classification of warrants issued requires judgement as to whether they should be recognised as debt or equity. In making this assessment the directors consider the terms of the warrants in accordance with the requirements of IAS 32, in particular applying judgement as to whether or not the "fixed for fixed" test in the Standard is satisfied. See Note 23.3 for further details.

 

Estimation uncertainty

Information about estimates and assumptions that may have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.

 

(a) Estimated impairment of non-financial assets and goodwill

In assessing impairment, management estimates the recoverable amount of each asset or cash generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate (see Note 2.7). In 2017, the Group recognised an impairment loss on goodwill (see Note 15). Also see Note 16 for details in relation to investments.

 

(b) Acquired intangible assets

The Group is carrying significant intangible assets (patented technology and research and development) arising from business combinations in prior years, in accordance with the accounting policy stated in note 2.6. Estimation of the fair values of intangible assets acquired through business combinations requires assumptions as to replacement cost, value, future useful economic life and future cash flows for impairment tests. There is a high degree of judgement required in making these assumptions which impact both the initial fair value acquired and the carrying value as at the balance sheet date.

 

(c) Share-based payments

The fair value calculation of share-based payments requires several assumptions and estimates. Their details are included in note 9. Such assumptions and estimates could change and could affect the amount recorded.

 

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making assumptions about them. The Group initially measures the cost of cash-settled transactions with employees using a Black-Scholes model to determine the fair value of the liability incurred. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 9.

 

(d) Inventory provisions

Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices.

 

5. Segmental analysis

 

5.1 Reportable segments

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.

 

 

2018

 

 

 

2017

 

 

 

Membrane

Monitoring

Central

Total

Membrane

Monitoring

Central

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

Revenue

       481

    3,678

    -

   4,159

369

3,149

-

3,518

Cost of sales

       (55)

  (1,788)

    -

 (1,843)

(161)

(1,583)

-

(1,744)

Gross profit

       426

    1,890

    -

   2,316

208

1,566

-

1,774

Administrative expenses

  (1,216)

  (1,878)

                   (1,109)

 (4,203)

(1,054)

(2,094)

(1,100)

(4,248)

Share based payments

      -

        -

     (168)

    (168)

-

-

(162)

(162)

Exceptional Item: Inventory Adj.

      -

         (3)

    -

        (3)

-

(173)

-

(173)

Operating profit / (loss) before depreciation and amortisation

     (790)

           9

   (1,277)

 (2,058)

(846)

(701)

(1,262)

(2,809)

Depreciation and amortisation

     (162)

     (361)

     -

    (523)

(117)

(391)

-

(508)

Exceptional Item: Goodwill Impairment

      -

       -

     -

-

(240)

(1,292)

-

(1,532)

Operating (loss)

     (952)

     (352)

   (1,277)

  (2,581)

(1,203)

(2,384)

(1,262)

(4,849)

Finance income

      -

        -

 204

      204

-

-

-

-

Finance costs

     -

        -

        (92)

     (92)

-

-

(381)

(381)

(Loss) before taxation

     (952)

      (352)

   (1,165)

(2,469)

(1,203)

(2,384)

(1,643)

(5,230)

Taxation

       115

         40

           8

     163

143

41

(27)

157

(Loss) for the year

     (837)

      (312)

   (1,157)

(2,306)

(1,060)

(2,343)

(1,670)

(5,073)

 

Revenue is recognised either at a point in time or over time when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

The Monitoring Division recognised £3,678,000 (2017: £3,149,000) from sale of goods and services and £nil (2017: £nil) revenue from royalties on a point in time basis.

The Membrane Division recognised £481,000 (2017: £369,000) from the sale of technology licences, engineering services and operating contracts on a services transferred over time basis.

 

5.2 Geographical information

The Group operates in four main geographical regions, based on customer location.

 

 

2018

 

 

2017

 

Revenue

Membranes

Monitoring

Total

Membranes

Monitoring

Total

 

£000

£000

£000

£000

£000

£000

Americas

-

1,463

1,463

-

1,303

1,303

Europe

378

729

1,107

-

838

838

Middle East and Africa

3

150

153

80

173

253

Asia Pacific

100

1,336

1,436

289

835

1,124

Total

481

3,678

4,159

369

3,149

3,518

 

 

The Group has non-current assets in five countries (2017: five), based on location of the assets.

 

 

2018

 

 

2017

 

 

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

4

1,271

1,275

4

1,658

1,662

US

194

292

486

226

-

226

Oman

-

-

-

-

-

-

China

-

-

-

-

-

-

Gibraltar

-

-

-

-

-

-

Total

198

1,563

1,761

230

1,658

1,888

 

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.

 

5.3 Major customers

Within the Monitoring Division no one customer represented more than 10% of revenue (2017: None greater than 10%). In the Membrane Division, revenue was earned from four customers in 2018 (2017: Revenue from five customers). 

 

6. Exceptional Item: Inventory valuation adjustment

As part of managements' refocusing of the Monitoring Division, all of its global operations were moved onto one management information system in late 2016, which in turn allowed a thorough review of its inventory position during the course of 2017. As a result, management felt it was necessary to adjust the holding value of some inventory items. No further write down was made during 2018.

 

2018

2017 

 

£000

£000

Write down of discontinued products

-

46

Write down of spares for obsolete/discontinued products

-

21

Write down of inventory dating from before 2016

-

24

Other write downs and corrections

3

82

Total

3

173

 

 

7. Administrative expenses by nature

 

 

2018

2017

 

Note

£000

£000

Employee benefits expense

 

2,647

2,580

Share-based payments

9

168

162

Operating lease payments

22.1

240

290

Research and development

 

72

165

Auditor's remuneration

10

82

66

Exceptional Item: Inventory valuation adjustment

6

-

173

Other administrative expenses

 

1,162

1,147

Total administrative expenses before depreciation, amortisation and exceptional charges

 

4,371

4,583

Depreciation and amortisation charges

14,15

523

508

Exceptional Item: Goodwill Impairment

 

-

1,532

Total administrative expenses including depreciation, amortisation and exceptional charges

 

4,894

6,623

 

 

8. Employee benefits expense

 

 

2018

 

2017

 

 

Group

Company

 

Group

Company

 

Note

£000

£000

 

£000

£000

Staff costs for the year, including the executive director, amounted to:

 

 

 

 

 

 

Wages and salaries

 

2,137

227

 

2,217

216

Social security costs

 

228

18

 

216

20

Other pension costs

 

103

14

 

99

14

Other benefits and staff costs

 

187

10

 

230

20

Total employee benefits expense

 

2,655

269

 

2,762

270

Equity-settled share-based payments

9

168

21

 

162

16

 

 

2,823

290

 

2,924

286

Other benefits include recruitment fees, private health insurance, life insurance and income protection and redundancy costs.

 

 

 

 

2018

 

2017

 

 

Group

Company

 

Group

Company

 

 

Number

Number

 

Number

Number

Monthly average number of employees by activity:

 

 

 

 

 

Executive director

 

1

1

 

1

1

Technical

 

17

-

 

22

-

Business development

 

15

-

 

13

-

Finance, legal and administration

 

6

-

 

6

-

Total

 

39

1

 

42

1

 

Key management personnel is considered to be the executive director.

 

The aggregate amount of emoluments, excluding employers pension contributions, paid to the executive director in respect of qualifying services was £143,931 (2017: £142,597). The highest paid director received £143,931 (2017: £142,597), excluding pension contributions. There were no gains made by directors on the exercise of share options (2017: £nil). No money was received by directors under long term incentive schemes (2017: £nil). The executive director, who was also the highest paid director, in total received £nil in cash bonuses relating to 2018 performance (2017: £12,000). The Group paid £13,749 (2017: £14,000) to the executive director in respect of money purchase pension schemes.  Total remuneration for non-executive directors was £90,000 (2017: £60,000). See the remuneration table in the Directors' Remuneration Report on page 9 for further details.

 

In addition to the above costs for permanent staff, the Group utilises the services of contract and agency staff as circumstances require.

 

 

9. Share-based payment plans

 

2018

 

2017

Group

Company

 

Group

Company

£000

£000

 

£000

£000

Options (including EMI)

168

21

162

16

Equity-settled share-based payments

168

21

162

16

Total share-based payments charged to the Statement of Comprehensive Income

168

21

162

16

 

 

 

 

 

Equity-settled share-based payments

168

21

162

16

Capital contribution relating to share-based payments

-

147

-

146

Total share-based payments changes in equity

168

168

162

162

The share-based payment plans are described below. The number of shares issued under these plans is limited to 10% of the issued ordinary share capital of the company.

 

The Group incurred a £169,000 (2017: £162,000) share-based payment charge of which a charge of £21,000 (2017: £16,000) was recognised in the Company's Statement of Comprehensive Income for its employees and a further £147,000 (2017: £146,000) to the employees of subsidiary undertakings. The charge for equity-settled share-based payments to the employees of the Company's subsidiaries of £147,000 (2017: £146,000) is recognised as a capital contribution in the Company's statement of financial position (note 16). 

 

Modern Water plc Incentive Plan (MWIP)

The original MWIP was adopted on 1 June 2007 and contained provisions relating to the making of awards in the form of options and conditional awards of ordinary shares (to be received once performance conditions are satisfied). It had a 10 year life, so a new MWIP was adopted in September 2017 containing the same provisions.

 

(a)   Options (Excluding EMI options)

Under this scheme share options are granted to management.  Certain awards are granted with an exercise price equal to the market price on the date of the grant, others at nil exercise price. The options may be exercised after three years from date of grant. Options expire after 10 years and, in certain circumstances, are forfeited if the option holder leaves the Group before the options vest.  The movement in the number of share options is below:

 

2018

2017

At 1 January

2,060,000

2,110,877

Granted during year

600,000

670,000

Forfeited

                   -

(720,877)

At 31 December

2,660,000

The fair value of the equity-settled share options granted is estimated as at the date of grant using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted. 

 

 

3 May

28 April

24 March

 

Grant date

 

2018

2017

2017

Share price at date of award

 

10.75p

16.00p

6.50p

Number of shares options granted

 

600,000

200,000

470,000

Exercise price

 

£nil

£nil

£nil

Assumed volatility at date of award (median of historical 50 day average)

 

101%

135%

37%

Vesting period (years)

 

3.0

3.0

3.0

Expected dividend yield

 

0%

0%

0%

Risk-free discount rate

 

1.0%

1.0%

1.0%

Fair value per share awarded

 

10.75p

16.00p

6.50p

 

               

The weighted average remaining contractual life for the share options outstanding at 31 December 2018 is seven years and three months (2017: seven years and nine months). The weighted average exercise price for options outstanding at the end of the year was 8.20p (2017: 10.6p).  600,000 options were exercisable as at 31 December 2018 (2017: 700,000).

 

(b) Conditional share awards

There were no Conditional share awards outstanding as of 31 December 2018 (2017: Nil)

 

(c)  Enterprise Management Incentives (EMI) options

Under this scheme share options are granted at nil exercise price to senior management. The options may be exercised after three years to the extent that certain market and non-market performance criteria are met. The extent to which the award will vest depends on performance against these performance criteria, if these are not met the options lapse. Options expire after 10 years and, in certain circumstances, are forfeited if the option holder leaves the Group before the options vest. The movement in the number of EMI options is set out below:

 

2018

2017

At 1 January

3,642,500

2,322,500

Granted

1,350,000

1,770,000

Forfeited

(730,000)

(450,000)

Lapsed

-

-

At 31 December

4,262,500

3,642,500

 

 

The fair value of the award is estimated as at the date of award using Monte Carlo (where there are market conditions) and Black-Scholes models (where there are no market conditions), taking into account the terms and conditions upon which the shares were awarded. The weighted average fair value of EMI options granted during the year was 9.50p (2017: 11.87p). Inputs into the model used for the options granted in the year are below: 

 

28 April

28 April

24 March

Grant date

2018

2017

2017

Share price at date of award

10.75p

16.00p

6.50p

Number of options

1,350,000

1,000,000

770,000

Exercise price

£nil

£nil

£nil

Assumed volatility at date of award (median of historical 50 day average)

101%

135%

37%

Vesting period (years)

3.0

3.0

3.0

Expected dividend yield

0%

0%

0%

Risk-free discount rate

1.0%

1.0%

1.0%

Weighted average fair value per share awarded

10.75p

16.00p

6.50p

 

 

10. Auditor's remuneration

 

2018

2017

 

£000

£000

Audit of Company and consolidated financial statements by Grant Thornton

49

41

Audit of subsidiaries in Oman and China not by Grant Thornton

10

4

Total audit

59

45

 

 

 

Tax compliance services by Grant Thornton

18

19

Tax compliance services in Oman and China not by Grant Thornton

5

2

Total non-audit services

23

21

 

Total fees to Grant Thornton

67

             60

Total fees not to Grant Thornton

15

              6

 

 

 

Total fees

82

66

 

 

11. Finance income and costs

 

2018

2017

 

£000

£000

Finance income:

 

 

 

 

 

Foreign exchange gains

204

-

Total finance income

(204)

-

Finance costs:

 

 

Foreign exchange losses

-

(354)

Interest on bank loan

(25)

-

Bank and currency charges

              (67)

(27)

Total finance costs

(92)

(382)

Net finance expense/(income)

112

(381)

 

 

12. Taxation

 

12.1 Tax on loss on ordinary activities

 

2018

2017

 

£000

£000

Current tax:

 

 

Foreign Tax Withheld

19

34

Tax in respect of R&D activities

(155)

(184)

Total current tax

(136)

(150)

 

 

 

Deferred tax

 

 

Origination and reversal of temporary differences

(27)

(7)

 

 

 

Total deferred tax

(27)

(7)

Total tax benefit

(163)

(157)

 

 

 

 

12.2 Reconciliation of the total tax charge

The tax on the Group's loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses of the consolidated entities as follows:

 

2018

2017 

 

£000

£000

Loss on ordinary activities before taxation

2,663

5,230

Loss multiplied by the weighted average tax rate of 19% (2017: 19.25%)

506

1,046

Expenses not deductible for tax purposes

(35)

(34)

Capital allowances and other timing differences not recognised

(22)

(31)

Adjustments in respect of prior years

27

7

Re-measurement of deferred tax - changes in UK tax rate

0

0

Foreign Tax Withheld

(19)

(34)

Tax in respect of R&D activities

155

184

Losses not recognised

(449)

(981)

Tax credit

163

157

 

 

 

 

12.3 Deferred tax liabilities

 

2018

2017 

Intangible assets in business combinations

£000

£000

At 1 January

27

29

Adjustments in respect of prior years

-

5

Credited to the statement of comprehensive income

(27)

(7)

At 31 December 

-

27

The deferred tax liability arises from taxable temporary differences on intangible assets recognised on business combinations and is expected to unwind over the useful economic life of these assets. The analysis of deferred tax liabilities is as follows:

 

2018

2017 

 

£000

£000

To be recovered after more than 12 months

-

25

To be recovered within 12 months

-

6

Deferred tax liabilities

-

31

Deferred tax assets of £5,705,000 at 31 December 2018 (31 December 2017: £5,414,000 all related to goodwill).

 

13. Earnings per share

 

13.1 Basic

Basic (loss) per share is calculated by dividing the income / (loss) attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

 

2018

2017 

(Loss) attributable to owners of the parent  (£'000)

(2,170)

(5,073)

Weighted average number of ordinary shares in issue (thousands)

97,792

88,781

Basic loss per share

(2.22p)

(5.71p)

 

13.2 Diluted

As the Group is loss making, the diluted loss per share is equal to the basic loss per share.

 

 

14. Property, plant and equipment

 

 

 

 

 

Furniture,

 

 

Leasehold

Plant and

Motor

Office

fixtures

 

 

improvements

machinery

vehicles

equipment

and fittings

Total

Group

£000

£000

£000

£000

£000

£000

At 1 January 2017

 

 

 

 

 

 

Cost

473

1,712

38

429

210

2,862

Accumulated depreciation

(421)

(1,525)

(38)

(417)

(206)

(2,607)

Net book amount

52

187

-

12

4

255

Year ended 31 December 2017

 

 

 

 

 

 

Opening net book amount

52

187

-

12

4

255

Exchange differences

(8)

(26)

-

-

-

(34)

Additions

-

159

-

3

-

162

Depreciation charge

(44)

(95)

-

(10)

(4)

(153)

Closing net book amount

-

225

-

5

-

230

At 31 December 2017

 

 

 

 

 

 

Cost

446

1,685

38

419

208

2,796

Accumulated depreciation

(446)

(1,460)

(38)

(414)

(208)

(2,566)

Net book amount

-

225

-

5

-

230

Year ended 31 December 2018

 

 

 

 

 

 

Opening net book amount

-

225

-

5

-

230

Exchange differences

-

18

-

-

-

18

Additions

-

55

-

3

2

60

Depreciation charge

-

(105)

-

(3)

(1)

(109)

Closing net book amount

-

193

-

5

1

199

At 31 December 2018

 

 

 

 

 

 

Cost

462

1,775

38

428

210

2,913

Accumulated depreciation

 (462)

(1,582)

(38)

(423)

(209)

(2,714)

Net book amount

-

193

-

5

1

199

 

There were no properties, plant and equipment assets recognised in the Company's Statement of Financial Position as at 31 December 2018 (2017: none).

 

 

 

15. 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 2017

 

 

 

 

 

 

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

Year ended 31 December 2017

 

 

 

 

 

 

Opening net book amount

1,532

549

-

1,307

-

3,388

Additions

-

113

44

-

-

157

Amortisation charge

(1,532)

(104)

-

(251)

-

(1,887)

Closing net book amount

-

558

44

1,056

-

1,658

At 31 December 2017

 

 

 

 

 

 

Cost

13,434

1,033

175

4,008

180

18,830

Accumulated amortisation and impairment charge

(13,434)

(475)

(131)

(2,952)

(180)

(17,172)

Net book amount

-

558

44

1,056

-

1,658

 

 

 

 

 

 

 

Year ended 31 December 2018

 

 

 

 

 

 

Opening net book amount

-

558

44

1,056

-

1,658

Additions

-

71

248

-

-

319

Amortisation/Impairment charge

-

(162)

-

(252)

-

(414)

Closing net book amount

-

467

292

804

-

1,564

At 31 December 2018

 

 

 

 

 

 

Cost

13,434

1,104

423

4,008

180

19,149

Accumulated amortisation and impairment charge

(13,434)

(637)

(131)

(3,204)

(180)

(17,586)

Net book amount

-

467

292

804

-

1,563

 

Additions to patent costs arise from legal and other fees incurred in securing patents.  These are valued at the actual costs related to prosecuting the patents.

 

The goodwill impairment charge for 2018 was £nil (2017: £1,532,000) and there is no goodwill carrying value at 31 December 2018 (2017: £nil).

 

Impairment of other intangible assets

For the purpose of impairment testing, other intangible assets are allocated to the operating segments to which they relate as set out below, and is compared to their recoverable value.

 

The recoverable amounts were determined using the higher of the CGU fair value less costs of disposal (FV) and value in use (VIU) calculations. The fair value less costs of disposal method calculates the fair value of each CGU based on the Company's share price and the selling prices of comparable businesses. The VIU method requires the estimation of future cash flows before tax and the selection of a suitable discount rate in order to calculate the net present value (NPV) of these cash flows. The discount rates applied to each CGU for the value in use projections were between 15% and 20% as outlined below (2017: 15% and 20%) and all assumptions were reviewed at the end of the year and revised where necessary.

 

The key assumptions for the Monitoring Division (including Cymtox Ltd and Modern Water Monitoring Ltd) value in use calculations are sales volume and gross margin. Management's forecasts are based on the current five year business plan and assume the Division delivers, on average, double digit revenue growth and maintains stable profit margins, based on past experience in this market. A discount rate of 15% and a terminal growth rate of 2% were used to calculate the NPV.

 

The estimate of recoverable amount is particularly sensitive to the revenue growth rate and the assumption of a terminal value. This was stress tested by reducing revenue growth by 10% and removing the terminal value entirely which show that no impairment would be recognised.

 

The key assumption for Membrane Division (including Poseidon Water Limited and Aguacure Ltd), value in use calculations is the securing of wastewater contracts over the next five years. Recent interest and sales of the Company's AMBC technology from India and China highlight a substantial market potential in the two largest markets for the Company's technologies.

 

Again, management's forecasts are based on the current five year business plan, which anticipates significant new contract wins for this Division. The early stage of adoption of some of Modern Water's technology means that there remains a significant level of judgement involved in making these sales assumptions. A discount rate of 20% and a terminal growth rate of 2% were used to calculate the NPV.

 

Poseidon Water technology was the basis for the Group's successful bid (in JV with Northumbrian Water) for the contract to build a Sewerage Treatment Plant for the Government of Gibraltar. Given the project is expected to commence this year with the Environmental Impact Assessment (EIA), the planning process and the Advance Works Contract have been completed  management are confident that the full contract will go ahead and therefore remain confident the recoverable value far exceeds the carrying value of the loan balance.

 

The estimate of recoverable amount is particularly sensitive to the revenue growth rate and the assumption of a terminal value. This was stress tested by halving the forecast revenue growth and removing the terminal value entirely which show that no impairment would be recognised.

 

Management is not currently aware of any other reasonably possible changes to key assumptions that would cause a unit's carrying amount to exceed its recoverable amount.

 

The remaining intangible asset value is predominantly our actively managed patent portfolio, which is continually reviewed for impairment in the normal course of business and the individual patents are also amortised on an annual basis over their lives. No impairment of these assets was deemed necessary at year end.

 

There were no intangible assets recognised in the Company's Statement of Financial Position as at 31 December 2018 (2017: none).

 

 

 

16. Investments

 

 

 

Investment in

 

 

 

subsidiary

Company

 

 

£000

Year ended 31 December 2017

 

 

 

Opening book amount

 

 

1,730

Capital contribution relating to share-based payments

 

 

147

 

 

 

 

Closing book amount

 

 

1,877

 

 

 

 

Year ended 31 December 2018

 

 

 

Opening book amount

 

 

1,877

Capital contribution relating to share-based payments

 

 

146

 

 

 

 

Closing book amount

 

 

2,023

 

 

Subsidiary undertakings,

which contribute to the group result

Principal activities

Shareholding%

Status

Modern Water Services Limited

Technical, business development, finance, legal and admin services to the Group companies

100

Subsidiary

Surrey Aquatechnology Limited

Desalination technology

100

Subsidiary

Modern Water Holdings Limited

Holding company for water treatment operating companies

100

Subsidiary

Modern Water Technology (Shanghai) Co., Ltd

Project and operating company in China

100

Subsidiary

Encyclo Water Technology (Zhejiang) Co. Ltd

Business development relating to AMBC

49

JV

Modern Water Technologies LLC

Project and operating company in Oman

70

Subsidiary

MW Monitoring Limited

Holding company for monitoring instrumentation business

100

Subsidiary

Modern Water Inc

Toxicity and environmental monitoring products

100

Subsidiary

MW Monitoring IP Limited

Owner of IP for toxicity and environmental monitoring products

100

Subsidiary

Modern Water Monitoring Limited

Water and soil monitoring products

100

Subsidiary

Cymtox Limited

Toxicity monitoring applications

100

Subsidiary

Aguacure Ltd

Electro-coagulation wastewater treatment systems

100

Subsidiary

Poseidon Water Limited

Saline wastewater treatment systems

51

Subsidiary

Modern Water (Nominees) Ltd

Acquisition and allocation of shares for the Group

100

Subsidiary

Modern Water Inc is a Delaware corporation. Modern Water Technologies LLC is a company registered in Oman.  Modern Water Technology (Shanghai) Co., Ltd and Encyclo Water Technology (Zhejiang) Co. Ltd are companies registered in China. All other subsidiaries are incorporated in England and Wales. Shares held are all ordinary share capital. The Group had no investments in the current or prior year.

 

Impairment of investments

 

No impairment charge has been recognised for the year ended 31 December 2018 (2017: Nil).

 

The recoverable amounts were determined using the higher of the CGU fair value less costs of disposal (FV) and value in use (VIU) calculations and the forecasts used in the assessment along with the key assumptions used are the same as for the other intangible assets impairment assessment as disclosed in Note 15.

 

The estimate of recoverable amount is particularly sensitive to the same assumptions as disclosed in Note 15 and under the same stress tests conducted by management no impairment would be noted.

 

On the 4th of July 2018, Modern Water and Sunup announced the formation of a Joint Venture Company, Encyclo, in China to promote Modern Water's innovative and proprietary brine concentration technology, the AMBC. The company is yet to invest any capital and is committed to contributing $75,950 in respect of this. 49% of Encyclo's shares are owned by Modern Water and 51% by Sunup. This has been accounted for as a joint venture by virtue of the company having joint control as both parties are equally represented on the board of Encyclo. Encyclo has not traded between the acquisition date and the year end.

 

 

17. Inventories

 

Group

 

Company

 

2018

2017

 

2018

2017

 

£000

£000

 

£000

£000

Raw materials

347

307

 

-

-

Work in progress

47

21

 

-

-

Finished goods

541

719

 

-

-

Total inventories

935

1,047

 

-

-

The cost of inventories recognised as expense and included in 'cost of sales' amounted to £1,727,177 (2017: £1,367,000). The carrying value of inventories is net of a £23,000 provision for slow moving and obsolete inventories (2017: £23,000).

 

18. Trade and other receivables

 

Group

 

Company

 

2018

2017

 

2018

2017

 

£000

£000

 

£000

£000

Trade receivables

596

632

 

-

-

Allowance for credit losses

(5)

(7)

 

-

-

Trade receivables - net

591

625

 

-

-

Value added tax

44

47

 

19

15

Other receivables

261

96

 

-

-

Amounts due from subsidiary undertakings

-

-

 

6,451

5,948

Amounts due from non-controlling interests

-

145

 

-

-

Prepayments

118

130

 

8

8

Total trade and other receivables

1,014

1,043

 

6,478

5,971

 

 

The amounts due from subsidiary undertakings are unsecured, bear no interest and are repayable on demand. As at 31 December Group trade receivables of £224k (2017: £90k) were past due, of which £5,000 was provided against (2017: £7,000). The ageing of these receivables is as follows:

 

Group

 

2018

2017

 

£000

£000

Up to 3 months past due date

103

53

3 to 6 months past due date

41

29

More than 6 months past due date

80

7

Trade receivables past due date

224

89

Trade receivables not yet due and not considered impaired

372

543

Total trade receivables

596

632

The carrying amounts of the Group's trade receivables are denominated in the following currencies:

 

Group

 

2018

2017

 

£000

£000

UK pound sterling

243

59

US dollar

196

534

Omani rial

-

31

Euro

157

8

 

596

632

The Company has no trade receivables

 

Movements on the Group's allowance for credit losses of trade receivables are as follows:

 

Group

 

2018

2017

 

£000

£000

At 1 January

7

12

Allowance for credit losses

(2)

(5)

 

5

7

The Company had no trade and other receivables past due but not impaired (2017: £nil). The directors believe that the carrying value of the Company's receivables from subsidiary undertakings is supported by their expected future cash flows.

 

 

 

19. Cash

 

19.1 Cash and cash equivalents

 

Group

 

Company

 

2018

2017

 

2018

2017

Cash and cash equivalents

£000

£000

 

£000

£000

Cash at bank

228

466

 

-

234

Cash at bank and in hand

228

466

 

-

234

               

 

 

19.2 Credit quality of cash and cash equivalents

 

Group

 

Company

 

2018

2017

 

2018

2017

Short term

Long term

£000

£000

 

£000

£000

P-1

AA

47

283

 

-

234

P-1

A

181

183

 

-

-

Cash at bank and in hand

228

466

 

-

234

                 

The credit quality of the cash and cash equivalents is assessed using Moody's short and long term ratings. 

 

 

20. Trade and other payables

 

Group

 

Company

 

2018

2017

 

2018

2017

Current

£000

£000

 

£000

£000

Trade payables

629

475

 

163

73

Social security

117

44

 

19

6

Accruals and contract liabilities

591

217

 

7

30

 

 

 

 

 

 

Total trade and other payables

1,337

736

 

189

109

 

 

21.  Borrowings

 

Group

 

Company

 

2018

2017

 

2018

Current

£000

£000

 

£000

£000

Bank loan

532

-

 

532

-

Total borrowings

532

-

 

532

-

 

Bank borrowings are unsecured. The bank loan is a Floating Rate Basis Term Loan with an interest rate of bank base rate plus 8%. The carrying amount of the bank loan is considered to be a reasonable approximation of the fair value

 

The bank loan has a financial covenant that EBITDA is at least 80.00% of the EBITDA for the corresponding Relevant Period as set out in the Group Budget. A covenant on the bank loan was breached as at 31 December 2018, but the bank has waived this breach post year-end and reset the covenant.

 

 

22. Financial instruments by category

The accounting policies for financial instruments have been applied to the line items below. The fair value of the assets and liabilities is equal to their carrying value.

 

2018

2017

Group

Loans and receivables

amortised at cost

 

Loans and receivables

amortised at cost

 

 

£000

 

£000

 

Assets as per statement of financial position

 

 

 

 

Trade and other receivables*

852

 

866

 

Cash and cash equivalents

228

 

466

 

Total

1,080

 

1,332

 

 

Financial liabilities at amortised cost

 

Financial liabilities at amortised cost

 

 

£000

 

£000

 

Liabilities as per statement of financial position

 

 

 

 

Trade and other payables**

688

 

692

 

Barclays loan

532

 

-

 

Total

1,220

 

692

 

 

 

2018

2017

Company

 

 

Loans and receivables

at amortised cost

 

Loans and receivables

at amortised cost

 

 

 

 

£000

 

£000

 

Assets as per statement of financial position

 

 

 

 

Trade and other receivables*

 

 

6,451

 

5,948

 

Cash and cash equivalents

 

 

-

 

234

 

Total

 

 

6,451

 

6,182

 

 

 

 

Financial liabilities at amortised cost

 

Financial liabilities at amortised cost

 

 

 

 

£000

 

£000

 

Liabilities as per statement of financial position

 

 

 

 

Trade and other payables**

 

 

170

 

103

 

Total

 

 

170

 

103

 

* excludes prepayments and VAT

** includes accruals, but excludes social security

Included in the cash and cash equivalents of the Group and Company at 31 December 2018 was the equivalent of £158,000 (2017: £229,000) denominated in US dollars, £8,572 (2017: £10,000) denominated in Euros, £2 in Omani Rials (2017:  £4,000) and £Nil in Chinese Yuan (2017: £14,000). The balance was denominated in pounds sterling (£). See note 18 for denomination of trade receivables by currency.

 

23. Commitments and contingencies

 

23.1 Group operating leases

Future aggregate minimum lease payments under non-cancellable operating leases as at 31 December are as follows:

 

 

Group

 

2018

2017

 

 

 

 

£000

£000

Not later than one year

 

 

 

206

214

After one year but not more than five years

 

 

 

810

495

More than 5 years

 

 

 

-

-

Group operating leases

 

 

 

1,017

708

The Group's operating leases relate to property and office equipment and have remaining terms up to five years. The amount recognised as an expense in the year is £155,000 (2017: £290,000). The Company does not have any operating lease commitments (2017: none).

 

23.2 Contingent liabilities

Neither the Group nor the Company had any contingent liabilities at the balance sheet date (2017: £nil).

 

 

24. Share capital and share premium reserve

 

 

 

 

 

2018

2017

 

 

 

 

£000

£000

Ordinary shares issued and fully paid

 

 

 

 

 

 

-  Beginning of the year

-  Share issue, private placement

 

 

 

 

95,405,705

8,813,763

79,505,256

15,900,449

Shares issued and fully paid

 

 

 

 

104,219,468

95,405,705

 

On 5 July 2018, Modern Water announced that Hangzhou Shangtuo Environmental Technology Co. Ltd ("Sunup") had agreed to subscribe for 5,021,353 new ordinary shares which were admitted to trading on AIM on 24 August 2018. And on 29 October 2018, the Company announced that as a result of an Open Offer it would issue 3,792,410 new shares of 0.25p each. The shares were admitted to trading on AIM on 2 November 2018. Each share has the same right to receive dividends and the repayment of capital and represents one vote at the shareholders meetings of Modern Water Plc. The Company has no shares in Treasury; therefore the total number of voting rights in Modern Water following the above transactions is 104,219,468.

 

Proceeds received in addition to the nominal value of the shares issued during the year have been included in the share premium reserve, less registration and other regulatory fees and net of related tax benefits. Costs of new shares charged to the equity amounted to £40,922 (2017: £137,000). The difference between the below figure and balance sheet £42,613 is the cost of issued up to date of £177, 922).

 

 

 

Allotted and fully paid ordinary shares

Allotted and fully paid ordinary shares

Share premium

Total

Group and Company

 

Number

£000

£000

£000

At 1 January 2017

 

79,505,256

199

40,032

40,231

At 31 December 2017

 

95,405,705

239

41,604

41,843

At 31 December 2018

 

104,219,468

261

42,419

82,074

 

24.1 Merger reserve

The merger reserve balance of £398,000 (2017: £398,000) relates solely to the 2011 acquisition of Cogent Environmental Limited.

 

24.2 Foreign exchange reserve

The foreign exchange reserve balance of negative £669,000 (2017: negative £165,000) is the cumulative annual revaluation of our international subsidiaries in Oman, China and the USA.   

 

 

24.3 Warrant Reserve

 

The Warrant Reserve balance relate to the Subscription of ordinary share capital issued at 4 July 2018 of 5,021,353 to Hangzhou Shangtuo Environmental Science and Technology Co. Ltd ("Sunup"). Upon completion Sunup were granted warrants over an additional 5,021,353 new Ordinary Shares pursuant to the terms set out in the attached Warrant Instrument and agreed to issue a Warrant Certificate. The warrants will expire on the 20th of August 2019.

 

The fair value of the warrants granted is estimated as at the date of grant using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted. 

 

 

 

 

21 Aug

 

Grant date

 

 

 

2018  

Share price at date of award

 

 

 

0.09  

Number of shares options granted

 

 

 

5,021,353  

Exercise price

 

 

 

£0.13  

Assumed volatility at date of award (median of historical 50 day average)

 

 

 

101%  

Expected life of option

 

 

 

1  

Expected dividend yield

 

 

 

0  

Risk-free discount rate

 

 

 

1%  

Fair value per share awarded

 

 

 

    9.10

 

               

 

 

 

 

25. Capital management policies and procedures

The Groups capital management objectives are;

·      to ensure the Group's ability to continue as a going concern

·      to provide an adequate return to shareholders by pricing products and services in a way that reflects the level of risk involved in providing those goods and services.

 

As at 31 December 2018 the Group will seek to manage its capital in accordance with covenants in the terms of any loan agreement.

 

The amounts managed by the Group for the reporting periods under review are summarised as follows;

 

 

 

 

 

 

2018

2017

 

 

 

 

£000

£000

Total equity

 

 

 

 

2,070

3,681

Cash and cash equivalents

 

 

 

 

(228)

(466)

Capital

 

Total equity

 

 

 

 

1,842

 

2,070

3,215

 

3,681

Borrowings

 

 

 

 

(532)

-

Overall financing

 

 

 

 

 

1,538

3,681

Capital to overall financing ratio

 

 

 

 

1.20

0.87

 

 

26. Related party transactions

IP Group plc held 15.35% of the ordinary share capital of the Company as at 31 December 2018 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 year were £45,139 (2017: £30,000) and as at 31 December 2018 £45,139 (2017: £7,500) was outstanding under this agreement.

 

Piers Clark is a director of the Company and therefore a related party. Piers Clark signed a services agreement with the Company, dated 2 January 2018, relating to his services as a non-executive director. Fees for the year were £30,000 (2017: £nil). As at 31 December 2018, £15,000 (2017: £nil) 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, but require disclosure in the Company accounts.

 

The Company had receivable balances at 31 December 2018 with its subsidiary companies to fund working capital and acquisition of investments. No interest is charged on these balances, which are as follows:

 

 

2018

 

2017

 

Balance

Provision

 

Balance

Provision

 

£000s

£000s

 

£000s

£000s

Modern Water Services Limited

25,720

22,000

 

24,426

22,000

Surrey Aquatechnology Limited

1,535

1,530

 

1,531

1,530

Poseidon Limited

197

196

 

196

196

AguaCure Limited

218

218

 

191

191

Total Membrane Division

27,670

23,944

 

26,344

23,917

 

 

 

 

 

 

MW Monitoring Limited

4,638

2,500

 

5,291

2,500

Modern Water Monitoring Limited

3,137

3,115

 

3,189

3,000

Modern Water Holdings Limited

553

-

 

541

-

Cymtox Limited

711

699

 

378

378

Total Monitoring Division

9,039

6,314

 

9,399

5,878

 

 

 

 

 

 

Group Total

36,709

30,258

 

35,743

29,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual General Meeting

The Annual General Meeting of Modern Water plc is to be held at 2.00pm on 22 May 2019 at the offices of Modern Water plc, Bramley House, The Guildway, Old Portsmouth Road, Guildford, GU3 1LR.

Availability of Accounts

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.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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