TIDMMWG
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(R) LX laboratory-based toxicity testing technology
-- ASTM approved method for SRB testing achieved
Financial
-- Revenue increased 18% to GBP4.2m (2017: GBP3.5m)
-- Gross profit increased 31% to GBP2.3m (2017:GBP1.8m)
-- Operating loss before tax, interest, depreciation, amortisation was GBP2.1m (2017: GBP2.8m)
-- Total comprehensive loss for the year was GBP2.8m (2017: GBP5.0m)
-- Cash outflow before financing in 2018 was GBP1.7m (2017: GBP2.2m)
-- Cash as at 31 December 2018 was GBP0.2m (2017: GBP0.5m)
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 GBP4.2m (2017: GBP3.52m) and GBP2.3m (2017: GBP1.8m)
respectively. These results generated a loss before tax, interest,
depreciation and amortisation of GBP2.1m (2017: GBP2.8m), 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. GBP340,000 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. GBP550,000
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
GBP25m.
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 4(th) 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 4(th) 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
GBP1.4m in 2018 (2017 GBP1.0m).
Capital Raise
In October, the Company issued 3,792,410 new ordinary shares,
which successfully raised GBP310,864 (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
GBP552,348.83 (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(R) 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 GBP4.2m (2017: GBP3.5m);
-- Gross profit increased 31% to GBP2.3m (2017:GBP1.8m);
-- Operating loss before tax, interest, depreciation, amortisation was GBP2.1m (2017: GBP2.8m)
-- Total comprehensive loss for the year was GBP2.8m (2017: GBP5.0m)
-- Cash outflow before financing in 2018 was GBP1.7m (2017: GBP2.2m); and
-- Cash as at 31 December 2018 was GBP0.2m (2017: GBP0.5m).
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
GBP72,000 (2017: GBP165,000). The Group has benefited from the HMRC
R&D tax credits scheme with the receipt of GBP155,386 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 GBP0.2m cash in the bank and a bank loan of
GBP0.5m at 31 December 2018 (2017: GBP0.5m cash). The Monitoring
Division ended the year with an order book of GBP368,000. The
overall loss before interest, tax, depreciation and amortisation
decreased to GBP2.1m (2017: GBP2.8m).
The Group generated revenues of GBP4.2m in 2018 (2017: GBP3.5m).
Total comprehensive loss was GBP2.8m (2017: GBP5.0m, GBP3.5m before
goodwill impairment).
Cash Flows
The Group cash outflow for the year was GBP1.4m (2017: GBP2.2m)
and during the year a net GBP0.9m was raised through the issue of
new equity.
Cash inflow from R&D tax credits was GBP0.2m (2017:
GBP0.2m). Cash outflows comprised GBP0.1m on property, plant and
equipment (2017: GBP0.2m), GBP0.3m on patents (2017: GBP0.1m) and
GBP1.4m on operating activities (2017: GBP1.9m).
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
GBP2.3m and has net cash out flows from operating activities of
GBP1,352,000. 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 GBP0.5m 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 GBP000 GBP000
----------------------------------------------------------------------- ------ -------- --------
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 GBP000 GBP000 GBP000 GBP000
------------------------------- ----- --------- --------- --------- ---------
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
Share Foreign (Accumulated losses)/
Ordinary premium Warrant Merger exchange Retained Non-controlling Total
shares Account reserve reserve Reserve Earnings Total interest Equity
Group Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
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 GBP000 GBP000 GBP000 GBP000
-------------------------------------- ----- -------- -------- -------- --------
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
GBP2.3m and has net cash out flows from operating activities of
GBP1,352,000. 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 GBP0.5m 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 GBP1,390,000 (2017
loss of: GBP1,421,000).
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 (GBP), 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
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ------------ -------------------------- ----------- --------- ----------- -------- --------
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 GBP3,678,000 (2017:
GBP3,149,000) from sale of goods and services and GBPnil (2017:
GBPnil) revenue from royalties on a point in time basis.
The Membrane Division recognised GBP481,000 (2017: GBP369,000)
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
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ ---------- ----------- ------- ---------- ----------- -------
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 Intangible assets Property, plant and Intangible assets
equipment including goodwill Total equipment including goodwill Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- -------------------- -------------------- ------- --------------------- -------------------- -------
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
GBP000 GBP000
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 GBP000 GBP000
-------------------------------------------------------------------------------------------- ------ ------- -------
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 GBP000 GBP000 GBP000 GBP000
---------------------------- ----- ------- -------- ------- --------
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 GBP143,931 (2017: GBP142,597). The highest
paid director received GBP143,931 (2017: GBP142,597), excluding
pension contributions. There were no gains made by directors on the
exercise of share options (2017: GBPnil). No money was received by
directors under long term incentive schemes (2017: GBPnil). The
executive director, who was also the highest paid director, in
total received GBPnil in cash bonuses relating to 2018 performance
(2017: GBP12,000). The Group paid GBP13,749 (2017: GBP14,000) to
the executive director in respect of money purchase pension
schemes. Total remuneration for non-executive directors was
GBP90,000 (2017: GBP60,000). 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
GBP000 GBP000 GBP000 GBP000
----------------------------------------------------------------------------- ------- -------- ------- --------
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 GBP169,000 (2017: GBP162,000) share-based
payment charge of which a charge of GBP21,000 (2017: GBP16,000) was
recognised in the Company's Statement of Comprehensive Income for
its employees and a further GBP147,000 (2017: GBP146,000) to the
employees of subsidiary undertakings. The charge for equity-settled
share-based payments to the employees of the Company's subsidiaries
of GBP147,000 (2017: GBP146,000) 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 2,060,000
--------------------- -------------------- ----------
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 GBPnil GBPnil GBPnil
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 GBPnil GBPnil GBPnil
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
GBP000 GBP000
-------------------------------------------------------------------------- ------- ---------------
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
GBP000 GBP000
------------------------------ ------------------ -------
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
GBP000 GBP000
--------------------------------------------------- ------- -------
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
GBP000 GBP000
------------------------------------------------- ------- -------
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 GBP000 GBP000
--------------------------------------------------- ------- -------
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
GBP000 GBP000
------------------------------------------- -------- -------
To be recovered after more than 12 months - 25
To be recovered within 12 months - 6
------------------------------------------- -------- -------
Deferred tax liabilities - 31
------------------------------------------- -------- -------
Deferred tax assets of GBP5,705,000 at 31 December 2018 (31
December 2017: GBP5,414,000 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
(GBP'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 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ------------- ---------- --------- ---------- ------------- --------
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
Research and
development,
and patented Customer
technology contracts
acquired as acquired as
part of a part of a
Patent and Development business business
Goodwill trademark costs costs combination combination Total
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- --------- ---------------- ---------------- --------------- ---------------- ---------
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 GBPnil (2017:
GBP1,532,000) and there is no goodwill carrying value at 31
December 2018 (2017: GBPnil).
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 GBP000
------------------------------------------------------- --------------
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
-------------------------------------------- ------------------------------------------- -------------- -----------
Technical, business development, finance,
legal and admin services to the Group
Modern Water Services Limited companies 100 Subsidiary
Surrey Aquatechnology Limited Desalination technology 100 Subsidiary
Holding company for water treatment
Modern Water Holdings Limited 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
Holding company for monitoring
MW Monitoring Limited instrumentation business 100 Subsidiary
Toxicity and environmental monitoring
Modern Water Inc products 100 Subsidiary
Owner of IP for toxicity and environmental
MW Monitoring IP Limited monitoring products 100 Subsidiary
Modern Water Monitoring Limited Water and soil monitoring products 100 Subsidiary
Cymtox Limited Toxicity monitoring applications 100 Subsidiary
Electro-coagulation wastewater treatment
Aguacure Ltd systems 100 Subsidiary
Poseidon Water Limited Saline wastewater treatment systems 51 Subsidiary
Acquisition and allocation of shares for
Modern Water (Nominees) Ltd 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 4(th) 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
GBP000 GBP000 GBP000 GBP000
------------------- ------- ------- ------- -------
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 GBP1,727,177 (2017: GBP1,367,000). The
carrying value of inventories is net of a GBP23,000 provision for
slow moving and obsolete inventories (2017: GBP23,000).
18. Trade and other receivables
Group Company
---------------- ----------------
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
-------------------------------------------- ------- ------- ------- -------
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 GBP224k (2017: GBP90k) were past due, of which
GBP5,000 was provided against (2017: GBP7,000). The ageing of these
receivables is as follows:
Group
----------------
2018 2017
GBP000 GBP000
----------------------------------------------------------- ------- -------
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
GBP000 GBP000
------------------- ------- -------
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
GBP000 GBP000
----------------------------- ------- -------
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: GBPnil). 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 GBP000 GBP000 GBP000 GBP000
--------------------------- ------- ------- ----------- -------
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 GBP000 GBP000 GBP000 GBP000
--------------- ------------ ------- ------- ----------- -------
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 GBP000 GBP000 GBP000 GBP000
----------------------------------- ------- ------- ------- -------
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 2017
Current GBP000 GBP000 GBP000 GBP000
------------------ ------- ------- ------- -------
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
Loans and receivables Loans and receivables
Group amortised at cost amortised at cost
GBP000 GBP000
------------------------------------- ------------------------------------ -------------------------------------
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 Financial liabilities at amortised
cost cost
GBP000 GBP000
------------------------------------- ------------------------------------ -------------------------------------
Liabilities as per statement of
financial position
Trade and other payables** 688 692
Barclays loan 532 -
------------------------------------- ------------------------------------ -------------------------------------
Total 1,220 692
------------------------------------- ------------------------------------ -------------------------------------
2018 2017
Loans and receivables Loans and receivables
Company at amortised cost at amortised cost
GBP000 GBP000
----------------------------------- ---------------------------------- -----------------------------------
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 Financial liabilities at amortised
amortised cost cost
GBP000 GBP000
----------------------------------- ---------------------------------- -----------------------------------
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 GBP158,000 (2017:
GBP229,000) denominated in US dollars, GBP8,572 (2017: GBP10,000)
denominated in Euros, GBP2 in Omani Rials (2017: GBP4,000) and
GBPNil in Chinese Yuan (2017: GBP14,000). The balance was
denominated in pounds sterling (GBP). 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
GBP000 GBP000
--------------------------------------------- ------- -------
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 GBP155,000 (2017:
GBP290,000). 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: GBPnil).
24. Share capital and share premium reserve
2018 2017
---------------------------------------
GBP000 GBP000
--------------------------------------- ---- ---- ---- ---- ------------ ------------
Ordinary shares issued and fully paid
- Beginning of the year 95,405,705 79,505,256
- Share issue, private placement 8,813,763 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 GBP40,922 (2017: GBP137,000). The difference between
the below figure and balance sheet GBP42,613 is the cost of issued
up to date of GBP177, 922).
Allotted and fully paid Allotted and fully paid ordinary
ordinary shares shares Share premium Total
--------------------- -------------------------------- --------------------------------- -------------- -------
Group and Company Number GBP000 GBP000 GBP000
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 GBP398,000 (2017: GBP398,000)
relates solely to the 2011 acquisition of Cogent Environmental
Limited.
24.2 Foreign exchange reserve
The foreign exchange reserve balance of negative GBP669,000
(2017: negative GBP165,000) 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 GBP0.13
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
------------------------------------
GBP000 GBP000
------------------------------------ ------- -------
Total equity 2,070 3,681
Cash and cash equivalents (228) (466)
---------------------------------------- ------- -------
Capital 1,842 3,215
Total equity 2,070 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 GBP45,139 (2017: GBP30,000) and as at 31 December
2018 GBP45,139 (2017: GBP7,500) 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 GBP30,000 (2017: GBPnil). As at 31
December 2018, GBP15,000 (2017: GBPnil) 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
GBP000s GBP000s GBP000s GBP000s
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
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END
FR EAKLPFSPNEFF
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