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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Modern Water Plc | LSE:MWG | London | Ordinary Share | GB00B1XF5X66 | ORD 0.25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 2.45 | 2.40 | 2.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
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
Hot Features
Premium
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 Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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April 18, 2019 13:19 ET (17:19 GMT)
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