Interim results for Modern Water show revenue of £1.56 million to 30 June 2017, up from £1.14m for H1 2016 but less than £2.49m for H2 2016. Loss before tax was £1.79m, up from £1.72m in H1 2016 and £0.85m for H2 2016. The board can, and does, claim progress over H1 2016 but overall results are disappointing.
Modern Water was formed in 2006 from a small group of companies involved in water treatment and measurement. It listed on AIM in 2007 and acquired a US measurement company in 2011. It now has some 45 employees in two divisions: Membrane and Monitoring.
The Membrane division is mainly concerned with the desalination of salty water using osmosis through suitable membranes. Modern Water is a leader in the use of forward osmosis, a version that uses less energy. The division also offers products for treatment of wastewater.
However although the company has invested much effort in this field and holds some 90 patents, the division did not produce an annual revenue above £60,000 before 2016. Thus the revenues of £148k in 2016 and of £301k for H1 2017 are something of a breakthrough, even if the numbers are still small. Success is ascribed to a new wastewater treatment contract in India and sales or consultancy for desalination plants in Oman and China.
The company has been kept afloat by the Monitoring division, which has provided revenues of around £3000k for each of the last five years, and in 2016 for the first time had a small positive earnings before interest, tax, depreciation and amortization. This division is based in Delaware but sells around the world.
Revenue comes from services or royalties as well as sales of equipment. Clients are industrial or municipal organisations who need to measure contaminants in water, in particular toxicity and trace metals. Toxicity is measured using bioluminescence: bacteria that emit light except when certain toxic substances are present. Trace metals are detected by measuring the electrical response of the water in a cell.
Clean water is number six on the UN’s list of sustainable development goals, one above affordable and clean energy and no less than seven above climate action. Modern Water’s products help towards this goal, making it a good market to be in. Investors seem to think so too. In May the company raised a net £1.61m by issuing 15.9m shares, even though it has never made a profit and currently burns cash at over £2m per year.
In the long run Modern Water’s more sophisticated solutions need to prove themselves in a crowded market, so that the company can move from being a niche provider to a more commercial operation. To this end the significant increase in revenue from the Membrane division is encouraging. The share price now runs at 9.5p, up from an average of 6.5p in 2016.