Final Results

RNS Number : 3367F

Watermark Global PLC

14 June 2012

 

13 June 2012

Watermark Global Plc

Preliminary Results for the year ended 31 December 2011

Watermark Global Plc (AIM: WET) ("Watermark" or " the Company"), a company listed on  AIM with a focus on Acid Mine Drainage ("AMD") treatment and coal briquetting in South Africa, announces its audited results for the year ended 31 December 2011 .

Results Summary

The loss from ordinary activities for the year ended 31 December 2011 was £996,842 (2010: loss £1,086,292) resulting in a loss of 0.08p (2010: loss 0.13p) per share.  The Company has continued to generate an operating loss whilst awaiting the outcome of the South African Government's decision relating to the implementation of a plan for treating AMD. 

Prior to the year end, Watermark entered  into  an    agreement to   sell  its wholly-owned  operating subsidiary, Western Utilities Corporation (Pty.) Ltd ("WUC") to Capricorn Investment Holdings  Limited ("Capricorn")(which is in the process of being renamed Mine Restoration Investments Limited ("MRI")) for  a consideration of £4.50 million comprising £1.81 million in cash and £2.69 million in Capricorn shares.   Subsequent to the year-end the shareholders of both Watermark and Capricorn have approved the transaction and all suspensive conditions have been achieved other than the listing of the MRI shares on the Johannesburg Stock Exchange ("JSE"), which is due to occur on or around 25 June 2012.

In order to ensure that MRI raised R40 million in additional equity to fund the cash element of the consideration payable to Watermark and provide growth capital for WUC, following the withdrawal of a third party investor the Company has entered into an interest bearing loan agreement with  Trinity Asset Management (Proprietary) Limited ("TAM") to the value of R20 million. TAM will seek to place the MRI shares with investors and repay the loan and pending repayment of the loan the Company will benefit from a charge over approximately 105 million MRI shares.  The Company has the option to acquire these shares at R0.19 and if the loan is not repaid by 12 September 2012 at R0.20 per share, the Company can elect to sell the shares at the market price.  The Company is indemnified against any loss (the difference between R0.20 per share and the market related price) by TAM. The Board's expectation is, therefore, that the Company will receive consideration of approximately £4.5 million in aggregate of which approximately £2.69 million will be in shares in MRI (at a value of R0.19 per share), approximately £0.26 million in cash, on issue of the shares and approximately £1.55m in cash before 12 September 2012. A further £0.32m will be paid on issue of the shares in respect of the investment in and funds advanced to Octavovox (Pty) Ltd and Prodiflex (Pty) Limited.

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2011, but is derived from those accounts.  Statutory accounts for 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.  The auditors have reported on those accounts and their report was not qualified.

Annual General Meeting

The Annual General Meeting of the Company will be held on 28 June 2012 at 10.00 am at 42, Queen Anne's Gate,  London SW1H 9AP.  Notice of the meeting was sent to shareholders on 6 June 2012. A copy of the report and accounts will be made available on the Company's website www.watermarkglobalplc.com

Enquiries

Watermark Global plc                                                  

Peter Marks, Chairman                                                 Tel: + 44(0) 20 7233 1462

Jaco Schoeman, Chief Executive Officer               Tel: + 44(0) 20 7233 1462

[e-mail]

Nominated Adviser: Cenkos Securities

Ian Soanes                                                                          Tel: [phone]

Investor Relations

Charles Zorab                                                                    Tel: + 44(0) 20 7233 1462

[e-mail]

CHAIRMAN'S STATEMENT

2011 was a significant year for the Company as we agreed to acquire the coal briquetting project and reduce our dependence on treatment of AMD.   We also agreed a transaction relating to the sale of our operating subsidiary, Western Utilities Corporation (Pty) Limited ("WUC").  This will provide Watermark with a substantial cash payment and a significant on-going interest in WUC and provide the operating businesses greater financing security for the future.

Due to circumstances beyond our control, there was very limited progress made in terms of treatment of AMD involving ourselves, apart from the sale of a small part of our intellectual property which formed part of our Definitive Feasibility Study.  This sale, for £120,000, was a poor return for the enormous effort which we have put into the project over the years. The appointment of Trans Caledon Tunnel Authority (TCTA) as the implementation agent of the government for the short term solution was welcomed by everyone as a signal that treatment of AMD was at last being addressed seriously by the government in South Africa.

Unfortunately, the government omitted to give them a sufficient budget to get the job done properly.  Thus, the short term solution is a "band-aid" fix involving neutralizing the toxic water, but not removing the sulphates, thereby rendering the water unusable albeit less polluting.  At the same time, the Department of Water Affairs commenced a tender process for the feasibility study to develop a Long Term Solution. This process is envisaged to take up to 18 months from the date the tender is awarded.  Implementation of any project could be up to two years away at the earliest from when final decisions are made.

Therefore, whilst your Board remains of the view that the AMD project is still a very strong long-term investment which has the potential for significant value not only for Shareholders, but for the South African Government, the associated mining houses and the people of South Africa, it began assessing options for preserving value in Watermark in the intervening timeframe and stabilising the Company from a financing perspective.  Although Watermark's water treatment technology is acknowledged as being the lowest cost and most appropriate technology as recorded in the Inter Ministerial Committee (IMC) report released by the South African government, it has not yet been granted the rights to implement its project.  Instead, TCTA will liaise with a number of interested parties including Watermark to develop and implement a short-term solution (over the next three years) for AMD in the three basins.

In light of this prevarication, the Board decided in the middle of the year to begin looking for alternative investment opportunities where the Company could be more in control in terms of a return for shareholders.  We announced in November that we were investigating an exciting project in coal briquetting in KwaZulu Natal.  In order to provide greater security of financing for the Company and our businesses in future, in December we agreed terms for the exchange of our wholly-owned subsidiary, WUC, for a mix of cash and shares in a South African company,  Mine Restoration Investments Limited ("MRI"), which was previously named Capricorn Investment Holdings Limited. Watermark will receive an aggregate of £1.81 million in cash (gross of transaction costs) and £2.69 million in shares of MRI giving a total consideration of £4.50 million.  It has subsequently been agreed that approximately £1.55m of the proceeds will be lent for up to three months to an existing shareholder of MRI, secured against 105 million MRI shares with a guaranteed minimum share price on disposal of Rand 0.20p per share.

Capricorn, a suspended cash shell listed on the JSE, acquired WUC from the Company, undertook a number of restructure initiatives including the change of name to MRI as part of the acquisition transaction and has applied for the lifting of the suspension of the shares and listing on the Alternative Exchange of the JSE under the name MRI.

Following completion of the transaction, it is expected that Watermark will hold approximately 40% of the enlarged share capital of MRI and thereby, indirectly, of WUC.  Importantly, MRI undertook a fundraising in connection with the transaction and intends to use a portion of the proceeds to fund WUC's coal briquetting project. The transaction will allow shareholders to retain a significant interest in Watermark's core AMD project and gain exposure to other potentially valuable projects whilst reducing financial risk. The relationship with MRI will provide on-going access to finance for WUC's projects, enabling Watermark shareholders to benefit from the development of those projects without further share issues by Watermark which, in the current climate, and given current market conditions, would be highly dilutive.

Following completion of the transaction the Company will become an investment company as opposed to an operating company.  

Coal Briquetting

On 15 December 2011, WUC entered into agreements to acquire 50% of the issued share capital of a South African registered company Prodiflex (Pty) Limited ("Prodiflex") that owns intellectual property in the binder, formulae and processes to be used in the briquetting of coal fines, for the sum of Rand 1,000,000 as well as 51% of the issued share capital of Octavovox (Pty) Ltd ("Octavovox"), a South African registered company, also for the total sum of Rand 1,000,000.

Octavovox has entered into an off-take agreement with an anthracite producing colliery located in Northern Kwazulu Natal, South Africa, to process coal fines into briquettes at a rate of approximately 5,000 tons per month.  The quality of the material and briquettes makes it highly sought after in the metallurgical industry. The Mine will have the right of first refusal to acquire the briquettes at a discount to the spot price.

WUC has also entered into a loan agreement with Octavovox to enable Octavovox to acquire assets for the installation and assembly of the production plant and to put the production plant into operation. The loan, for an initial amount of Rand 2,607,605 with a facility for an additional Rand 12,800,000, is repayable on or before 31 December 2015 and will be secured by a notarial covering  bond over the assets to be acquired by Octavovox.  Under the terms of a shareholders agreement entered into with the other shareholders of Octavovox it is anticipated that WUC will continue to finance Octavovox's operations in proportion to its shareholding.

The coal briquetting project processing facility will be located immediately adjacent to the washing plant where there is already infrastructure established by the mine, which will significantly reduce the capital costs that WUC would ordinarily require for a project of this magnitude. WUC will also make use of the mine's already established distribution network. There are opportunities to tap into other operational and financial synergies that would further reduce the operational costs of WUC.

MRI has entered into an agreement to refund the Company the costs of the acquisitions of shares in Prodiflex and Octavovox as well as the initial amounts to be loaned to Octavovox post completion of the Transaction.

By way of background, coal fines arise from the washing of lump coal and are an unwanted by-product - they are not marketable and represent an environmental hazard. Briquetting can transform these fines into a saleable product at full market price.  There is scope for briquetting at many other coal mining projects in South Africa .The anthracite colliery in KwaZulu Natal has 450,000 tonnes of coal fines available.  The fines will be briquetted in a roller press with the use of binder material.  The mine has reserves of 105 million tonnes of good quality bituminous coal and high grade anthracite.  Procurement and construction of the briquetting plant is estimated to take 9 months and production of fines is estimated will be 5,800 tonnes per month.  The sales price will be directly related to the anthracite spot price at a discount to the mine and currently would be approximately Rand 720 per tonne.

Corporate

During the year, we welcomed Hartley Dikgale to the board as he replaced Adam Gunn.  Adam helped enormously with his knowledge of environmental legislation.  His new role at 1^st Uranium meant he could not devote the same amount of time to board matters as before.  Hartley is also a lawyer and general counsel at Rand Uranium (now Gold One International), so we are not without legal representation on the board which will be invaluable to us.  Jaco Schoeman, who has originated and managed the transaction with MRI, will be stepping down as CEO of Watermark.  He has taken up a position as an executive with DRD Gold.  I am pleased to say he will be staying on the board as a non-executive director. He will also be our representative on the board of MRI as interim Chief Executive Officer.

On behalf of the Board, I would like to thank all shareholders and other stakeholders for their on-going support for the Company during what has been a very challenging year. With the completion of the sale of WUC to MRI, due this month, the company will begin a new phase in its development. We look forward to bringing you further updates over the coming months.

Peter Marks

Chairman

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2011

	Note	2011	2010
		£	£
Continuing operations
Revenue		-	-
Cost of sales		-	-
Gross profit		-	-
Interest income		1,329	694
Depreciation		(140)	(140)
Employee benefit expenses		(80,000)	-
Consulting expenses		(208,193)	(69,300)
Other expenses		(532,665)	(319,283)
Loss before tax		(819,669)	(388,029)
Taxation		-	-
Loss for the year from continuing operations		(819,669)	(388,029)
Discontinued operations
Loss for the year from discontinued operations	4	(177,173)	(698,263)
Loss for the year		(996,842)	(1,086,292)
Other comprehensive income
Exchange differences on translating foreign operations
Exchange differences arising during the year		(69,786)	147,677
Total comprehensive income for the year		(1,066,628)	(938,615)
Loss per share		Pence	Pence
Basic and fully diluted
From continuing operations	3	(0.06)	(0.05)
From discontinued operations	3	(0.02)	(0.08)
From continuing and discontinued activities		(0.08)	(0.13)

Consolidated Statement of Financial Position

As at 31 December 2011

	Note	2011	2010
		£	£
Assets
Non-Current assets
Intangible assets		-	-
Property, plant and equipment		211	351
		211	351
Current assets
Trade and other receivables		32,563	1,227
Cash and cash equivalents		764,280	347,833
		796,843	349,060
Assets of disposal groups classified as held for sale	5	3,662,716	3,535,759
		4,459,559	3,884,819
Total assets		4,459,770	3,885,170
Equity and liabilities
Ordinary shares		2,247,060	1,454,310
Share premium account		10,856,029	9,808,072
Share option reserve		1,428,361	1,420,361
Foreign exchange reserve		77,891	147,677
Retained earnings		(12,150,810)	(11,153,968)
Equity attributable to owners of the Company		2,458,531	1,676,452
Non-controlling interest		74,461	-
Total equity		2,532,992	1,676,452
Current liabilities
Trade and other payables		188,865	119,261
Liabilities of disposal groups classified as held for sale	5	1,737,913	2,089,457
Total liabilities		1,926,778	2,208,718
Total equity and liabilities		4,459,770	3,885,170

Consolidated Statement of Changes in Equity

For the year ended 31 December 2011

	Ordinary Shares	Share Premium	Share Option Reserve	FX reserves	Retained Earnings	Attributable To Owners	Total
	£	£	£	£	£	£	£
Balance at 1 January 2010	1,030,595	9,453,737	1,420,361	-	(10,067,676)	1,837,017	1,837,017
Loss for the year	-	-	-	-	(1,086,292)	(1,086,292)	(1,086,292)
Other comprehensive income	-	-	-	147,677	-	147,677	147,677
Total comprehensive income for the year	-	-	-	147,677	(1,086,292)	(938,615)	(938,615)
Share placement	368,181	306,819	-	-	-	675,000	675,000
Shares issued to staff and directors	1,125	975	-	-	-	2,100	2,100
Issue of ordinary shares for services rendered	36,000	31,200	-	-	-	67,200	67,200
Issue of ordinary shares in lieu of fees	18,409	15,341	-	-	-	33,750	33,750
Balance at 31 December 2010	1,454,310	9,808,072	1,420,361	147,677	(11,153,968)	1,676,452	1,676,452
Loss for the year	-	-	-	-	(996,842)	(996,842)	(996,842)
Other comprehensive  income	-	-	-	(69,786)	-	(69,786)	(69,786)
Total comprehensive income for the year	-	-	-	(69,786)	(996,842)	(1,066,628)	(1,066,628)
Share placement	645,000	860,000	-	-	-	1,505,000	1,505,000
Shares issued to staff and directors	31,500	40,500	-	-	-	72,000	72,000
Issue of ordinary shares for services rendered	75,429	93,028	-	-	-	168,457	168,457
Options granted to Directors	-	-	8,000	-	-	8,000	8,000
Issue of ordinary shares in lieu of fees	40,821	54,429	-	-	-	95,250	95,250
Balance at 31 December 2011	2,247,060	10,856,029	1,428,361	77,891	(12,150,810)	2,458,531	2,458,531

Consolidated Statement of Cash Flows

For the year ended 31 December 2011

		2011	2010
		£	£
Cash flows from operating activities
Loss before taxation (continued and discontinued)		(1,340,233)	(900,456)
Depreciation		7,187	9,704
Foreign exchange differences		286,287	135,611
Finance cost		294,703	270,733
Loss on disposal of assets		-	509
Interest income		(2,061)	(1,672)
Expenses for equity settled share based payments		248,457	69,300
Expenses for equity settled commissions		95,250	33,750
		(410,410)	(382,521)
Changes in working capital (Increase)/Decrease in trade and other receivables		(31,544)	79,451
Decrease in trade creditors and other payables		(155,922)	(237,401)
Net cash used in operating activities		(597,876)	(540,471)
Cash flows from investing activities
Payments for property, plant and equipment and development costs		(55,477)	(281,218)
Proceeds from disposal of fixed assets		9,564	776
Interest income		2,061	1,672
Purchase of investments		(155,000)	-
Net cash used in investing activities		(198,852)	(278,770)
Cash flows from financing activities
Proceeds from share placement		1,505,000	675,000
Proceeds from loans		-	532,775
Finance cost		(294,703)	(270,733)
Net cash from financing activities		1,210,297	937,042
Net increase in cash and cash equivalents		413,569	117,801
Cash and cash equivalents brought forward		396,182	278,381
Cash and cash equivalents carried forward		809,751	396,182

Selected Notes to the financial statements

For the year ended 31 December 2011

1.        Accounting policies

1.1       Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. 

The principal accounting policies are set out below.

1.2       Going Concern

Subsequent to the year end the suspensive conditions to the disposal of Western Utilities Corporation (Pty) Limited to MRI have been fulfilled other than the listing of the shares on the Johannesburg Stock Exchange, expected on or around 25 June 2012.

             This will result in payment to the group of approximately £1.80 million of which approximately £1.55 million will be lent to an MRI shareholder for three months.  The funding, together with the existing cash balances, will be sufficient to enable the continuing group to continue to trade until at the earliest 30 June 2013.  The directors are not aware of any reason why the shares will not be relisted thereby concluding the transaction.

1.3     Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.

All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation.

2.        Segmental Information

2.1      Segmental information for the year ended 31 December 2011

For management purposes the Group is organised into two operating divisions; Corporate and Water Technology. These divisions are the basis on which the Group reports its primary segment information. This information also represents the geographical segments of the United Kingdom and South Africa.  Due to events subsequent to the reporting date the water technology segment has been classified as discontinued.

			Corporate
			United Kingdom
			£
Result
Segment result from continuing  operations			(820,998)
Interest income			1,329
Loss before tax			(819,669)
Discontinued activities - water technology (South Africa)			(177,173)
			(996,842)

             Other segment items included in the statement of comprehensive income:

		Corporate	Water Technology
		United Kingdom	South Africa	Total
			(discontinued)
		£	£	£
Depreciation		140	7,047	7,187
Share based payments		80,000	-	80,000

	Corporate	Water Technology
Statement of Financial Position	United Kingdom	South Africa	Consolidation Adjustments	Total
		(discontinued)
	£	£	£	£
Segment assets	4,761,139	3,662,715	(3,964,084)	4,459,770
Segment liabilities	(188,865)	(5,592,645)	3,854,732	(1,926,778)
Net assets/(liabilities)	4,572,274	(1,929,930)	(109,352)	2,532,992

2.2      Segmental information for the year ended 31 December 2010

For management purposes the Group is organised into two operating divisions; Corporate and Water Technology. These divisions are the basis on which the Group reports its primary segment information. This information also represents the geographical segments of the United Kingdom and South Africa. Due to events subsequent to the reporting date the water technology segment for the prior period has been re classified as discontinued.

			Corporate
			United Kingdom
			£
Result
Segment result from continuing  operations			(388,723)
Interest income			694
Loss before tax			(388,029)
Discontinued activities - water technology (South Africa)			(698,263)
			(1,086,292)

             Other segment items included in the income statement:

		Corporate	Water Technology
		United Kingdom	South Africa	Total
			(discontinued)
		£	£	£
Depreciation		140	9,564	9,704

	Corporate	Water Technology
Statement of Financial Position	United Kingdom	South Africa	Consolidation Adjustments	Total
		(discontinued)
	£	£	£	£
Segment assets	350,638	3,535,759	(1,227)	3,885,170
Segment liabilities	(119,261)	(5,391,516)	3,302,059	(2,208,718)
Net assets/(liabilities)	231,377	(1,855,757)	3,300,832	1,676,452

3.        Loss per share

Loss for the year attributable to shareholders, including discontinued activities is £996,842 (2010: £1,086,292). This is divided by the weighted average number of shares outstanding calculated to be 1,220,358,976 (2010: 834,224,090) to give a basic loss per share of 0.08p (2010: 0.1p loss)

The calculation of dilutive loss per share, both including and excluding discontinued activities, is based on the weighted average number of shares outstanding adjusted by dilutive share options.  The Group's share options are non-dilutive as the market price of the shares is below the exercise price.  Consequently the diluted loss per share has been stated at the same figure as the basic loss per share.

Loss for the year attributable to shareholders, excluding discontinued activities, is £819,669 (2010: £388,029). This is divided by the weighted average number of shares outstanding calculated to be 1,220,358,976 (2010: 834,224,090) to give a basic loss per share of 0.06p (2010: 0.05p loss)

4.        Discontinued operations

            Discontinued operation

A discontinued operation is a component of the Group's activities that is distinguishable by reference to geographical area or line of business that is held for sale, has been disposed of or discontinued, or is a subsidiary acquired exclusively for resale.  When an operation is classified as discontinued, the comparative income statement is represented as if the operation had been discontinued from the start of the comparative period.

Plan to dispose of an operation

On 15 December 2011 Watermark entered into a conditional  agreement to sell its wholly-owned operating subsidiary, Western Utilities Corporation (Pty) Limited to  Mine Restoration Investments Limited for a consideration of £4.50 million comprising £1.81 million in cash and £2.69 million in MRI shares.  Further details of this disposal are given in the Directors' Report.

Loss for the year from discontinued operations

	2011	2010
	£	£
Revenue	122,140	130,458
Operating costs	(348,733)	(373,131)
Interest income	732	979
Finance costs	(294,703)	(270,733)
Loss before tax	(520,564)	(512,427)
Taxation	343,391	(185,836)
Loss from discontinued activities after taxation	(177,173)	(698,263)
Loss per share relating to discontinued operation(see note 10 for details on weighted average number of shares)
Basic	0.02	0.08
Diluted	0.02	0.08
Cashflows relating to the discontinued operation are as follows:
Operating cash flows	(1,322,607)	(456,856)
Investing cash flows	1,057,553	(370,501)
Financing cashflows	262,176	(282,372)

5.        Disposal groups held for sale

At 31 December 2011 Watermark had entered  into a conditional  agreement to sell its wholly-owned operating subsidiary, Western Utilities Corporation (Pty) Limited, together with its finance obligations which have been reclassified as a disposal group held for sale within the financial statements, details of which are:

	2011	2010
	£	£
Assets held for sale
Intangible assets	3,040,455	3,473,549
Property plant and equipment	771	8,847
Investments	77,500	-
Deferred tax	493,297	-
Trade and other receivables	5,222	5,014
Cash and cash equivalents	45,471	48,349
Assets held for sale	3,662,716	3,535,759
Related liabilities
Borrowings	1,732,728	1,858,756
Trade and other payables	5,185	230,701
Liabilities directly related to with assets classified as held for sale	1,737,913	2,089,457

             The investment of £77,500 represents a 50% holding in Prodiflex (Pty) Limited, a joint venture company incorporated in South Africa, owning intellectual property in the binder formulae and processes to be used in the briquetting of coal fines.

On 15 December 2011 Western Utilities Corporation (Pty) Limited acquired 51% of Octavovox (Pty) Limited, a company incorporated in South Africa, for £77,500.  The company has not traded and at the year-end held intangible assets of £151,961.

The disposal will also result in the release of the non-controlling interest of £74,461.

             Western Utilities Corporation (Pty) has entered into a loan agreement with Octavovox (Pty) Limited to acquire assets for the company in the sum of approximately £1.2m. At the date of approval of these financial statements approximately £100,000 (31 December 2011: £nil) had been advanced.

Ends.

 

END

 

 

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