Half-yearly Report

Half-yearly Report

Watermark Global

7th September 2011

Watermark Global Plc
(“Watermark” or the “Company”)
Interim Results for the six months Ended 30 June 2011

Watermark Global (LSE:WET), the AIM quoted company that focuses on the treatment of Acid Mine Drainage in South Africa announces its Interim Results today.

Highlights

  • Continued to lobby the South African Government and its agencies to support the Watermark solution to the imminent acid mine drainage issues
  • Received £120,000 from Trans Caledon Tunnel Association as payment for part of the Company’s Definitive Feasibility Study to fast track their due diligence process
  • Raised £1,500,000 from UK & Australian institutions in June 2011 to allow the company to continue with actively promoting its solution
  • Loss from continuing operations for 6 months to end June was £745,000 (2010 loss: £420,000), a loss of 0.01p per share (2010 loss: 0.059p per share)
  • Appointment of Mr Hartley Dikgale to the Board of Directors and resignation of Mr Adam Gunn from the Board of Directors

Results Summary

The loss from ordinary activities for the six month period ended 30 June 2009 was £745,000 (2010: loss of £420,000), a loss of 0.01p per share (2010: loss of 0.059p per share). This loss is inclusive of non-recurring development costs with respect to the water project in South Africa. The cash position of the Company at 30 June 2011 was approximately £1,500,000. The Directors are actively continuing to conserve cash as the Company awaits a decision from the South African Government.

CHAIRMAN’S STATEMENT

It is now some 16 months since the Minister for the Department of Water Affairs and Environment (DWA) in South Africa gave an address to Parliament accepting that there was “a big problem of Acid Mine Drainage (AMD) in the Witwatersrand area which threatens our ground water resources…. We are currently involved with short term solutions to alleviate the worst effects…. We also need a sustainable long term strategy to manage this. I hope you will be encouraged when I tell you that we are presently hard at work with mining operators in search of a lasting solution.”

During 2010 the Department of Water Affairs and Environment (DWA) acknowledged its responsibility and liability associated with ownerless and abandoned mines within the project area and announced that a Public Private Partnership (“PPP”) structure would be the preferred structure to be entered into between the State and the mines in respect of a long term solution to clean up the AMD.

In simple terms, and for the sake of re-inforcing some very significant points, WUC has:

  • conducted pilot plant tests for the optimum method of treating AMD;
  • completed 14 specialist studies as part of the EIA process which will form the basis of the Environmental Impact Report (EIR);
  • completed a Definitive Feasibility Study (DFS) which has been signed off by an Independent third party, Golder & Associates (a well-established, international consultancy);

A Government task force was established in 2010 whose role was to collect information, investigate the scope and scale of the problem, determine possible solutions and report back to a ministerial committee drawn from the Ministers of the various interested sectors (e.g. water affairs, mining, finance, etc.). On 24 February 2011, the DWA published this report entitled “Mine Water Management in the Witwatersrand Gold Fields with Special Emphasis on Acid Mine Drainage”. (This can be viewed on line at:
http://www.dwaf.gov.za/Documents/ACIDReport.pdf )

The report reviewed the technologies available for the treatment of the AMD within each of the Witwatersrand basins (Western, Central and Eastern). The report indicates that the Alkali Barium Calcium (“ABC”) and Magnesium Barium Alkaline (“MBA”) processes, both of which were developed by the Council for Scientific and Industrial Research ("CSIR") and TUT ('Tshwane University of Technology") were economically viable. As WUC was involved in developing the technology it has retained rights to the ABC process and any additional improvements on the ABC process (which includes the MBA process). WUC would receive a fee if this chemical process is used anywhere in the world to treat AMD.

The Board believes that the appointment of the Trans-Caledon Tunnel Association (TCTA) in February 2011, a quasi-state organisation tasked with the implementation of critical infrastructure projects with specific reference to bulk water supply, as the Government’s implementation agent was an encouraging move. TCTA’s role is to implement a short term solution to prevent AMD from causing further damage to the environment. WUC has been discussing with the TCTA, which understands the commercial environment, on how it can assist in the short term solution whilst at the same time realising value for its shareholders. We announced on 6th June 2011 that we had concluded an agreement with TCTA to release part of the

Company’s DFS to the TCTA in exchange for a payment of approximately £120,000. Further agreements are possible but they would not prevent WUC from participating in the operation and maintenance of the short, medium or long term aspects of AMD treatment in respect of which WUC fully intends to tender and which have been announced by the DWA on the 11th of August 2011. The long term tender put out by DWA is for a feasibility study for all three basins. WUC will not be tendering for the feasibility study since the participants in the tender will then be precluded from taking part in subsequent tenders for construction and operation and maintenance. WUC intends to participate in the operation and maintenance of the long term solution and will also engage with the successful party on the long term tender to introduce the benefits from the work already completed by WUC and to fully explain the ABC process which according to the WUC DFS completed in November 2009 will be the most economical process.

The Company remains very active in engaging all interested parties – especially Government and industry as well as Black Economic Empowerment Groups – to continue working towards a long term solution. Whilst the press in South Africa and various pressure groups continue to raise the issue and apply pressure for urgent action it should be noted that at this stage the Company continues to be unable to provide a definitive timeframe as to when further progress will be made or what WUC’s role in any longer term solution will be. Accordingly, the Company will continue to manage its cash resources judiciously and minimise its costs in a manner that will enable it to continue to operate on a reduced basis until such time as its role becomes clear.

2011 Fundraising

On 1st June 2011, Watermark announced a conditional placing of up to 430,000,000 new ordinary shares in the Company at a price of 0.35p raising gross proceeds of £1,505,000. The Placing helped to ensure continuity of existing operations, without any interruption or loss of competitive advantage as we hope to move into a period where we can actively assist in the Government’s plan to clean up AMD as part of the short term and long term projects. The Placing was conducted in two tranches of £462,000 and £1,043,000 respectively with the second tranche subject to shareholder approval at the Company’s AGM on 30 June 2011.

Completion of the Placing has allowed the Company to continue to progress discussions with the TCTA on how it can be involved further with both the short term and long term solutions. It has also provided sufficient working capital to allow us to expand our technical team should we need to as the projects advance. At the same time, the Company is seeking to utilise its extensive intellectual property into other business areas. Accordingly, some of the Placing proceeds have been set aside for the purpose of reviewing and carrying out due diligence in relation to other investment opportunities which, if completed, would be expected to add to the Company’s asset base and enhance shareholder value.

As previously reported, there are at present two opportunities which we have identified as prospective. One is an AMD remediation project associated with anthracite coal mining and briquetting of the resulting waste fines. The other involves the separation of water and oil from an oil producing field to create industrial grade usable water. It is expected that further updates on the status of these opportunities will be provided to the market in the coming weeks. It should be stressed that neither of these opportunities should in any way be seen as a diminution of our resolve or attitude towards the treatment of AMD in the gold fields of South Africa which remains the focus of Watermark’s business.

Outlook

The directors of Watermark continue to believe that its solution to AMD problem is favoured by many of the mining companies themselves and we believe that we remain well ahead of any competing technologies in

terms of getting our selected process, technology, and approvals to market. It remains clearly in the government’s court and that of its various key agencies, to urgently demonstrate that it can be an agent of change for good.

In closing, I would like to formally welcome Mr Hartley Dikgale to the Board of Watermark. Hartley’s appointment was announced on 18 August 2011. He brings to the Board extensive skills and experience in the commercial and legal aspects of mining, water remediation and other environmental issues as well as having substantial contacts and links throughout the South African bureaucracy. I would also like to thank retiring director Adam Gunn for his valuable contribution to Watermark and its activities during his tenure as a director.

Once again, I wish to thank our dedicated staff in South Africa who have continued to operate in a difficult environment. In the face of the need to conserve cash, they have continued to maintain a number of important cost cutting measures to keep the project afloat while the Government considers the issue. I would also like to thank our strong shareholder base for their continued support and interest in the Company and for this very important project.

Peter Marks

Condensed Consolidated Statement of Comprehensive Income

For the period ending 30 June 2011

    Six months ended
Note 30/06/2011   30/06/2010
£’000 £’000
Continuing operations
Revenue 121 20
Cost of sales - -
Gross profit 121 20
Investment revenue 1 1
Depreciation and amortisation expenses (4) (5)
Finance cost 4 (139) (116)
Consulting expenses - (34)
Other expenses (724) (286)
Loss before tax (745) (420)
Income tax - -
Loss for the period from continuing operations (745) (420)
 
Other comprehensive income
Exchange differences on translating foreign operations
Exchange differences arising during the period 116 (122)
Total comprehensive loss for the period (629) (542)
 
Total comprehensive loss attributable to
Owners of Watermark Global Plc (629) (542)
 
Loss per share
From continued operations
Basic 6 0.076p 0.059p
Fully diluted 6 0.076p 0.059p

Condensed Consolidated Statement of Financial Position

As at 30 June 2011

  Notes   30/06/2011   31/12/2010
£’000 £’000
Assets
Non Current assets
Intangible assets 7 3,220 3,474
Property, plant and equipment 5 9
3,225 3,483
Current assets
Trade and other receivables 150 6
Cash and cash equivalents 1,500 396
1,650 402
Total assets 4,875 3,885
 
Equity and liabilities
Share capital 2,140 1,454
Share premium account 10 10,723 9,808
Share option reserve 10 1,420 1,420
Foreign exchange reserves 10 264 148
Retained earnings 10 (11,899) (11,154)
Equity attributable to owners of the Company 2,648 1,676
 
Non-current liabilities
Borrowings 8 1,365 1,324
Current liabilities
Trade and other payables 367 350
Borrowings 8 495 535
Total liabilities 2,227 2,209
 
Total equity and liabilities 4,875 3,885

Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2011

  Share Capital

£’000

  Share Premium

£’000

  Share Option Reserve

£’000

  Retained Earnings

£’000

  FX Reserves

£’000

  Attributable to Owners

£’000

  Total

 

£’000

 
Balance 01/01/2010 1,031 9,454 1,420 (10,068) - 1,837 1,837
 
Loss for the period - - - (420) - (420) (420)
Other comprehensive income         (122) (122) (122)
Total comprehensive income for the period - - - (420) (122) (542) (542)
Share placement 368 307 - - - 675 675
Issue of ordinary shares for raising fees 18 15     - 33 33
Balance 30/06/2010 1,417 9,776 1,420 (10,488) (122) 2,003 2,003
 
Balance 01/01/2011 1,454 9,808 1,420 (11,154) 148 1,676 1,676
 
Loss for the period - - - (745) (745) (745)
Other comprehensive income         116 116 116
Total comprehensive income for the period - - - (745) 264 (629) (629)
Share placement 645 860 - - - 1,505 1,505
Issue of ordinary shares for raising fees 41 55   - - 96 96
Balance 30/06/2011 2,140 10,723 1,420 (11,899) 264 2,648 2,648

The following describes the nature and purpose of each reserve within owners’ equity:

Reserve

 

Description and purpose

Share capital Amount subscribed for share capital at nominal value
Share premium Amount subscribed for share capital in excess of nominal value, net of allowable expenses
Share option reserve Reserve for shares granted but not exercised
Retained earnings Cumulative net gains and losses recognised in the statement of comprehensive income
Foreign exchange reserves Cumulative net gains and losses recognised on foreign currency transactions

Condensed Consolidated Statement of Cash Flows

For the period ended 30 June 2011

    Six Months ended
30/06/2011   30/06/2010
£’000 £’000
 
Cash flows from operating activities
Loss before taxation (745) (420)
Depreciation 4 5
Foreign exchange differences 370 36
Gain on disposal of assets - (1)
Expenses for equity settled commissions 96 33
Interest paid 139 116
Interest received (1) (1)
(137) (232)
Changes in working capital

(Increase) / Decrease in trade and other receivables

(143) 52
Increase / (Decrease) in trade creditors and other payables 18 (170)
Net cash used in operating activities (262) (350)
 
Cash flows from investing activities
Payments for property, plant and equipment and development costs - (213)
Proceeds from disposal of fixed assets - 1
Interest received - 1
Net cash used in investing activities - (211)
 
Cash flows from financing activities
Proceeds from share placement 1,505 675
Proceeds from IDC Investment - 435
Proceeds from Mine Loan Agreements - 48
Interest paid (139) (116)
Net cash from financing activities 1,366 1,042
 
Net increase in cash and cash equivalents 1,104 481
 
Cash and cash equivalents brought forward 396 279
   
Cash and cash equivalents carried forward 1,500 760

Notes to the condensed consolidated financial statements

For the period ended 30 June 2011

1. Incorporation and principal activities

Country of incorporation

Watermark Global Plc was incorporated in the United Kingdom as a public limited company on 19 August 2005. Its registered office is 42, Queen Anne’s Gate, London SW1H 9AP. The Company is domiciled in South Africa.

Principal activities

The principal activity of the Group during the period was that of commercialising process technologies, namely the process technology for the treatment of acid mine drainage. The principal activity of the Company was that of a holding Company.

2. Accounting policies

2.1 Statement of compliance

These financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The financial information contained in this condensed set of financial statements in respect of the year ended 31 December 2010 has been extracted from the Annual Report and Accounts, which were approved by the Board of Directors on 2nd June 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified but did contain an emphasis of matter paragraph in respect of going concern and intangible assets, and did not contain any statement under Section 498 of the Companies Act 2006.

The half-yearly results for the current and comparative periods are unaudited. The auditors have carried out a review of this condensed set of financial statements for the six months ended 30 June 2011 and their report is set out on page 15.

This condensed set of financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union. This condensed set of financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2010 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2010 as described in those annual financial statements.

2.2 Going Concern

The directors of the company are of the opinion that the Company and Group will continue to trade as a going concern for the next twelve months despite the delay in government approvals. The company has a history of successfully raising capital .The company and group are adept at controlling expenses and reducing our burn to ensure we maintain sufficient cash reserves and we have a program in place to ensure this is the case.

The condensed financial statements do not include the adjustments that would result if the company and group were unable to continue as a going concern.

3. Segmental Information

3.1 Segmental information for the period ended 30 June 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.

  Corporate   Water  
Technology
United Kingdom South Africa Total
£’000 £’000 £’000
Revenue
External 15 5 20
     
Total revenue from continuing operations 15 5 20
 
Result
Segment result from continuing operations (229) (192) (421)
Finance income 1
Loss before tax (420)
Income tax credit -
 
(420)

Other segment items included in the income statement:

    Corporate   Water Technology  
United Kingdom South Africa Total
£’000 £’000 £’000
Depreciation - 5 5
Share based Employee Payments 33 - 33
  Corporate   Water Technology    
Statement of Financial Position United Kingdom South Africa Consolidation Adjustments Total
£’000 £’000 £’000 £’000
Segment assets 3,684 3,246 (2,897) 4,033
Segment liabilities (145) (4,782) 2,897 (2,030)
Net assets/(liabilities) 3,539 (1,536) - 2,003

3.2 Segmental information for the period ended 30 June 2011

  Corporate   Water  
Technology
United Kingdom South Africa Total
£’000 £’000 £’000
Revenue
External - 121 121
     
Total revenue from continuing operations - 121 121
 
Result
Segment result from continuing operations (302) (444) (746)
Finance income 1
Loss before tax (745)
Income tax credit -
 
      (745)

Other segment items included in the income statement:

  Corporate   Water  
Technology Total
United Kingdom South Africa
£’000 £’000 £’000
Depreciation - 4 4
Share based payments for capital raising 96 - 96
  Corporate   Water    
Technology
Statement of Financial Position United Kingdom South Africa Consolidation Adjustments Total
£’000 £’000 £’000 £’000
Segment assets 5,027 4,465 (2,390) 7,102
Segment liabilities (186) (5,600) 3,559 (2,227)
Net assets/(liabilities) 4,841 (1,135) 1,169 4,875

4. Finance cost

  Six months ended
30/06/2011   30/06/2010
 
£’000 £’000
Interest on non-recourse loan (DBSA) 139 116
139 116

Interest payable on the Development Bank of South Africa (“DBSA”) loan is based on a fixed contract rate of 25%. The loan of ZAR 10 million is a non-recourse loan based on the final implementation of the AMD project in South Africa. Should financial closure for the AMD project not be reached, the loan is written-off, alternatively if the project reaches financial closure, the DBSA has the right to fund up to 50% of the debt portion for the project, estimated at ZAR 1 billion.

5. Taxation

No provision has been made for income tax for the period under review.

6. Loss per share

Loss for the period under review attributable to shareholders is £ 744,975 (2010: £420,429). This is divided by the weighted average number of shares outstanding for the period calculated to be 969,540,827 (2010: 707,049,265) to give basic loss per share of 0.076p (2010: 0.059p loss)

The calculation of dilutive loss per share 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 loss per share.

7. Intangible assets

 
£’000
Cost
At 1 January 2011 3,474
Exchange Differences (254)
At 30 June 2011 3,220
  £’000
Net book value
31 December 2010 3,474
30 June 2011 3,220

Intangible assets relate to the development costs associated with the Definitive Feasibility Study (DFS) for the Group’s AMD project in South Africa. WUC started with the development of the commercial scale plant through the development of a DFS that, amongst others, included the design and costing of the full scale plant, together with the Environmental Impact Assessment (EIA) and resource verification studies.

The Group’s AMD project reached the final stages of development during the fourth quarter of 2009, with the DFS being completed by Golder Associates and the submission of the detailed Scoping Report for the EIA. Negotiations commenced with the authorities and with Rand Water for an off-take agreement and with respect to the operating and project model. Progress in this regard has been limited as the mining companies and the authorities have yet to agree on certain important issues pertaining to the project. The cost of the DFS is regarded as a development cost and as such has been capitalised.

Despite the uncertainty above, the directors consider it appropriate to carry these costs as an asset.

8. Other financial liabilities

Held at amortised cost   30/06/2011   31/12/2010
£’000 £’000
Development Bank of South Africa Limited 1,365 1,324
Industrial Development Corporation of South Africa 452 486
South African Mining Companies 43 49
1,860 1,859

Development Bank of South Africa Limited

Security held: First ranking pledge and cession in security of the Borrower’s shareholders claims in the Borrower; first ranking cession security of all the bank and investment accounts of the Borrower; first ranking pledge and cession of all debtors’ balances and claims which the Borrower may have against third parties.

The interest rate is 25% per annum.

The repayment terms: Loan is repayable on the 5th anniversary of the commencement date or on the date of the subsequent financial close. Subsequent financial close means the date after which all conditions precedent stipulated in the legal agreements for the undertaken project have been fulfilled, deferred or waived. The undertaken project means the acid mine drainage treatment project to be implemented by the Borrower and/or the Sponsor as a result of the completion of the project. The creditor will forfeit the claim regarding the original loan and any interest accrued if at any stage the undertaken project is assessed as not feasible and all the development regarding the project is abandoned.

Industrial Development Corporation of South Africa

IDC has the right to participate in the equity of the Project up to 10% if the Project is implemented.

If one Party elects not to continue, all rights accrued to the non-continuing Party will lapse with the agreement and the non-continuing Party will forthwith settle all amounts owing and the contribution made by such Party will not be recoverable.

If both Parties decide not to continue with the implementation of the Project, neither of the Parties will be entitled to proceed with the Project or any part thereof for a period of 5 years from the date of such decision without first offering the other Party an opportunity to participate.

South African Mining Companies

As part of the development project for the treatment of AMD a number of mining companies in South Africa have agreed to support Western Utilities Corporation (PTY) Ltd until additional capital could be raised. The following companies made a contribution based on the terms set out below.

  • Harmony Gold Mine (Pty) Ltd - £ 8,600
  • West Wits Mining Ltd - £ 8,600
  • Rand Uranium (Pty) Ltd - £ 8,600
  • Central Rand Gold (Pty) Ltd - £ 8,600, and
  • Mintails South Africa (Pty) Ltd - £ 8,600

The agreements were signed in March 2010. These loans bear interest at a rate of 8% per annum.

If the capital raising for the implementation of the long-term solution for AMD on the Witwatersrand is successful, the mines will have the opportunity either to convert the balance of the loan into equity in Western Utilities Corporation (Pty) Ltd or to demand repayment of the full amount of the loan or a combination of repayment and equity conversion. If the capital raising is not successful, each of the mines will waive its rights to repayment and any ancillary rights it may have and in this sense the loan is a non-recourse loan.

9. Share capital

In June 2011, the Company completed a capital raising through placing of shares to UK and Australian institutions to raise £1,505,000 (430,000,000 ordinary shares at 0.35 pence). The placing was done in two tranches with the first tranche (132,000,000 ordinary shares at 0.35 pence) completed on the 7 June 2011. The second tranche of the placing was approved by shareholders at the Annual General Meeting held on the 30 June 2011.

10. Reserves

  Group foreign exchange reserve   Company and Group share option reserve   Company and Group share premium account   Group profit and loss account
£’000 £’000 £’000 £’000
At 1 January 2010 - 1,420 9,454 (10,068)
Loss for the year - - - (1,086)
Exchange difference 148 - - -
New shares issued - - 307 -
Share based payments - - 47 -
At 31 December 2010 148 1,420 9,808 (11,154)
Loss for the period - - - (745)
Exchange difference 116 - - -
New shares issued - - 860 -
Share based payments - - 55 -
At 30 June 2011 264 1,420 10,723 (11,899)

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