Forward osmosis membrane revenues dry up for Modern Water

Modern Water may be boasting increased revenues from its monitoring division for the first half of the year but the picture isn’t so positive for the membrane division...

Modern Water

Modern Water

Modern Water may be boasting increased revenues from its monitoring division for the first half of the year but the picture isn’t so positive for the membrane division.

The British firm was responsible for developing a forward osmosis (FO) membrane technology and then exporting it to Gibraltar and then Oman, with two installations in the latter.

With other FO companies struggling to break into the municipal market with the technology, Modern Water’s progress was a British export success story.

However, financial results released last week showed that the membrane division has been struggling, reporting a loss of £762,000 during the first six month of 2015.

This is down from the same period in 2014, when the membrane division generated £53,000 in revenue for the company.

Discussing its membrane division in the statement, Modern Water said: “It was repositioned at the end of 2014 as a broad-based membrane systems specialist, offering a wide variety of water treatment solutions, encompassing both innovative Forward Osmosis (FO) systems and packaged desalination plants for both seawater and brackish water, with an increasing focus on industrial customers.”

In its 2014 financial results, Modern Water attributed a “slow-down” in China – a key market for the company - to lower membrane revenues than forecast.

David Lloyd Owen, managing director of consultancy, Envisager, told WWi magazine: “At the current rate of cash burn (£2.15 million in the past six months and £4.14 million over the past 12 months), Modern Water has just over one year’s cash left. The fact that they regard this year as critical means they cannot be certain of raising new money and may have reservations about taking on debt unless there is a clear revenue stream from FO in the short to medium term. As ever, FO shows potential. The challenge lies in turning that potential into a profitable business.”

Although the membrane side of the business remains sluggish for the British company, the monitoring division has been growing and provided the lion’s share of revenue.

For example, this side of the business grew from £1.2 million in sales during 2011 up to £3.4 million in 2012 (read WWi story).

More recently, in the first six months of 2015, monitoring division revenues increased by 7% to £1.56m, compared to £1.46m the previous year.

The recently appointed chairman Alan Wilson said: “It is clear that Modern Water has failed to deliver on its promises to its shareholders to-date and we must do better. To that end, we have implemented a restructuring plan in order to reduce operating costs and we are taking a critical look at our strategy, particularly with regard to customer and market focus, customer value proposition and product attractiveness. Some operating cost savings have already been made and more will follow.”

The company managed to save £700,000 in operating costs by reducing its head count.

Looking ahead, the company is awaiting “final ratification” on a tender to build the Gibraltar Wastewater Project in a joint venture with Northumbrian Water (see WWi story).

Modern Water will take the role as the design and build contractor for the project, worth £20.5 million.

Commenting on the financial results, Fiona Cincotta, senior market analyst from Finspreads, said: “The restructuring plan from new chairman Alan Wilson, couldn´t come soon enough and Modern Water needs to set about reducing operating costs at a much quicker rate than what it is currently doing, if it wants to run smoothly into the next year.”

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