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Modern Water PLC (MWG)

  Print      Mail a friend       Annual reports

Wednesday 13 September, 2017

Modern Water PLC

Half-year Report

RNS Number : 5602Q
Modern Water PLC
13 September 2017
 

 

 

 

 

 

 

13 September 2017

 

Modern Water plc ("Modern Water" or "the Company")

 

INTERIM RESULTS

 

 

Modern Water (AIM:MWG), the owner of leading technologies for water and wastewater treatment and the monitoring of water quality, announces

half-year results for the 6 months ended 30 June 2017

Highlights

 

Operational

·

First AMBC revenue from India

·

First AquaPak™ revenue from Oman

·

First FO revenue from China

 

Financial

·

Group revenue increased 37% to £1.56m (H1 2016: £1.14m)

·

Group gross profit increased 15% to £0.67m (H1 2016: £0.58m)

·

Group overheads were reduced a further 4% to £2.08m (H1 2016: £2.18m) in line with management strategy

·

£1.75m (£1.61m net) raised from issue of new shares

·

Cash balance of £1.53m (H1 2016: £2.06m) and debt free

 

Commenting on the results, Alan Wilson, Chairman of Modern Water, said:

"I am pleased to report that Modern Water's strategy is continuing to build momentum, with Group revenue increasing 37% in the first-half of 2017, delivering a 15% improvement in Gross Profits.  It is also pleasing to note that the recent successful fund raise achieved the Board's objectives and we are now able to make further investment in our growth and accelerate our work in developing new products, which are already taking shape in the USA.

 

The impressive performance of our All Membrane Brine Concentrator (AMBC) in the cleaning of process waste-water for an Indian-based textiles company was widely marketed and has encouragingly resulted in new enquiries from companies in a range of countries and industrial sectors.  We are also beginning to see increasing market interest in our other membrane technologies, with sales of licences and products in China, India and Oman."

 

-ends-

 

 

For further information:

 

Modern Water plc

+44 (0) 1483 696 000

Simon Humphrey, Chief Executive




WH Ireland Limited    

+44 (0) 207 220 1666

Paul Shackleton  (Nominated Adviser)




Tavistock

+44 (0) 207 920 3150

Andrew Dunn 


James Collins


 

 

 

Notes to editors

 

Modern Water owns, installs and operates broad based membrane systems using world-leading Forward Osmosis (FO) membrane technologies; supplies packaged seawater Reverse Osmosis (RO) desalination systems; supplies wastewater treatment solutions; and develops and supplies advanced systems for water monitoring. Its shares trade on the Alternative Investment Market of the London Stock Exchange.

 

Modern Water's patented Forward Osmosis (FO) technology's benefits include lower energy consumption and less environmental impact in a variety of industries. With a sales presence in almost 60 countries, the Group's Monitoring Division includes a leading real-time continuous toxicity monitor and trace metal analysers for monitoring the quality of drinking water.

 

 

www.modernwater.com

 

 

 

 

Chairman's Statement

 

I am pleased to report that Modern Water's strategy is continuing to build momentum, with Group revenue increasing 37% in the first-half of 2017, delivering a 15% improvement in Gross Profits.  We continue to keep a close eye on our operating costs, where overheads were reduced by a further 4%.  Overall, the operating loss for the period was reduced by £188k to £1.65m.

 

The impressive performance of our All Membrane Brine Concentrator (AMBC) in the cleaning process of waste-water for an Indian-based textiles company was widely marketed and has encouragingly resulted in new enquiries from companies in a range of countries and industrial sectors.  We are also beginning to see increasing market interest in our other membrane technologies, with sales of licences and products in China, India and Oman.

 

The refocusing of our Monitoring Division continues to gather pace, with new appointments of a Vice President of Global Sales, and new sales managers located in China and UK & Ireland.

 

It is also pleasing to note that our successful fund raise achieved the Board's objectives and we are now able to make further investment in our growth and accelerate our work in developing new products, which are already taking shape in the USA.  A total of 15.9m new shares were placed in May, which expanded our shareholder base and raised net proceeds of £1.612m.

 

I would like to take this opportunity to thank our stakeholders for their continued support of the business and of course our employees and advisers for their creativity, hard work and determination in driving Modern Water towards a position of robust and sustainable profitability.

 

 

 

Alan Wilson

Chairman

12 September 2017

 

 

 

 

Chief Executive's Statement

 

Membrane Division

·     Revenue £0.30m (H1 2016: n/a)

·     Gross margin 42% (H1 2016: n/a)

 

H1 2017 was a milestone period for our membrane division with first time revenues achieved for three separate products in three different geographic markets. It is important to note that our scope for each of these projects is complete and we have been paid in full.

 

We believe this progress demonstrates that the technologies we have developed are attractive in the geographies and industries we have targeted.  As these installations begin to deliver the expected benefits to end customers we believe this will generate further commercial opportunities.  

 

Our first All Membrane Brine Concentrator (AMBC) contract was completed for our Indian partner Advent Envirocare, which expects to have the full plant commissioned before the end of the year. This partnership with Advent continues to develop well and our pilot plant has now been redeployed for another field trial, this time by a multinational agrochemical company.

 

We have also completed our contract with Hangzhou Water Treatment Technology Development Center Co. Ltd in China, to provide design and engineering services for a seawater desalination plant using our proprietary Forward Osmosis (FO) technology.

 

During the period, we also delivered, installed and commissioned our first AquaPak™ desalination unit in Oman and are now providing consulting services for a follow-on project. We also have a significant pipeline of tenders awaiting decisions and expect to grow this product line over the next 12 to 18 months.

 

Our partnership with Bilfinger Deutchse Babcock has also progressed in the first half of 2017 and we are in final negotiations to deploy our pilot Multi Stage Flash (MSF) pre-treatment plant to a desalination facility in the Middle East.

 

In Gibraltar, the status of our joint venture with Northumbrian Water is unchanged from previous statements. We remain the Government's preferred bidder for its much needed wastewater project and continue to assist in the project's advancement, with little in the way of ongoing costs being incurred by us.

 

Monitoring Division

·     Revenues increased by 11% to £1.26m (H1 2016: £1.14m)

·     Gross margin decreased to 43% (H1 2016: 52%)

·     Order book increased by 386% to £0.31m (H1 2016: £0.08m)

 

Equipment sales were a higher proportion of Monitoring revenue in H1 2017 than last year, which explains the decrease in Gross margin. Based on the sales mix so far in H2 and our order book, we expect the full year gross margin to be similar to last year. 

 

The reorganisation of the division's sales and distribution channels continues apace, with the appointment of new sales personnel in the US, South America, China and the UK during the first half of 2017. China in particular is a key focus as we start to develop a permanent local sales presence for the first time. Significant investment has been made in product development and a new online trace metal monitor is due to be launched before the end of the year. It was also exciting to see our Microtox® technology certified by both the Mexican Authorities and Taiwanese Environmental Protection Agencies as the approved method for the determination of acute toxicity in waste water, fresh water, sea and brackish water.  

 

Capital Raise

A £1.75m share placing (£1.61m net of costs) was completed at 11p in May 2017 and was supported by management, new institutional shareholders and high net worth individuals. This, together with the £500k receivables facility in place since December 2016, gives us the resources to reach cash flow breakeven without compromising our investment plans.

 

Cash at 30 June 2017 was £1.53m.  

 

Outlook

The publicity accompanying our first AMBC sale has generated significant interest for this product in both India and in a number of other geographic and industrial markets. This initial success with the AMBC gives us confidence that our revised strategy of licensing our expertise to industrial partners is the correct one and we expect to announce further partnerships and contracts across the Membrane division before the year end.

 

Momentum is also building in our, now stand-alone, Monitoring business and again we expect further progress in the second half of 2017.

 

Following the capital raise, cash has become much less of a constraint, however our focus on driving efficiencies in our operations and managing costs will continue as core elements of our strategy. 

 

Modern Water has an excellent range of technologies, offering important benefits and gaining traction in specifically targeted markets.  The prospects for the business are exciting and we will continue to commercialise the technology we have created, without compromising future product development.  We therefore look forward with more confidence than at any point in the past three years.

 

 

Simon Humphrey

Chief Executive Officer

12 September 2017

 

 

 

 

GROUP STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

SIX MONTH PERIOD ENDED 30 JUNE 2017

 

 



6 months

6 months

Year



ended

ended

ended



30 June

30 June

31 December



2017

2016

2016


Note

£'000

£'000

£'000

Revenue

 

1,556

1,135

3,629

Cost of sales

 

(885)

(552)

(1,764)

Gross profit

 

671

582

1,865

Administrative expenses

 

(2,078)

(2,175)

(4,414)

Other gains

 

-

-

-

Goodwill and intangibles impairment

 

-

-

-

Operating loss before interest, tax, depreciation & amortisation

 

(1,407)

(1,592)

(2,549)

Depreciation and amortisation

 

(247)

(249)

(502)

Operating loss

 

(1,654)

(1,842)

(3,051)

Finance income

 

4

127

514

Finance costs

 

(142)

-

(30)

Loss on ordinary activities before taxation

 

(1,792)

(1,715)

(2,567)

Taxation

 

(16)

253

465

Loss for the half year

 

(1,808)

(1,462)

(2,102)

Other comprehensive income

 

 

 


Items may be subsequently reclassified to profit or loss

 

 

 


Foreign currency translation differences on foreign operations

 

91

38

(76)

Total comprehensive loss for the half year

 

(1,717)

(1,424)

(2,178)

 

 

 

 


Loss attributable to:

 

 

 


Owners of the parent

 

(1,808)

(1,462)

(2,102)

Non-controlling interests

 

-

-

-

 

 

(1,808)

(1,462)

(2,102)

 

 

 

 


Total comprehensive loss attributable to:

 

 

 


Owners of the parent

 

(1,708)

(1,424)

(2,211)

Non-controlling interests

 

(9)

-

33

 

 

(1,717)

(1,424)

(2,178)

 

 

 

 


Loss per share attributable to the equity holders of the parent

 

 

 


Basic loss per share

9

2.20p

1.84p

2.64p

Diluted loss per share

9

2.20p

1.84p

2.64p

 

The notes form an integral part of this condensed consolidated interim financial information.

Items in the statement above are all derived from continuing operations.

 

 

 

 

GROUP STATEMENT OF FINANCIAL POSITION (UNAUDITED)

AS AT 30 JUNE 2017

 

 



30 June

30 June

31 December



2017

2016

2016



£'000

£'000

£'000

Assets

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

233

274

255

Intangible assets

 

3,251

3,527

3,388

Investments

 

-

-

-

 

 

3,484

3,802

3,643

 

 

 


Current assets

 

 

 


Inventories

 

1,183

1,475

1,319

Trade and other receivables

 

1,264

811

1,559

Cash and cash equivalents

 

1,525

2,065

1,072

 

 

3,972

4,350

3,950

Total assets

 

7,456

8,152

7,593

 

 

 


Equity and liabilities

 

 

 


Equity

 

 

 


Ordinary shares

 

239

199

199

Share premium account

 

41,604

40,032

40,032

Merger reserve

Foreign exchange reserve

 

398

(148)

398

-

398

(248)

Accumulated losses

 

(35,362)

(33,109)

(33,629)

 

 

6,731

6,752

Non-controlling interests

 

150

148

159

Total equity

 

6,881

7,667

6,911

 

Liabilities

 

 


Non-current liabilities

 

 

 


Deferred tax liabilities

 

31

39

29

 

 

 


Current liabilities

 

 

 


Trade and other payables

 

544

445

653

Total liabilities

 

575

485

682

Total equity and liabilities

 

7,456

8,152

7,593

 

The notes form an integral part of this condensed consolidated interim financial information.

 

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

SIX MONTH PERIOD ENDED 30 JUNE 2017

 

 











Called

up share

Share

premium

Merger

Foreign

exchange

Retained

Total

Non-

controlling

Total


capital

account

reserve

reserve

Earnings


interests

equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

Six month period ended 30 June 2016

 

 

 

 

 

 

 

 

Balance as at 1 January 2016

199

40,032

398

(139)

(31,634)

8,856

126

8,982

Comprehensive loss









Loss for the period ended 30 June 2016

-

-

-

-

(1,462)

(1,462)

-

(1,462)

Foreign currency translation differences

-

-

-

38

-

38

22

59

Total comprehensive loss

-

-

-

38

(1,424)

(1,424)

22

(1,403)

Transactions with owners









Share-based payments

-

-

-

-

88

88

-

88

Total transactions with owners

-

-

-

-

88

88

-

88

Balance as at 30 June 2016

199

40,032

398

(101)

(33,008)

7,520

148

7,667

 

 

Six month period ended 30 June 2017









Balance as at 1 January 2017

199

40,032

398

(248)

(33,629)

6,752

159

6,911

Comprehensive loss









Loss for the period ended 30 June 2017

-

-

-

-

(1,808)

(1,808)

-

(1,808)

Foreign currency translation differences

-

-

-

100

-

100

(9)

91

Total comprehensive loss

-

-

-

100

(1,808)

(1,708)

(9)

(1,717)

Transactions with owners









Issue of shares

40

1,572

-

-

-

1,612

-

1,612

Share-based payments

-

-

-

-

75

75

-

75

Total transactions with owners

40

1,572

-

-

75

1,687

-

1,687

Balance as at 30 June 2017

239

41,604

398

(148)

(35,362)

6,731

150

6,881

 

The notes form an integral part of this condensed consolidated interim financial information.

 

 

 

 

GROUP STATEMENT OF CASH FLOWS (UNAUDITED)

SIX MONTH PERIOD ENDED 30 JUNE 2017

 



6 months

6 months

Year



 ended

 ended

ended



30 June

30 June

31 December



2017

2016

2016


Note

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

 

Cash used in operations

10

(1,010)

(1,364)

(2,426)

Net cash flows used in operating activities

 

(1,010)

(1,364)

(2,426)

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

 

(24)

(37)

(70)

Proceeds from sale of property, plant and equipment

 

-

-

-

Purchase of patents and development costs

 

(25)

(30)

(44)

Interest received

 

-

3

4

Tax Received / (Paid)

 

(8)

253

452

Net cash flows used in investing activities

 

(50)

190

342

Cash flows from financing activities

 

 

 


Proceeds from issuance of ordinary shares

 

1,612

-

-

Net cash flows used in financing activities

 

1,612

-

-

Net (decrease)/increase in cash and cash equivalents

 

552

(1,174)

(2,084)

Cash and cash equivalents at start of period

 

1,072

3,161

3,161

Exchange (losses)/gains on bank balances

 

(99)

77

(5)

Cash and cash equivalents at end of period

 

1,525

2,064

1,072

 

The notes form an integral part of this condensed consolidated interim financial information.

 

 

 

 

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

SIX MONTH PERIOD ENDED 30 JUNE 2017

 

 

1. General information

Modern Water plc ('the Company') and its subsidiaries (together, 'the Group') invests in, develops and deploys new water technology. The Company 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.

This condensed consolidated interim financial information was approved for issue by the Board of Directors on 12 September 2017. These interim financial results are unaudited and do not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2016 were approved by the board of directors on 14 March 2017 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

 

2. Basis of preparation and going concern

2.1 Basis of preparation

The principal accounting policies have been applied consistently throughout the period in the preparation of these financial statements. This condensed consolidated interim financial information for the six months ended 30 June 2016 has been prepared in accordance with the AIM Rules for Companies of the London Stock Exchange plc and with IAS 34, 'Interim financial reporting' as adopted by the European Union.  

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

2.2 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.  A review has been conducted and the directors have concluded that such resources are available, and that the going concern basis is justified in preparation of the financial statements.

The Group's forecasts prepared by the directors reflect that funding requirements have reduced since 2015, as the result of the restructuring plan, delivering an annual net £1.4m reduction in expenditure.  The Group's cash 'burn' was £1.16m in the first half of 2017, compared to £1.10m in the first half of 2016.

The Group's remaining funding requirements will be met from:

·      The £1.53m cash balance as of 30-June-2017;

R&D tax credit receipts of £184k

·      £0.5m credit line secured against Modern Water Inc.'s trade receivables

·  Improved working capital, specifically a further reduction in inventories and aged trade receivables;

·      Continued improvement in the Monitoring Division trading; and

·      First meaningful revenue from the Membrane Division.

 

3. Accounting policies

3.1 Accounting policy and disclosure changes

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2016.

 

4. Principal risks and uncertainties

A detailed explanation of the principal risks and uncertainties affecting the Group, and the steps taken to manage them, is set out in the Directors' Report section of the Group's 2015 Annual Report and Accounts, which is available of the Group's website at www.modernwater.com. The principal risks and uncertainties are summarised as follows:

·      customer acceptance of the Group's technologies;

·      competitor technology;

·      socio-political risks;

·      scaling up the technology;

·      IP protection;

·      recruitment and retention of key personnel;

·      health and safety;  and

·      financial risks.

There have been no significant changes in the nature of these risks that will affect the next six months of the financial year.

 

5. Critical accounting estimates and judgements

The preparation of financial statements in conformity with International Financial Reporting Standards 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. Estimates are continually evaluated and are based on historical experience and other factors, such as expectations of future events, and are believed to be reasonable under current circumstances. Actual results may differ from these estimates. The key sources of estimation uncertainty during the current year were consistent with the prior year, as detailed in the Group's 2016 Annual Report and Accounts.

 

6. Segmental analysis

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.

 


6 months ended 30 June 2017

6 months ended 30 June 2016

Statement of Comprehensive Income

Membrane

Monitoring

Central

Total

Membrane

Monitoring

Central

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Revenue

301

1,255

-

1,556

-

1,135

-

1,135

Cost of sales

(175)

(710)

-

(885)

-

(552)

-

(552)

Gross profit

125

546

-

671

-

582

-

582

Administrative expenses

(587)

(958)

(458)

(2,003)

(718)

(882)

(540)

(2087)

Share-based payments

-

-

(75)

(75)

-

-

(88)

(88)

Operating profit/(loss) before tax depreciation and amortisation

(462)

(412)

(533)

(1,407)

(718)

(247)

(628)

(1,592)

Depreciation and amortisation

(42)

(205)

(0)

(247)

-

-

(249)

(249)

Operating profit/(loss)

(503)

(617)

(533)

(1,654)

(718)

(247)

(877)

(1,842)

Finance income

-

-

4

4

-

-

127

127

Finance costs

-

-

(142)

(142)

-

-

-

-

Profit/(loss) before taxation

(503)

(617)

(671)

(1,792)

(718)

(247)

(750)

(1,715)

Taxation

(8)

(8)

 

(16)

-

-

253

253

Profit/(loss) for the period

(511)

(625)

(671)

(1,808)

(718)

(247)

(497)

(1,462)

 

7. Administrative expenses by nature



6 months

6 months

Year



 ended

 ended

ended



30 June

30 June

31 December



2017

2016

2016


Note

£'000

£'000

£'000

Wages and salaries

 

986

920

2,150

Social security costs

 

109

100

224

Pension costs

 

48

44

92

Other employee benefits

 

118

74

219

Share-based payments

8

75

88

107

Operating lease payments

 

150

190

381

Research and development

 

63

30

200

Other administrative expenses

 

529

729

1,231

Total administrative expenses before depreciation and  amortisation

 

2,078

2,175

4,414

Depreciation and amortisation charges

 

247

249

502

Total administrative expenses including depreciation and amortisation

 

2,325

2,424

4,916

 

8.  Share-based payments


6 months

6 months

Year


 ended

 ended

ended


30 June

30 June

31 December


2017

2016

2016


£'000

£'000

£'000

Options (including EMI)

75

88

107

Conditional share awards

0

1

-

Equity-settled share-based payments

75

88

107

Cash-settled share-based payments

-

-

-

Total share-based payments charged to the income statement

75

88

107

 

9.  Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.  As the Group is loss making, the diluted loss per share is equal to the basic loss per share.


6 months

6 months

Year


ended

ended

ended


30 June

30 June

31 December


2017

2016

2016


£'000

£'000

£'000

Loss attributable to equity holders of the Company

1,808

1,462

951

Weighted average number of ordinary shares in issue (thousands)

82,155

79,505

79,505

Basic loss per share

2.20p

1.84p

2.64p

 

10.  Net cash flows used in operating activities



6 months

6 months

Year



 ended

 ended

ended



30 June

30 June

31 December



2017

2016

2016



£'000

£'000

£'000

Loss on ordinary activities before taxation

 

(1,792)

(1,715)

(2,567)

Adjustments for:

 



 

Depreciation of property, plant and equipment

 

86

99

199

Amortisation of intangible assets

 

161

150

303

Net finance (income)/cost

 

138

(127)

(484)

Share-based payments

 

75

88

107

Movements in working capital:

 

 

 

 

(Increase)/Decrease in inventories

 

136

64

296

Decrease in trade and other receivables

 

295

277

(384)

(Decrease) in trade and other payables

 

(109)

(201)

104

Cash used in operations

 

(1,010)

(1,364)

(2,426)

 

11.  Related party transactions

IP Group plc held 16.6% of the ordinary share capital of the Company as at 30 June 2017 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 period were £15,000 (2016: £15,000) and as at 30 June 2016 £0 (31 December 2016: £7,500) 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.

 

 

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

SIX MONTH PERIOD ENDED 30 JUNE 2017

 

The directors confirm that, to the best of their knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS34 as adopted by the European Union. The interim management report includes a fair review of the information required by the FCA's Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R), namely:

 

·

an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·

material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

 

The directors of Modern Water plc are listed in the Modern Water plc Annual Report and Accounts 2016.  A list of the current directors is maintained on the Company's website www.modernwater.com.

 

 

 

 

Alan Wilson

Chairman

Simon Humphrey

Chief Executive Officer

 

12  September 2017

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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