Phoslock Prepares For Rollout of Major Projects
Key Points:
- Inventory and procurement of raw materials have been scaled up
- Major US sales and distribution agreement and two Canadian projects signal business uplift for Phoslock in North America
- Decisions expected on 12 major projects in Europe; Two additional sales executives appointed
- Positive feedback to proposal for 500 ton application in China
4C Commentary
Phoslock Water Solutions (PWS) lodged its 4c quarterly cashflow with the ASX today for the period 1 October to 31 December 2010. PWS recorded a negative Net Operating Cash Flow for the quarter of $819,000. The figures included inventory and raw material procurement of $270,000 and did not include approx $180,000 of cash receipts, which were received in the first two weeks of January 2011. Credit terms were also provided on the 150 ton German lake application in November 2010, with the majority of these cash receipts receivable in March 2011.
Inventory was increased during the quarter in anticipation of major orders in the first six months of 2011. Operating expenses (as defined in PWS's December 2010 quarterly) were $691,000 (versus $576,000 in September 2010 quarter). The increase in operating expenses was attributable to two additional sales executives in Europe and several one-off administration costs.
Business Update
Europe
The level of activity in Europe remains high with a 150 ton application completed at a lake in northern Germany during the quarter. This was the 27th lake application in Europe and the UK over the last four years.
Decisions are expected over the next nine months on 12 major projects (ranging in size from 20 to over 2,000 tons) in Germany, Italy, Poland, the UK, the Netherlands, Denmark and Finland with the majority of these applications likely to take place before the end of 2011. Sales revenue for the European region is projected to range between a low of approximately €1 million and a high of €5 million (including the Northern Italian lake outlined below), depending on the decisions reached by customers during the course of the year. This is an approximate range of A$1.4m to A$6.7m at present exchange rates.
Significant progress was made during the quarter on two milestone projects (>2,000 tons) in Italy and Central America (which is also the responsibility of Phoslock Europe). A proposal to use Phoslock in a major North Italian lake will be finalised and submitted by the end of March 2011 while in lake trials in a 1,800 hectare Central American water supply reservoir are expected to commence within the first half of 2011.
North America
As announced yesterday, PWS has signed a Distribution Agreement with SePRO for the sale & distribution of Phoslock products through its 160 Authorised Applicator network covering most states in the United States. Phoslock will be working closely with SePRO to develop this market in the short term.
PWS continues its work in Ontario in Canada. Two large projects totalling up to 200 tons in Ontario are anticipated to be undertaken once the ice melts in late March 2011. Whilst the client holds some inventory for one of these applications, PWS is expecting a significant order over the next month to provide inventory for these projects.
China
During the December quarter solid progress was made towards the generation of meaningful sales in China. Trials in Tianjin and the greater Shanghai region have generated significant interest and enquiries for future applications.
PWS was invited to submit a proposal by a State Authority with a local partner for the application of 500 tons of Phoslock on a medium sized lake later this year. The feedback from the State Authority has been very positive. This project is large by PWS standards however the application is very small in comparison to other lakes in the vicinity which suffer from major eutrophication problems. The outcomes from this 500 ton application are expected to be carefully examined by other authorities in China.
Australia
During the quarter Phoslock completed a number of small and medium sized applications in Australia. The highlight was the third application in five years to a heavily eutrophied water body on the outskirts of Perth. Phosphorus inflows each year are very high. The client uses Phoslock to reset the ecological balance. Several applications were made to waste water ponds and small lakes, to reduce the phosphorus levels of discharge water.
Aquaculture
Sales to the aquaculture sector continued to increase in the last quarter. In Australia there are eight aquaculture farming operations which are using Phoslock as part of their water quality management. The enquiry rate from aquaculture companies both in Australia and overseas continues to be high.
New Product
Development work has commenced on a new product which will provide a second product line for domestic and industrial wastewater applications. The first commercial trials are expected to take place in the second half of the year.
Cash Flow & Liquidity
PWS maintains a satisfactory liquidity position. As at the date of this announcement PWS had net current assets (cash, inventory and receivables) of A$2.5m and was debt free.
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