Carbonxt Group Limited (ASX:CG1) Managing Director, Warren Murphy talks about the company's activated carbon-based solutions for the removal of mercury to help coal-fired power plants meet MATS compliance, growth plans and strategy.Anna Napoli: Hello. Anna Napoli for the Finance News Network. And joining me now from Carbonxt Group Limited
(ASX:CG1) is Managing Director Warren Murphy. Warren, thanks for joining us.
Warren Murphy: Thank you for having me.
Anna Napoli: First up, can you give our audience an introduction to Carbonxt?
Warren Murphy: Carbonxt is a pollution control company. We listed in January on the ASX. We have a market capitalisation of just over $30 million. And our product is activated carbon, which is a filtration medium to capture air and water emissions.
Anna Napoli: Thanks, Warren. Before we talk about your products, can we talk about power plant emissions and compliance?
Warren Murphy: Power plant emissions are heavily governed all around the world for environmental control, but particularly in America. There's a governing legislation called the Mercury and Air Toxic Standards or MATS. And it's been brought in in 2015/16 to capture mercury from the environment as mercury has been proven to have serious health side-effects, and so in America, the air and water emissions are controlled by this governing legislation.
Anna Napoli: Now to your products, can you tell us more about powdered activated carbons?
Warren Murphy: We have a range of powdered activated carbons. Powdered activated carbon is like talcum powder to the eye. It has a surface area that can capture pollutants in its pores. We have different applications for different power station types, but our predominant defining characteristic is that we are non-brominated, and our competitors all brominate their carbons. And bromination itself has a side-effect of corrosion. So that's our predominant feature. We have unbrominated powdered activated carbon for the power station markets. Now we're also branching out into water filtration, industrial applications, in particular with pellets. So we produce a pelletised activated carbon. And at the moment, we are the first application of pellets in the Japanese clean coal technology in the US. The first application of that ever in the US, and our pellets are supplying that power station.
Anna Napoli: Great. And can you tell us about the replacement and trials?
Warren Murphy: So, we currently have seven trials going on across the US. We have contacts with 23 utilities. Every utility seeks to trial their product in a power station before they use it. You can't simply sell it off the shelf. And so it's important to build those relationships and build those trials. We have a pipeline of activities, and we expect a number of those trials to convert to sales over the next six months.
Anna Napoli: Can you tell me about the replacement cycle?
Warren Murphy: Activated carbon for power stations is a consumable, so once it's used, that's it. It's not replaced. So we continually sell our product.
Anna Napoli: And with such a large market, what's the situation with respect to competition and substitute products?
Warren Murphy: So, yes, it is quite a big market. Just the power station emissions alone is about US $400 million. There's four other major competitors, but they all sell a brominated activated carbon. We're the only one who sells a non-brominated carbon.
Anna Napoli: Thanks, Warren. Now to your financials and strategy, how are you progressing?
Warren Murphy: Well, our first half year revenue was $3.5 million. We're on track for somewhere around $7.3 to $8 million in the first half. A little below our prospectus forecasts. Prospectus forecasts, though, are for that again in the first half of FY19. We expect to reach profitability in the first half of '19, and that comes from a new manufacturing facility that will open this month, and we'll see our gross margins track from the 25% we achieved in the first half of FY18 to around 45%.
Anna Napoli: Last question, Warren. Why should investors consider adding Carbonxt to their portfolios?
Warren Murphy: We're a pollution control company with a unique exposure for Australian investors to the US market. That market is growing rapidly, and with gross margins increasing from our manufacturing facility, we'll have a very good return on capital.
Anna Napoli: Warren Murphy, thanks for the update.
Warren Murphy: Thank you.
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