Water treatment business Phoslock Environmental Technologies

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Water treatment business Phoslock Environmental Technologies

 Water treatment business Phoslock Environmental Technologies

Phoslock Environmental Technologies Limited (ASX:PET)

Established in 2002, Phoslock is the developer of innovative water technologies and engineering solutions that manage water pollutants and nutrients. It has a range of products that are utilised to manage unhealthy water bodies and enhancing aquatic ecosystems.

PET offers (chemical and engineering) solutions to the water bodies that have odour problems, CoD, BoD, and surplus nutrients.

Its service offering includes end-to-end solutions from sampling to treatment and monitoring, and the Company also provides ecological solutions to floating plants. Below are the Company’s major products.

Phoslock®

It is used in water having high concentrations of phosphorus and other bodies that deteriorate water bodies. Phoslock suppresses the growth of harmful algae in the water bodies.

Zeolite

Zeolites are used in water bodies with other water treatment products to target nutrients. It enables to reduce nitrogen in water bodies, thus improving the quality and aquatic health of water bodies.

Bacteria

Bacteria are generally used in water bodies having industrial waste and sewage, and it enables to control the pollutants. It also helps to diminish other harmful bacteria in water bodies.

A Rejuvenation Project in China (Source: Company’s Website)

Capital Raising & Growth Opportunities

On 9 April 2020, the Company announced that it raised $12 million institutional investors and potential $3 million from the Directors. PET noted that it issued 24 million shares to the institutional shareholders at an issue price of 50 cents per share.

PET noted that the demand for a stake in the Company was very strong, which resulted in substantial cutbacks. Directors of the Company and senior executives of PET would contribute around $3 million after the shareholder approval.

Fresh fund would be utilised in a rapidly growing business in China, with the country’s intentions to start the project after COVID-19 environment. New funds would be utilised on large to commence, providing headroom for working capital needs and compete for expanding opportunities. Besides, PET is inviting applications through a Share Purchase Plan with a maximum of $30k per shareholder.

In its presentation, the Company noted that there was no change to long term Chinese intent to clean up the environment after the COVID-19 crisis, and the business is well placed to the advantage of China coming back on-line faster than expected.

PET noted that tenders for meaningful new contracts were now being received within China at an accelerated pace, and production in China factory is at record levels. Its 2020 updated forecast now includes $50-$70 million in sales.

It expects Chinese projects to fetch $40 to $55 million, which includes 80% of Government customer and rest is subcontracting. Some of the China projects are Xingyun Lakes & Catchment, Shilongba Reservoir, Dianchi Catchment Area, Beijing Canals, and Beijing Wetland.

Phoslock has reduced the international project’ forecast, which is now less than $10 million as it expects some COVID-19 impacts. It is currently working with several major banks who have a strong China focus, on putting in place longer term working capital facilities.

COVID – 19 Update

In China, the Company’s factory closed on 20 January for New Year and reopened on 17 February. In March, the production of Phoslock totalled 1,400 tons – record monthly production. It was said that the supply chain for raw materials and shipments of the finished product is functioning normally.

Projects (Source: Capital Raising Presentation)

Its manufacturing factory is producing large volumes of Phoslock for Shilongba, Xingyun projects and international products. Its team in Yunnan working on Xingyun, Shilongba and Dianchi projects.

PET noted that Chinese business to benefit from new economic stimulus from central and provincial governments. In international business, the company was off to a good start with unscheduled shipments to Brazil for large Rio de Janerio Drinking Water Reservoir.

COVID-19 has impacted business in Europe/UK, North America, Brazil, and some project already deferred from first half to second half and potentially FY21.

For the year ended 31 December last year, Phoslock recorded revenue standing at $25.1 million, up 32% over the previous year. Its gross profit margin for the period stood at 54.7%. It recorded a net profit after tax was $3.0 million compared to a loss of $1 million in the previous year.

At the end of the year, PET was debt free having $15 million in cash, $17 million in debtors and inventories of $2.3 million. It had net assets of $30.2 million compared to $23.9 million in the previous year.

During the results release, the Company announced a long-term lease for a second manufacturing facility in Changxing, China. The new facility would be three times larger than the current facility. It was noted that the facility would have 20k tpa capacity and doubling the capacity would provide the business with additional Phoslock available for sales.

On 14 April 2020, PET last traded at $0.59, up by 3.509% from the previous close.


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