Ann: Capital Raising & Trading Results, page-14

I am going to suggest that the comments made in the Trading Result update are indicitive to me of an order of approximately $3.4m from Merck. Potentially leading to revenue of over $4m from Alusion alone in FY19.

"In the past two days we have seen a further uplift in future sales orders for January – June FY19, with one large customer ordering double their order, which is five times greater than their order for the corresponding January – June FY18."

This is based on 3 key reasons:

1. Use of term "large customer"
As per the most recent Annual Report: "The Group's most significant customers account for 44.24 % (2017: 55.5%) of total revenue. All other customers are individually less than 20 % of total revenue."

FY18 total revenue was $6,583,764. 44.24% of that revenue is $2,912,657 which corresponds with total revenue for USA & Canada (Deveraux and Pachem distributors).

See this table:


The 20% is a further clue of the next break down, as they have changed this figure in the past. I take it as the next significant customer is no greater than 20% ($1.3m) which is again, correlating to approximately Merck sales of $1.23m during FY18. I don't expect we have any other customers that are above $1m individually so you would not call them "large customers" in comparison.

Therefore, we have 3 potential "large" customers, being Deveraux, Pachem and Merck.

It is possible this relates to additional revenue from Pachem, but I'd expect that the result would end up being a similar $ amount as I presume Deveraux is around $2m and Pachem is around $1m. I have also leaned towards Merck due to additional points which I will explain below.

2. Order not known at time of AGM
If it were revenue from Pachem, you'd expect this would have been known and expected at the AGM given the effort currently is fully focused on ZinClear production capacity. I really doubt that Pachem would throw a big surprise like this as I am sure the board has been working to understand the realistic needs of ZinClear production very closely with their largest customers and most crucial regional market.

Considering there was also very little commentary about Merck at the AGM other than pretty much "no further update" - it justifies that this large customer must be an aggressive increase in order/sales from Merck.

3. Additional equipment to be located at Rocklea
"As a result, we will order additional equipment to be located at Rocklea to cater for continual growth in global sales of our products."

This is an interesting comment, as the production capacity being installed into Rocklea (1000T) is well and truly more than sufficient to cater for an extra couple of million dollars in revenue for ZinClear - that's the whole point of what they are doing. However, there was no suggestion they were installing equipment to cater for an extra couple of million dollars in revenue for Alusion!

It seems to me that this indicates they want to also install equipment to start producing Alusion in Queensland, in addition to the Perth production facility to increase capacity.

4. Merck quarterly update 14 November
This was just released 2 days ago (the exact same timeframe ANO receive their new order from Merck?) in Merck's official Q3 update.



The line in Merck's Performance Materials update says: "As part of the Smart Effects initiative, we are focusing the development of Cosmetic pigments on matte effects (Allure series) and luster effects (Lights series)." They do not make any other statements about other cosmetic market performance materials in this way.



The Luster effects / Light series product is none other than RonaStar Flaming Lights and RonaStar Golden Lights, new products released in April 2018 which we have previously confirmed to be new Alusion products Merck are heavily promoting.



So - how do you get the numbers?
"In the past two days we have seen a further uplift in future sales orders for January – June FY19, with one large customer ordering double their order, which is five times greater than their order for the corresponding January – June FY18."

FY18 sale of Alusion = $1,230,555
1H18 (July-Dec) sale of Alusion = $555,970
2H18 (Jan-June) sale of Alusion = $674,585

In the investor presentation from August 2018 they were projecting Alusion sales to increase to $1,750,000 for FY19 which was always likely to be a under representation as Merck have been aggressively promoting product, and further updates since then have suggested Merck has asked for container load shipments and 20 metric tons of stock to be held in storage due to increased sales.





Anyway, following the words in the announcement, if we do a calculation of 5 times the revenue for 1H18 (Jan-June), or $674,585 x 5 it equals $3,372,925. Half this amount is $1,686,462.50 which could certainly have been their original order placed that was just doubled.

These numbers all line up with the forecasting throughout the various investor presentations at the time, and when you combine with the additional information from both ANO and Merck themselves - you can see clearly, the RonaStar product is selling extremely well and Merck have made it #1 priority in that business segment as per their financial Q3 report.

The great thing about Alusion, is that it is, and always has been, significantly higher margin than ZinClear to produce. The sale price per kg is nearly twice as much as 1kg of ZinClear and I believe is cheaper raw materials. Previously (even dating back 2-3 years ago, so I am sure margins have improved with fixed cost reductions since) we were told the Alusion margin was around 80%.

Could Revenue be $4m from Alusion and $8m from ZinClear? Yes, I believe so. $7-8m NPAT is starting to look very conservative indeed.