Ann: Emefcy presentation to EGM, page-47

@Dungiven great summary of today’s EGM. I definitely took away many of the same points as you have raised. There really is no question this is a world class management team, thoroughly impressive and each in their own ways.
A couple of points I would add from my own notes:

• Richard stated that Global Water Intelligence, who are quoted on slide 6, are the global water authority as far as any research house for the water industry are concerned. Their validation of the market opportunity for decentralized solutions is very symbolic and reaffirming of what the EMC/RWL team have been working on for years.
• They once again reiterated how open for the taking the market is for them. The small players exist, but they don’t have the capacity to spend 3+ years investing in mid-market decentralized solutions because they lack scale. Similarly, the large players (Veolia, Suez etc) are focused on selling engineering hours in bulk on $500m+ projects and lack the foresight to take their engineering teams off paying jobs to build their IP for the mid-market. Yet the mid-market are screaming for solutions, and can’t wait for the small players and their non-existent solutions, or for the large players to go through their multi-year proposal/build process. This leaves a well-established mid-market player with the right products and roll out capabilities a huge market opportunity. Que Fluence.
• I quizzed Henry after the meeting on the PDVSA Venezuela matter. He admitted that there is only so much that they could put as a footnote in the merger docs and accepted that it wasn’t extremely clear. In short, the Venezuelan state owned oil company wanted RWL to build a water treatment plant for an ethanol plant they were constructing. RWL took on the project, but required usd$100m, being the full project value, to be provided upfront for the project to mitigate any collection risk. As Venezuela and Argentina have a relationship where they exchange oil for food, RWL was paid by Argentina on behalf of Venezuela. The funds are in USD, are held outside Venezuela and are not repayable back to Venezuela. The only issue is that PDVSA haven’t progressed the ethanol project, so RWL haven’t been able to deliver on their part of the project (the water treatment aspect), meaning they are holding cash, but can’t book revenue until they actually deliver. The liability on the balance sheet in relation to this project is essentially unearned revenue. Henry joked that he just wants to give them something, just so he can book the revenue and move on, but Venezuela is one of the most effed countries in the world at this point, so the project might not be moving forward any time soon. There is minimal risk for Fluence attaching to this contract however, given they got paid upfront.
• To @Dungiven’s LATAM comment, they indeed are very bullish. They highlight that LATAM countries have relatively high GDP’s, very real water issues and because of their work in those countries over recent years they have a very strong understanding of the opportunities. They believe that water analysts don’t yet fully understand just how big the opportunities in these countries are. My take on this is that high GDP LATAM countries have an ability to spend more on their water related issues, hence it’s very financially attractive part of the world to be focusing on, with urgent water needs. Brazil being an example of such a country.
• As the business is now much larger than it was say 12 months back, they will stick to very structured reporting to the market going forward. They want to set clear goals, and report against those goals, so the market can properly assess their performance against the metrics that will really move the needle for the company. They will only make individual announcements where those are significant and outside of forecasts. Case in point being the 9^th China partner that was signed yesterday, but only included in today’s presso and otherwise wouldn’t rate a mention as a standalone announcement.
• Henry stated that by mid-year (i.e. now) he should have a very good feel for next FY’s revenues (remember their FY’s are in calendar years, Jan-Dec). The bookings/backlog give them an enhanced ability to forecast for future years, given that these projects are locked in, but will meet the revenue recognition criteria in future periods. The good thing with Fluence is that because their solutions can be rolled out so quickly they can go from booking to revenue recognized much faster than any of their large peers, which is a significant advantage. They spoke very confidently about their $90m revenue for FY17 so I expect as continues to be the case they will under promise and over deliver. I expect that when they give their FY18 guidance in early FY18 the numbers will be absolutely massive and that could be a trigger for a huge re-rate (if that doesn’t already occur before hand, which I believe it will)
• They are very, very focused on driving 3 key financial areas. Grow revenue, improve gross margin, contain opex. If they do these 3 things, they will hit profitability consistently from Q1 2019. They are keeping their goals very simple and they are very focused on delivering on them. Each of these 3 goals is the subject of intense internal focus and you can be sure that the right people within the business are being held to account for delivering on these. This was one of the most heartening things I took from the whole presentation, their laser focus on the true drivers of value for Fluence. They are crystal clear on what matters, and have been very clear in communicating this to shareholders. See slides 9 and 18. I could not be more happy to know that we have a world class management team that aren’t off chasing tangential fantasies but are absolutely clear on what they need to do to drive shareholder value. This is exceptional leadership and for me personally one of the reasons I’m so damn comfortable with this investment. Execution is still yet to be proven but if I was going to back anyone it’s these guys.

Once again the team demonstrated they are a class act and as shareholders we are in very good hands. Now the exciting part begins on Monday as we become Fluence