Ann: Fluence Business Update for Q1 2021, page-40

Comparing the annual statements of the past 4 years, here is a quick summary.

Gross Profit vs SG&A plus R&D

2017 2018 2019 2020

Operating Revenue 33.8m 100.9m 61.0m 97.1m

Cost of Sales 27.2m 66.5m 51.5m 69.3m

Gross Profit 5.9m 34.4m 9.5m 27.8m

Gross Margin 17.7% 34.1% 15.6% 28.6%

R&D 6m 7.2m 4.7m 3.3m

SG&A 24.2m 38.4m 35.5m 25.3m

Disregarding the 2 impairments in 2018 and 2020, it shows very clearly that SG&A is the main item that had weighed us down (2017 figure only takes into account of the combined accounts after the merger in July). Every dollar saved on SG&A and R&D goes straight down to the bottom line, and it needs about 4-5 times as much in revenue to achieve the same impact. It is good to see the SG&A is on the down trend. Another 10% reduction compared to Q4 last year is a good sign.

Having added some assumptions to the allocation of Staff Cost in the 4C statements to R&D and SG&A, my estimation for 2021Q1 cost is about $700k and $5.95m respectively. That roughly annualized to $3m and $24m.

If we assume revenue from Ivory Coast, SPS, Recurring to be $70m, $40m and $8m with a gross margin of 15%, 30% and 50%, it should add up to $26.5m Gross Profit. Other CES estimated about $15m at 15% margin would yield $2.25m more. There is still interest expenses and an uncontrollable “Other gain/(loss)” to tilt the balance. So this could be the breakeven situation baring any other impairment.

So what it seems to me is SPS will take us safely across to profitability if we can achieve $50m revenue. We can achieve this now even before we needed to add a second line to our Changzhou factory.

Recalling what we have discussed about decentralized WWTP program to Hangzhou’s rural regions, when (no longer if) our Aspiral M3 and Micros comes into play, that will be extremely promising. Hopefully this is the year.