My belief, without speaking to Emefcy/Fluence management is that...

My belief, without speaking to Emefcy/Fluence management is that this was arrogance from CGGC that their size and success with large projects could easily be translated into success in the rural space. Note that it was their Investment Holding arm we were dealing with, the only way they would do in such large business with a startup is if they could buy Emefcy and make it a subsidiary. They were already telling Emefcy to open up a factory for them in Wuhan as Emefcy were in the process of setting up the Changzhou factory.

In 2018, they somewhat admitted that the rural space was a lot tougher than they thought, with the lack of national standards, variations in treatment types from province to province, types of cheaper competition they were competing against, etc. (Many other players in the space have also said similar at conferences that the rural space is really difficult, hence the focus on getting to 100% centralised coverage in cities before the rural market has been invested in. It is also more difficult to get investment for multiple mini rural plants).

From CGGC in 2018:


Introduction or germination period for rural sewage treatment means that technology providers and governments are still trying to work out what is the best solution for rural sewage, it is still a fragmented sector with multiple competing ideas.

In 2018, CGGC ended up investing in a PVDF hollow fiber MBR (membrane bioreactor) company and from memory have chosen to pivot away somewhat from the rural space and concentrate on buying into larger PPP projects for now. Their latest annual report does not show much progress in the rural space.

Some of the partners we have have signed agreements with (Hunan Kaitian) and we are working with (Zhejiang Tiandi) are almost of the same sort of wealth as CGGC and will be more effective in the rural space. There are some other large partnerships that Fluence is working on that have not been publicized to date.

Although at the time, it was disappointing that the business with CGGC didn't eventuate, the conditions attached to getting that business may not have been good for shareholders anyway. I am happy with the model that Fluence have now built, they types of partnerships that are now being signed, and the diversification that the RWL Water merger has brought with desalination, waste-to-energy, re-use and industrial water treatment. We have pretty good visibility of the revenue backlog that is building for the next 24 months, and this should reward shareholders who hold for the journey if additional financing from Generate Capital can be secured to assist in starting these up over the next 6 months.

Also, the type of language and promises we were getting from Emefcy under the leadership of Eytan Levy was classic startup, big promises for little result. Since the merger, most of what we have been told by Henry Charrabe has come to fruition, minus the $50m USD Nirobox contract in South Africa, that fell through due to mismanagement of finances by the Cape Town government. This could have been a blessing in disguise, as since, every other plant that has gone up has had issues and court battles. There was also the delay in the Mexican Baja California desalination project, due to politicians challenging the new PPP legislation. Our local partners now being cash poor has also not helped, with further delays. Then there was the delay again in the Ivory Coast signing, due again to financing. This is just an indication of the type of industry that we find ourselves invested in with larger desalination projects. If Fluence can build business to a position where they are generating positive cashflow on a quarterly basis, that is when it will take the next step and be a more respected investment. At the moment potential investors are still not that interested, or simply don't understand the complex business model.