Ann: Market Update, page-119

I sold most of my PET holding on the way up and I have made a lot of money as a result, so Phoslock has been a very profitable investment for me, even though my remaining holding has sunk in value.

So I decided with some spare covid time to sit back and review where we are at. I hope this post does not upset people, but I think these issues need to be discussed in a constructive way.

On the plus side we have a product that works and we have expanded the services we can provide in China, there is little competition internationally (apart from alum in the USA), we are profitable as a result of substantial sales in China and have cash to expand. We have achieved a lot, but underperformed against inflated expectations.

Diani posted on all the good things that came out of the AGM. How does that sound now?

The downsides include:

Revenue was $18.7m in 2018, $24.5m in 2019 and with the latest bombshell $30-40m in 2020. Good growth, but Newing as recently as October 2019 was writing in $80m for this year (double what we will get) and $150m for 2021. We are a long way from there. No wonder the share price has fallen.

Capacity is currently 20000 tonnes pa, but on the current forecast we may sell only half that, if pricing is still $3000 per tonne.

Yet we are about to double capacity to 40000 tonnes pa. That is a plus if we have the orders to sell that much, but as this year shows that is not guaranteed.

We have no guidance on orders for next year (or what has underperformed this year). I would add I do not believe the undershoot this year is due to the risk of a second covid wave. We would have a wider forecast range if that were the reason. There must be delays now to existing projects restarting after winter.

In China we have to get more contracts. Using Newing's estimates Xingyun will run on at around $10m pa, Peking projects at $4m pa, Shilongba drops back from $20m to $5m pa. That is under $20m as a base for next year from the large projects. We must get Lake Dianchi (say $20m) and some new large projects (plus Wuhan restarted?).

International is a real weakness. Sales have only been running at $3-4m pa in the past and will presumably be under $10m this year. We have heard about hopes for Florida and World Bank projects, but outside Brazil no large successes. Given the lack of competition and sales I still wonder whether the pricing is right. Unless marketing has been awful for 10 years,we may need to cut prices and the profit margin to boost sales significantly. There is no evidence we can get rapid sales growth outside China with a profit margin of 50%, even with a good product and after years of effort. Something is wrong. Try something new.

We need an honest appraisal from the Board of where we are at. Do we have definite projects to use our extra capacity next year? What is the state of play with current Chinese projects? Why are we underperforming outside China? Tell us what the problems are and how they will be addressed, rather than always emphasising the golden uplands.

There are now a large number of holders (including institutions in the last raising) who may feel misled. They have bought above current prices and their confidence will have taken a hit. They may cap the share price if it rises. We need a period of underpromising and overdelivering to restore shareholder confidence. Hopefuly the new CEO being free of past baggage can deliver a change of approach. I think a more independent Board would help.

There got that off my chest.