News: PET Phoslock Environmental Technologies Raised $12 Million At 50 Cents Per Share, page-52

Market reaction of down 1.5c is fair in my view. There is a lot to deduce from the CR though the main take away is that the CR can be explained without having to assume there are new, big projects on the horizon and that there has been poor financial planning.

* Dilution - impact is less than 0.6c per share for institutional, director and SPP. In this market there is a good chance to pick up PET under 50c again.

* Trading Pause on 9/4/20 - PET did not provide details of record date, size limit (pro-rata allocation) for SPP etc. Very sloppy on PET's part as was the grammatical error in the prior announcement.

* Recent Finance hires - Explains this a bit more as I think the core reason for the CR is very ordinary financial management, i.e. failure to collect receivables and forecast accurately the (positive and negative) cashflow impact of the virus on already known projects. PET had 10m cash on 31/3 and known expenses of 3m per month and a capex items of 5m. So without any incoming cash they don't have enough cash till end of May. That is the reason for the CR and it has only been identified in the last 2 weeks.
How did they get to this point?
- Receivables grew by 6m to end of March. Bills haven't been collected in Q1. It is alluded to that International did not pay bills.
- Very Large Projects in China need immediate engineering works. Shilongba and Dianchi Catchment areas and they need extra funds (materials and employee costs ought to be covered by 3m per month already known). They knew about most of this last Dec. per announcement though most likely there has been an acceleration by China to help get the economy going again.

"Commissioned by the Dianchi Lake Authority, PET China has designed an initial program, consisting of water quality improvement for the Shilongba Reservoir (total storage capacity of 3.94 million cubic metres) in the Dianchi Lake Catchment Area. The initial plan is to apply Phoslock®and Engineering Services within the Dianchi Lake Catchment area. Applications will take place over the next two to three months. The program will be monitored by Yunnan provincial government officials.The plan is that the Shilongba Reservoir project will accumulate knowledge for the management of Lake Dianchi itself and its catchment areas. Following this initial program, advanced work is to be undertaken progressively in the Dianchi Lake Catchment Area and then to Lake Dianchi."

On 26/3 in the business update no issues were identified. So it looks like the positive and negative impacts of the virus haven't been well planned for. The need for a CR has been identified in the last 2 weeks. Financial planning and cashflow forecasting hasn't been the best and PET probably knew this. Hence the new hires which most likely have been in the works for a few months. RS was the CFO, so he was probably doing it all in the past.

It also suggests that internal communications could improve, i.e. international updating HO on delayed payments, China updating on restart and project timelines, management war-gaming cashflow forecasts.

The main point is that the CR can be explained without having to assume there are new, big projects on the horizon. I hope that there are and there is a hint at them, though with PET it is not a good idea to assume it. PETs growing pains continue! GLTAH.