Operations Update

As most people would be aware the FLC shareprice has been under scrutiny lately. After a continued downtrend off the back of crickets in the “news room”, It led many of us to question our positions with our holdings. It then prompted me on Friday 16th March to contact Richard Irving via email as i wanted to know what was going on with Fluence and why the market is reacting the way it is. He responded by setting up a phone meeting with me on Monday morning.

After our phone conversation in which he gave me 45 minutes of his time on a Sunday (US time) mind you, I have come away with a restored feeling of complete confidence in Fluence. He has reassured me that everything is moving forward within the company and has put to bed many of queries we were all having about the future of Fluence.

Below is a brief summary of our conversation.

• Cape Town Update; We essentially won the contract of 35 Nirobox’s worth $27m, but were dealt a blow when the local budget dried up. It is predicted that the Federal Government will step in to fix situation. The timeframe for this is unknown but a promising one for Fluence once rectified.
  In regards to speculation that over 35 Nirobox’s were sent to SA, I can confirm this is UNTRUE, they were never not sent. They were however ready to go and will remain that way until budget is sorted.

• San Quentin; News would seem to be imminent on this front! From my understanding it is believed this is very close with the dotting of the i’s and crossing of the t’s.
  The actual numbers associated with this are not to far away from being disclosed to market. I would believe this will be the next major news we will see. Very positive discussion with the feeling this is very close.

• Global Scope; We have growing interest in several geographies Philippines, Indonesia, Malaysia & Thailand were mentioned. Seemed quite excited regarding South East Asia. Philippines plant up and running - Ethiopia, equipment shipped for Addis Ababa plant - Israel Plants working great, running now for 3.5yrs - U.S Virgin Islands working well also surviving Hurricane Irma unscathed.

• MABR/CMABR; FLC is very focused on China - Confirmed that we have not had a single unit Clog or require chemical clean for any units at all in 4 years. (extremely efficient).

• Nirobox; Many of us were under the assumption that the 2018 sales forecast was 100 Nirobox then reduced to 40, in fact what was said is that manufacturing capacity is at about 100/year (Israel & Spanish Contractor), which is easily increased. He was very excited about Nirobox, potential customers are blown away by our turn-key solution.

• Revenue & Profitability; Not much changed on this front, still very bullish and still on track for profitability in 2019, focused very much on rapid growth at the moment. He reminded me that we play in a sector where we can potentially have large contract wins that could blow guidance out of the water (no pun intended).
  However we should focus on the smaller more frequent wins that will get our foot in the door in multiple geographies with multiple partners, which will allow recurring installations to ramp up in a snowball effect moving forward.

• Sales Growth, Strategy & Marketing; We currently have a steady flow of smaller contracts coming through with the occasional Large one. I asked about their approach to sales, whether the business in reality running still like a group of small acquired entities selling their favoured products into their home patch, or do they have a truly global sales machine at work.
  He said they have been working hard to get all groups in all geographies selling all the product. The pipeline is coming along nicely in this regard. He mentioned that FLC have always had a great Sales People and leadership, however we have been lacking a top marketing person, until now. He started last Thursday, he couldn't speak highly enough of him.
  It was also said we can expect new broker reports to be released in the near future.

• 2018 expectations; What was 10’s of units last year, will be 100’s of units this year, From a revenue point of view this may not be groundbreaking, however, what we are looking at now is commercial operational plants to multiple partners in multiple geographies with additional client support, not demos.
  From 2019 this number will rapidly multiply to the existing users that would have proven the system, plus new installs that follow.

• Directors buying on market; Conflict of interest for the most part, timing of contract wins or any large news can’t be timed, not something they want hanging over their heads. Directors are currently in a blackout period.

• Insto Support; Canaccord are still bullish and are actively pushing to clients. Currently in talks with Institutional support from Hong Kong & Australia.
  My understanding on this is that we are far enough along with several of these groups and that we will have material news flow that will start to see institutional buying in the near future. He mentioned they now realise that more frequent news flow is needed to attract insto buying.

• NASDAQ/NYSE Listing; Very excited for a dual listing in New York, however our MC needs to be much higher and we would likely have to be profitable at that stage. He mentioned that the transition for us to New York would be a very rapid one. Imo, this is very likely to occur.

• Take-Over Potential; He was firm in saying this is unlikely at this stage in the business, however once we hit profitability, becomes more likely. I asked him about the rumour of the potential in taking FLC private in a hostile takeover scenario, he absolutely believes this will not happen, he was very firm.

• Summary; I asked him what he believes would be the catalyst to turn us around. Having the right amount of news flow with institutional buying will be at the first catalyst.
  He believes we will have success on both of those fronts very soon, he also stressed that he wasn’t talking several months away.
  He noted that the AGM is toward the end of May and we will have material news much much sooner than that.
  I would like to reiterate one thing, I believe the management team have learned from their mistakes, it was expressed multiple times that they knew exactly where they have gone wrong and it’s in the forefront of their minds, I feel the current trend of under delivering is behind us, when forecasting any future guidance, it will be done with the utmost scrutiny to ensure this won't happen again.

(Disclosure, This post is purely for research and information purposes only. It is not my intention to influence individuals in any way.)