Phoslock Environmental Technologies : Appendix 4C Quarterly (Q2 2022)

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Company announcement

Release date: 29 July 2022

June 2022 (Q2) Quarterly Update

Phoslock Environmental Technologies (ASX:PET) today provided a trading update for the quarter ending 30 June 2022.

Financials

PET's quarterly cash flow report shows a net cash outflow of approximately $3 million in the June quarter.

Receipts of $764,000 were related to receipts from our distributor in Brazil and minor customers in China and Europe.

Administration and corporate costs included ongoing investigation and litigation costs relating to legacy issues and some redundancy costs as we right-size the company for a rebuild back to sustainable profitability.

The company remains well funded with cash and cash equivalents of approximately $17.5 million at end of the quarter.

Business Update

During the quarter, PET continued to restructure and reset operations in most key geographies. These changes are being made to support the Company's strategic growth plans and ensure appropriate levels of risk management and governance.

Sales in the quarter were relatively small but generally in line with expectations as the company rebuilds the sales pipeline following COVID pandemic related impacts.

In South America, PET's licensee in Brazil, HydroScience, continued to perform well with ongoing applications and the generation of new leads. A number of smaller projects were completed in Brazil with other projects continuing on an annual basis. Projects in Uruguay and Ecuador are expected later in this year , thereby expanding our footprint in South America

Several projects were also completed in Australia. An application scheduled to be undertaken in Auckland, New Zealand, was deferred due to Covid-related travel restrictions. That project is expected to commence in the next few months.

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Our performance in the USA over the past couple of years has been disappointing and did not meet our expectations. As a result, we have restructured our commercial operations and we are well advanced with arrangements that are resulting in expanded distribution in the US. Orders for product from the new distributors appointed in the USA were invoiced during the quarter and the business footprint is building steadily. Trials to be conducted by the City of Orlando in Florida in the near future are expected to show positive results and build the momentum in this important area of the USA.

In China, the focus has been on completing our business resetting and developing a go-to-market strategy that balances the opportunities that continue to exist for PET in this market with the business risks and investment required. While sales have been disappointing and well below expectations, we will continue to assess the optimum business model which can deliver secure and profitable sales over future years.

In April, the Board approved an investment of approximately $1 million in our China manufacturing facility which will allow us to reach a capacity of 6,000 tonnes per annum. This capacity equates to a level of sales required for the business to break even at current cost levels. This capacity increase will be critical in the short term as we build the sales pipeline and continue to evaluate the proposed new manufacturing facility in the United States.

PET's profile in Europe continued to build following the successful completion of the major Kralingse Plas Project in The Netherlands. Kralingse Plas monitoring data shows results are good compared to previous years after Phoslock application. Several smaller projects have been secured for applications in the Netherlands in the second half of the financial year and other promising leads are being pursued.

New distributors have been appointed in Germany, Spain and the UK, with a UK strategic partnership also secured with SSI Services, part of the South Staffs Water organisation.

On the R&D front, PET continued to make good progress in developing and testing a number of complementary products. There is a particular focus on developing products that enable phosphorous and other nutrients to be removed from flowing water. PET recently signed a distribution agreement with a leading technology provider from the US for a unique flowing water product for Phosphorus capture.

The successful deployment of these products will significantly expand PET's addressable market and business opportunities.

Potential collaborations with other technology providers are also being actively investigated.

Relisting on the ASX

Subsequent to the end of the quarter, as announced on 11 July, PET received correspondence from the ASX stating that the Company's securities will be reinstated for quotation on the ASX subject to a number of conditions being met. PET believes it will be in a position to meet all of these conditions upon the release of audited first half 2022 results, scheduled for late August.

Subsequent event

The Company announced on 7 July that a court in China has ordered the payment of an outstanding receivable to PET's Beijing based subsidiary, Beijing Ecosystime Environmental Science and Technology Co., Ltd (abbreviated as "BEST"). Notably, the defendant was ordered to pay BEST unpaid receivables to the amount of RMB ¥ 31.9 million (approximately $A 6.9 million) and late interest of RMB ¥ 1.2 million (approximately $A 260,000), totalling approximately $A 7.14 million. The period in which this order could be appealed expired on 19 July. The defendant must pay to BEST the aforementioned amounts by 18 October 2022. In addition, the defendant has been ordered to return

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to BEST 967 tonnes of Phoslock product previously delivered (but not yet applied), and to pay court costs.

Outlook

In the short-term the outlook remains challenging from a revenue perspective as we look to rebuild our sales pipeline and execute on our growth strategy, while incurring some ongoing costs associated with legacy issues. However, over the remainder of this year, we do see positive opportunities in a number of our markets, especially the USA, Europe and ANZ, as new products are being developed in water remediation. In addition, in Australia there are opportunities in new sectors such as mining and industrial water applications.

Phoslock maintains an important competitive advantage in the markets in which we operate and is looking to leverage that advantage to deliver sustainable and profitable growth in the years ahead. Shareholders should note the company is adequately funded while the business pipeline is being rebuilt.

Further business updates and commentary will be provided when PET releases results for the half year ended June 30 in late August.

This announcement has been approved by the Managing Director and Chairman

Mr David Krasnostein AM	Mr Lachlan McKinnon
Chairman	Managing Director & CEO

Matthew Parker

Company Secretary

- end -

Further information:	Lachlan McKinnon	Greg Slade
	Managing Director and CEO	Investor Relations
	[e-mail]	[e-mail]
	p: [phone]	[e-mail]

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About PET

Phoslock Environmental Technologies Limited (ASX: PET) specialises in engineering solutions and water treatment products to remediate polluted lakes, rivers, canals and drinking water reservoirs.

Headquartered in Melbourne, PET has offices in Brisbane, Beijing, Bremen (Europe) and Manchester (UK). PET also has registered entities in Canada, USA and Belgium, and manufacturing operations based in Changxing, China. PET is represented by licensees, distributors and agents in numerous other countries including HydroScience in Brazil.

Phoslock® is a proprietary and unique water treatment product that permanently binds excess phosphorus in the water column and sediments.

Phoslock is certified for use in drinking water in North America, Europe, Brazil, Australia, and China. Along with Phoslock, PET also supplies zeolites and specialised solutions that address water pollution issues.

www.phoslock.com.au

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Rule 4.7B

Appendix 4C

Quarterly cash flow report for entities subject to Listing Rule 4.7B

Name of entity

PHOSLOCK ENVIRONMENTAL TECHNOLOGIES LIMITED

ABN	Quarter ended ("current quarter")
88 099 555 290	June 2022

Consolidated statement of cash flows	Current quarter	Year to date
			$A'000	(6 months)
				$A'000
1.	Cash flows from operating activities
1.1	Receipts from customers	764	3,303
1.2	Payments for
	(a)	research and development	(107)	(391)
	(b) product manufacturing and operating	(646)	(1,442)
		costs
	(c)	advertising and marketing	(66)	(111)
	(d)	leased assets	(140)	(510)
	(e)	staff costs	(999)	(2,269)
	(f) administration and corporate costs	(2,119)	(3,886)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	4	16
1.5	Interest and other costs of finance paid	-	-
1.6	Income taxes paid	-	-
1.7	Government grants and tax incentives	272	272
1.8	Other (provide details if material)	-	-
1.9	Net cash from / (used in) operating	(3,037)	(5,018)
	activities
2.	Cash flows from investing activities
2.1	Payments to acquire:
	(a)	entities	-	-
	(b)	businesses	-	-
	(c) property, plant and equipment	(136)	(176)
	(d)	investments	-	-
	(e)	intellectual property	(62)	(69)
	(f)	other non-current assets	-	-

ASX Listing Rules Appendix 4C (01/12/19)	Page 1
+ See chapter 19 of the ASX Listing Rules for defined terms.